Wed 18 Oct 2006
IBM Posts Strong Earnings, Analysts Credit Acquisitions
Posted by Greg under Acquisitions, News, Performance
Per Forbes:
IBM has purchased 50 companies, 31 of which are software firms and 48 of which are at least software related, in the past four years.
The rain cloud in this sunny forecast is that the growth came mostly from hardware and software top and bottom line growth. To really grow, IBM needs their services division to be sailing along at that clip. Services grew at 2-3% depending on your math. That’s better than flat but that’s IBM’s lever.
October 19th, 2006 at 4:06 pm
The flattening of IBM’s service revenue is in stark contrast with the 30% increase in WebSphere product revenue.
It will be interesting to see if this causes a shift back towards software and hardware leading service revenues. We have recently seen IBM Global Services reasserting the value of a single stack approach over any best-of-breed model(commented on in more detail at my blog http://ronanbradley.typepad.com/litebytes/2006/10/legacy_transfor.html) and I wonder if this will become the general trend.
October 20th, 2006 at 6:31 pm
To really grow, IBM needs their services division to be sailing along at that clip. Services grew at 2-3% depending on your math. That’s better than flat but that’s IBM’s lever.
Depends on what you mean by “grow”. Software contributes more earnings than services, even though software revenue is a fraction of services. The marginal profit (amount earned for one more dollar of revenue) is ridiculously higher, because service engagements have a much higher fixed cost per engagement than a software sale does.
The real question is, what is the strategic value of services? Is it as a standalone business (as IGS was originally intended) that is indifferent as to the technology used, or is it as an adjunct to software and hardware sales? Or a bit of a mix of both? That’s the direction IBM seems to be heading in, as it seeks the right growth strategy.
October 20th, 2006 at 8:23 pm
That’s a great point Spencer. Thanks for making it. I guess I was talking about top line growth but I’ve talked out the other side of my mouth in earlier posts supporting IBM’s focus on profitability over revenue growth.