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At the very top of the IT pile, IBM recorded the highest quarterly revenues in its 81 year-old history. Driven by numerous acquisitions in 2006, its software unit, in particular, helped push overall revenues up 7% to $26.26 billion for the closing three months of its fiscal year.

Software revenue was up 14% from the year-ago quarter to $5.6 billion, fuelled chiefly by its acquisition of content management vendor FileNet for $1.6 billion in 2006. FileNet now sits in IBM’s Information Management unit where revenues were lifted by 28%. Similarly, its Tivoli software line rose 25%, boosted by its $740 million acquisition of MRO Software, a technology set that is a regular add-on to many enterprise resource planning deployments. Even Lotus collaboration tools showed growth of 30%.

The company’s revenues from operating systems, however, were heading in the opposite direction, decreasing 2% to $642 million compared with the prior-year quarter.

Global Services remains IBM’s largest and most profitable unit, responsible for almost half of IBM’s total revenue. It turned in its best quarterly performance since 2002, with new signings– including a $4 billion contract with the German government – totalling $17.8 million, up 55% from a year ago. This pushed revenue for the period up 6.4% to $12.8 million, leaving it a $5 billion backlog of outstanding contract revenue.

On the hardware front, mainframe and proprietary mid-range systems continued to decline. Total delivery of System z mainframes dropped by an unspecified amount, even as the quantity of processing power in MIPS (millions of instructions per second) increased 6%. Revenues from the System i (formerly AS/400) servers decreased 10%, while sales of System p Unix servers rose 4% and System x Intel-based servers grew 7%.

That was not enough to lift INTEL out of the doldrums. The world’s largest chip manufacturer has been reporting lower profit margins after emerging from a protracted price war with rival AMD. Yet in spite of higher selling prices and record unit shipments, Intel’s revenue still dropped 5% to $9.7 billion for its quarter ended December 2006.

Profits were further eroded by the write-downs in its flash memory division and restructuring charges related to reducing its workforce to 94,100 employees, down from 102,500 in the second quarter of 2006 when it announced the impending layoffs. Net income for the period was $1.5 billion, 38% less than in the same period a year ago.

The news was not all bad for Intel, however. In January it announced a new agreement with Sun to resume supplying its Xeon processor chips for Sun’s X86 range of servers. The deal is a blow to AMD which has had an exclusive deal to provide Sun with the X86 chips for the past three years.

As a quid pro quo, Intel has agreed to distribute SUN MICROSYSTEMS Solaris 10 operating system to its customers. Sun, itself, returned to profitability in its most recent quarter on the back of strong server sales and a growing acceptance for Solaris. Revenues for its three months ended 31 December were up 7% to $3.57 billion, while net income at $126 million compared to a previous quarter net loss of $223 million.

Sun also reported a $700 million investment by private equity firm Kohlberg Kravis Roberts (KKR). Jonathan Schwartz, CEO of Sun, said that “the endorsement of Solaris by Intel and [the] landmark investment by KKR are all validation of our momentum and key drivers behind our push towards sustained growth and profitability.”

Schwartz has been credited with restoring Sun’s profitability, in part, through the promotion of the ‘greener’ aspects of its UltraSPARC T1 chips, while tempting customers to Sun’s hardware by open sourcing products such as Java and its SPARC server architecture.

Meanwhile, EMC, the storage systems market leaders which has diversified into content management, virtualisation and security software, reported a record 14th consecutive quarter of growth as it doubled profits on the back of strong sales of both disk systems and software. Revenue for the fourth quarter to 31 December rose 19% to $3.22 billion – $55 million more than anticipated at the beginning of the quarter and giving the company annual revenues of $11.16 billion. Net income for the quarter soared by 162%, from $148.3 million to $388.8 million.

Sales of storage systems rose 12%, while software revenues were up 27%, helped by $203 million in revenues for its content management and archiving software, up 43% on the same period last year. At the same time, information security revenues – the first quarter since it absorbed RSA Security and Network Intelligence – grew 26% to $114 million.

But the star continues to be virtualisation software maker VMware. The semi-autonomous EMC subsidiary reported sales up 101% to $232 million.

MICROSOFT also enjoyed strong sales, with its server and games console business lines performing well. However, delays in the release of its Vista operating system and Office 2007 applications suite forced a rare downturn in quarterly profits.

A revenue jump of 76% at its Xbox 360 division made the entertainment and devices division the largest revenue earner. But its servers and tools division also showed strength with revenue rising to $2.9 billion, after a 30% jump in sales of its SQL Server database. But the overall good news was dented by a 28% drop in net profits for the quarter, from $3.7 billion to $2.6 billion.

Click here to download a full table of key IT suppliers' December financial results