IBM earnings soar from overseas business, software revenue

Impressive earnings that gave IBM its biggest stock gain in more than five years was driven by currency benefits, strong performance in Asia, Europe and emerging countries as well as 12% growth in Big Blue's software business, according to a detailed earnings report released Thursday.

Fourth-quarter revenue was $28.9 billion, a 10% increase over the previous year's fourth quarter, IBM reported. Per-share earnings rose 24%.

"IBM said 6 percentage points of its [10%] revenue increase was due to the weaker dollar, suggesting other U.S. firms with overseas customers could enjoy a similar currency benefit," writes analyst Bob Djurdjevic.

IBM's shares on the New York Stock Exchange made their biggest gains since October 2002 on Monday, after IBM gave a short summary of its fourth-quarter earnings, which easily topped analyst expectations. Big Blue gave a more detailed account Thursday.

"IBM had a terrific fourth quarter and full year with record revenue, profit and cash," CEO Samuel Palmisano says in the earnings announcement. "The broad scope of our global business – led by strong operational performance in Asia, Europe and emerging countries – as well as continued growth in services and software drove these outstanding results."

IBM has significantly boosted its global services revenue, and performed well in emerging markets and the small- and midsized-business (SMB) sectors, Djurdjevic says. "By focusing on those, IBM has been able to execute an 'end around' play – avoiding the trouble spots in the U.S. banking sector, and finding ways to grow from the midsize and overseas markets," Djurdjevic writes in an e-mail.

IBM grew its software business 12% to $6.3 billion, with growth in middleware and operating systems revenue.
Systems and technology revenue took a hit, dropping 4% in the fourth quarter partly because of a 15% decline in revenue from the System z mainframe.

Overall, though, Djurdjevic says he expects a strong 2008 for IBM partly because of a reorganization that will place even more focus on SMBs, "the fastest growing segment of the U.S. and world economies."