IBM has issuedlargely
positive fourth quarter financial resultsand
a strong 2009 profit prediction despite the global economic
downturn.
Although overall revenues dropped 6% to $27bn, they would have
been down only 1% had it not been for the strength of the
dollar.
Net income for the quarter rose 12% on the same period in 2007
to $4.4bn, or $3.28 per share, which was above market expectations
of $3.03 per share.
IBM expects profit in 2009 of $9.20 a share, which is above
market predictions of $8.75. IBM said it expects to achieve profits
of up to $11 per share in a few years.
The value of the company's shares, which dropped by about 22% in
the fourth quarter of last year, rose 4.6% in after-hours trading
in response to the results.
The positive results show that IBM is responding well to the
challenging external conditions by shifting the business mix to
higher-margin categories, said Carl Claunch, an analyst at
Gartner.
Hardware revenue is down to about 9% of total revenue. Software,
which has the highest margins, is the highest pre-tax
contribution.
"Software is now 24% of IBM's total revenue, but has contributed
43% of the pre-tax income this quarter," said Claunch.
Services are similarly good contributors and are a growing part
of the IBM mix. IBM has said that it is on a multi-year plan to
improve results by generating half of all pre-tax income from
software.
The decline in IBM's hardware business is mainly due to
increased competition in the blade server market, where innovation
gave IBM some buffering from tight industry margins in the
past.
"Now, with HP and others producing very competitive blade
systems, the pricing premium for IBM has largely disappeared and
differentiation is lessened," said Claunch.
Unless IBM can find new innovation to re-establish some
protected subdomain inside x86, the company's hardware business
will continue to be a challenge, he predicted.
IBM's hardware business has also been hit by customers
stretching the life of installed servers, with some using
virtualisation to run as many applications on each server as
possible.
The positive fourth quarter results are likely to have given
hope to thousands of IBM employees still waiting to hear if the
company will go ahead with plans to cut US jobs to reduce
costs.
According to postings by members on the employee union's
website,
16,000 job cuts were planned, and an official announcement is
expected this week.
The Alliance@IBM union has called on the company to save US jobs
by halting plans to outsource parts of the business offshore.