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Stuffed investors refuse IBM's chipper Q4

Belch over bite

Gartner critical capabilities for enterprise endpoint backup

A thunderous performance from IBM's software group could not save the company's fourth quarter - at least in the eyes of demanding investors.

Shareholders today appeared to show their displeasure with IBM's fourth quarter results, even though revenue rose four per cent (adjusted for currency) to $26.3bn and net income rose to $3.54bn from $3.19bn in the same period last year.

While those results were ahead of consensus analyst expectations, investors trimmed more than five per cent off IBM shares in after-hours trading. The share price dip follows a strong recent run for IBM shares and seems to indicate hungry investors were hoping for even better results in the fourth quarter.

As usual, IBM's management was pleased with its performance.

"IBM had a terrific quarter and a good year with record cash performance, profit and EPS, as well as record payouts to shareholders," said CEO Sam Palmisano. "We are well-positioned in the growth areas of a changing IT industry, focused on our evolving business model, and poised for long-term success for our clients and shareholders."

IBM has pushed through myriad software acquisitions over the past couple of years, and the deals have helped the company's bottom line.

Software revenue in the fourth quarter, for example, shot up 11 per cent (all results are in constant currency) to $5.65bn. Those results made IBM's software division the company's best performer from both a growth and profit perspective. The middleware products such as WebSphere, Tivoli and Lotus drove the sales, according to IBM's CFO, Mark Loughridge.

IBM's services business performed well too with technology services revenue rising four per cent to $8.6bn and business services revenue rising 3 per cent to $4.2bn. Big Blue inked $17.8bn worth of services contracts in the quarter - a 55 per cent year-on-year rise - and ended the year with an astonishing $116bn services backlog.

Despite strong storage sales, IBM's hardware revenue came in flat at $7.1bn. Blade server and Unix server sales were flat, while x86 server sales increased slightly. Mainframe sales also rose a bit, and storage sales jumped 6 per cent.

For the full year, IBM's revenue increased 4 per cent to $91.4bn. Its net income rose 9 per cent to $9.4bn, and the company left 2006 with $15.3bn in cash.

IBM forecasts a 10 per cent growth rate in earnings during 2007, putting its EPS figure at $6.67 per share. ®

Gartner critical capabilities for enterprise endpoint backup

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