Software is IBM’s saving grace as revenue drops 3%

IBM's software business was the only division to grow in the IT giant's most recent financial quarter, the company revealed yesterday. 

The company's overall revenues dropped 3% year-on-year during the three month period ending June 30, down to $24.9 billion, making it IBM's fifth consecutive quarter of revenue decline. 

IBM's services unit, by far its largest, shrank by 4% during the quarter. Technology services, which includes IT outsourcing and infrastructure management, shrank by 5% to $9.5 billion, while business services, which includes consulting and BPO, dropped 1% to $4.6 billion. 

Hardware, meanwhile, plummeted 12% to $3.8 billion. 

But software helped contain the declines, as sales rose 4% to $6.4 billion. Much of that growth came from its middleware division, whose product lines include WebSphere, Tivoli and its information management range, which grew 9% to $4.3 billion. 

Sales at the company's social software unit grew 24% to an undisclosed sum, driven in part by IBM's recent acquisition of marketing services provider Kenexa. 


On a conference call for investment analysts, IBM's chief financial officer Mark Loughridge said this was the software unit's best performance since the first quarter of 2012. 

Evidently, IBM's shifting focus onto software requires fewer human resources. The company incurred a $1 billion charge related to a "restructuring" programme – i.e. redundancies – announced earlier this year, pulling its net income down 17% to $3.2 billion. 

Loughbridge said IBM was confident of the prospects for both its software and service units in the second half of the year. 

"We have services backlog growth [of] 7%," he said. "That is the best backlog growth positioning we have had in four years."

He admitted, though, that the hardware business would continue to be a challenge for the company.

Middleware share

IBM was once again the market share leader for application infrastructure and middleware (AIM) software in 20 according to figures published by Gartner last month. 

The company took 30.9% of the market, Gartner found, ahead of Oracle with 16%, then Software AG with 5%. 

Gartner said IBM is able to leverage the breadth of its middleware portfolio to dominate the market. 

"One value proposition of IBM is its ability to offer a complete set of AIM products," the analyst company said. "As a result of that, IBM is the market share leader in business process management suites (BPMSs), enterprise service bus (ESB) (including AIM appliances) and B2B middleware software. It is also the largest vendor in message-oriented middleware (MOM) and transaction processing monitors, which, combined, generate $2.6 billion of its $6.3 billion in AIM revenue."


Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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