IBM delivers big earnings in fourth quarter, upbeat about 2011

Software and mainframe sales powered IBM's fourth quarter as results topped estimates across the board.

IBM on Tuesday reported better-than-expected fourth quarter earnings across the board led by software and hardware system sales.

The company reported fourth quarter net income of $5.3 billion, or $4.18 a share, on revenue of $29 billion, up 7 percent from a year ago. Wall Street was looking for earnings of $4.08 a share on revenue of $28.3 billion for the fourth quarter.

In a statement, IBM CEO Sam Palmisano said the company has shifted to its "high-value businesses." That statement reflects how software is becoming an increasingly large chunk of IBM's revenue. IBM also reiterated that it will have operating earnings of at least $20 a share in 2015.

For 2010, IBM reported earnings of $14.8 billion, or $11.52 a share on revenue of $99.9 billion, up 4 percent from a year ago. Those results handily topped Wall Street estimates.

Big Blue's outlook was also strong. IBM said that it expects 2011 earnings to be $12.56 a share. Non-GAAP earnings will be at least $13 a share.

On a conference call, IBM CFO Mark Loughridge said that the company had its best revenue growth quarter in a decade. "We worked on our cost and expense structure, continuing to globalize our business. We continued to improve our mix of business, and we generated a lot of cash, which allowed us to acquire key capabilities," said Loughridge. He added that IBM's business model is resilient.

Loughridge added:

  • 21 percent of IBM's revenue comes from growth markets.
  • Services backlog was $142 billion.
  • "The combined revenue in the BRICs was up 17% with growth in each of the four countries, and particularly strong growth in China, which was up 25%, and Russia, up 46%."
  • IBM has 7,800 dedicated consultants in its business analytics practice.

Here's a look at how the fourth quarter results break down:

Software revenue in the fourth quarter was $7 billion, up 7 percent from a year ago. Operating income was $3.2 billion. Middleware software shined with revenue of $4.7 billion, up 13 percent from a year ago. WebSphere revenue was up 32 percent from a year ago.

Global services revenue was up 2 percent overall. Technology services revenue was up 1 percent from a year ago to $10.2 billion. Business services revenue was up 4 percent from a year ago to $4.8 billion.

Hardware revenue was led by new mainframes. IBM said systems and technology revenue was $6.3 billion, up 21 percent from a year ago. Operating income was $1.2 billion, up 45 percent.