Another strong year from IBM demonstrates that its relentless software portfolio build-out has succeeded in its goal of grabbing ever more customer logos, share of wallet, and partners. Growth is a complex challenge at this scale – every acquisition brings revenue, but also staff and technology integration challenges, more complexity for Marketing and Sales to deal with. Add to that the difficulties of the economy, and the magnitude of the investment IBM’s biggest customers make – and how easy it would be for their careful shaving of a few points off their spending to have massive impact – and it would be easy to stumble.
Look at the statistics on key measures. IBM has steadily increased free cash (which funds even more M&A and other investment opportunity), net income, EPS (great for investor and strategic customer confidence), and for 6 years in a row, gross margins. In the software business, where maintenance costs and new licensing models are under scrutiny everywhere, and increasingly contentious, margins will be under enormous pressure in the decade ahead. IBM’s transition to new pricing, support and deployment models may be its largest single challenge from a financial perspective, but its breadth of offerings, general goodwill, and sheer size position it well to weather the coming storm.
Part of the solution will clearly come from the Services side of the house, where the Software Group has increased its alignment and partnership model’s impact. The services team’s delivery of $18.8 billion in signings (up 9%, with a 2% revenue increase) bodes well for an organization increasingly focusing on selling software through business optimization strategies and transformational engagements. Software revenue of $6.6 billion was also up 2% and profit grew 14%. Geographical execution is continuing to help IBM forge ahead of smaller competitors as well; growth market revenue was up 14%.
Results like this fund an R&D team that led in patents for the 17th successive year, more than Microsoft, HP, Oracle, Apple, Accenture and Google combined, the company was happy to point out. $6B a year buys a lot of engineering; the D counts as much as the R, especially when you’re continually bolting new pieces on and incorporating them into the existing portfolio. My readers know I am especially interested in business analytics, where IBM has invested some $10B since 2005 in 14 acquisitions. Information Management software was up 7 percent, with Cognos growing in double digits and gaining share, IBM says. InfoSphere Warehouse was also called out, lending credence to the notion that the platforms for analytics are still growing, and the SPSS acquisition will ramp up the emerging predictive opportunity.
The data speaks for itself. IBM’s software strategy has proven its legs, and continues to deliver increasing value to corporate success. The model shows few if any signs of wear, and if IBM can continue to execute well through the transitions to cloud, new licensing, and continued competition as well as it has for the pst few years, the decade ahead seems likely to be characterized by still more growth.
Disclosure: IBM is a client of IT Market Strategy