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IBM Raises 2012 Expectations as Software Biz Booms

By Sean Michael Kerner     Feedback

IBM is growing its software business, though hardware isn't moving as fast. Big Blue now expects earnings per share of at least $15 for 2012, up 15 cents from its previous guidance.

IBM reported first quarter fiscal 2012 earnings late Tuesday, stating revenue of $24.7 billion, a 1 percent year-over-year gain. Net income was $3.1 billion, up 9 percent from the first quarter of 2011. Looking ahead, IBM is more optimistic now about its 2012 prospects than it was at the beginning of the year, thanks largely to growth in its software business.

"Now, 90 days into the year, we're increasing our full year 2012 expectation for operating EPS (earnings per share) to at least $15," Mark Loughridge, chief financial officer of Finance and Enterprise Transformation said during the company's earnings call. "This is up 15 cents from our previous view of at least $14.85."

IBM's software business had a strong first quarter with revenue of $5.6 billion, up by 5 percent on a year-over-year basis. The bulk of that revenue came from IBM's middleware business, which represented 62 percent of total software revenues.

"WebSphere had another excellent quarter, growing 16 percent and gaining share for the 14th consecutive quarter," Loughridge said. "Within WebSphere, we had a strong contribution from our application server products and continued momentum in Smarter Commerce."

On the analytics front, Loughridge noted that Cognos saw double-digit growth during the quarter. "Our acceleration in Cognos is driven by the successful integration of our predictive capabilities into recent product launches spanning both business intelligence and financial performance management," he said.

On the management software side, IBM's Tivoli software division reported a 5 percent annual gain with particular strength in storage and security.

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"Security, including Q1 Labs, contributed to our Tivoli growth as clients turned to IBM for intelligence, integration and expertise across our comprehensive framework of solutions," Loughridge said.

Hardware Not So Hot

In contrast to IBM's growing software business, its hardware business was down for the quarter. IBM reported Systems and Technology revenue of $3.7 billion, a 7 percent year-over-year decline. IBM System z revenue dropped 25 percent from the first quarter of 2011, in a particular area of weakness.

In contrast, IBM's POWER based systems generated flat growth as IBM continued to pick up share from its rivals.

"In POWER we had over 250 competitive displacements, which resulted in over $200 million of business," Loughridge said. "Roughly 60 percent of this business came from HP, with most of the balance from Oracle Sun."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals. Follow him on Twitter @TechJournalist

This article was originally published on April 18, 2012
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