IBM boosts full-year profit despite lower revenue

IBM relied on growth markets and new initiatives to boost its bottom line

Making the most of a sluggish world economy, IBM managed to increase its net income by 5 percent in 2012, even though revenue shrank by 2 percent.

IBM reported revenue of US$104.5 billion for fiscal 2012, down from $106.9 billion in 2011. Net income was $16.6 billion, or $14.37 per share, up from $15.9 billion a year earlier. The earnings-per-share figure is up 10 percent from 2011, the tenth consecutive year that IBM increased its full-year earnings by 10 percent or more.

Ginni Rometty, IBM chairman, president and CEO, attributed the financial buoyancy to various growth initiatives, including efforts in analytics, cloud computing and Smarter Planet systems, along with a strong emphasis on growing markets.

Full-year revenue from "cloud operations" increased by 80 percent, according to IBM. Smarter Planet system revenue increased by 25 percent. And business in growth markets -- such as India and China -- increased by 4 percent year over year. IBM didn't give precise figures in its press release for the cloud and Smarter Planet sales.

Revenue for the Americas totalled $44.6 billion for the year, a decrease of 1 percent compared to 2011. Revenue from Europe, the Middle East and Africa shrank 6 percent to $31.8 billion, while Asia-Pacific revenue increased 3 percent to $25.9 billion.

By sector, IBM's services and hardware businesses shrank while software sales grew.

Services brought in $58.8 billion in 2012, a decrease of 2 percent from a year earlier. The Global Technology Services division generated $40.2 billion in revenue, a decrease of 2 percent, while Global Business Services tallied $18.6 billion for the year, down 4 percent.

IBM generated $25.4 billion in software revenue for 2012, an increase of 2 percent, while the company's hardware arm, Systems and Technology, generated $17.7 billion, a decrease of 7 percent. The financing arm of IBM generated revenue of $2 billion, a decrease of 4 percent from a year earlier.

Looking at the fourth quarter, revenue was $29.3 billion, down 1 percent from a year earlier. Net income was $5.8 billion, up 6 percent from the fourth quarter of 2011. Earnings per share climbed 11 percent to $5.13.

In a conference call with analysts, IBM CFO Mark Loughridge made the case that hardware sales have been more robust than they initially appear on the balance sheet. IBM sold its Retail Store Solutions (RSS) division to Toshiba, reducing hardware sales compared to last year. So while Systems and Technology revenue was down slightly in the last quarter, sales would have increased by 4 percent if RSS is factored out.

One bright spot for hardware has been a burst in sales for IBM's new System z mainframes, up 56 percent in the first full quarter since the launch of the EC12 mainframe in August. Also, the company has sold 2,300 PureSystems in more than 70 countries since its launch last April.

Revenue from IBM Power servers, on the other hand, decreased 19 percent compared to the same quarter a year ago.

Software also had some high points despite the modest increase in software revenue overall, Loughridge said. Revenue from IBM WebSphere grew 11 percent in the last quarter, and the Rational line of modeling products grew by 12 percent from the same period a year earlier.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

This story, "IBM boosts full-year profit despite lower revenue" was originally published by IDG News Service .

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