The Quarter That Was
By almost all accounts, IBM had a solid end to its fiscal year. Revenue climbed a little less than 7%, with systems (hardware) leading the way at 21% growth, software following at 7% (12% on an adjusted basis), and services lagging at 2% growth. Systems revenue was helped by strong refresh cycle in System Z (up 69%), while System X and storage were also reasonably strong. Although service revenue growth was sluggish this quarter, the company did report very strong bookings.
IBM did well in leveraging this additional growth into profits. Gross margin improved about 70 basis points (to 49%), though weakness in services was a dead weight. Operating income grew 9% in the period, and the company saw an approximate 80 basis point improvement in operating margin. Looking at the segment pretax margin data, it was no surprise to see strong software margins, but it might surprise some to see that IBM's hardware business is actually more profitable than its service business.
Looking Through and Ahead
As IBM's fourth-quarter numbers suggest, services have not rebounded to the same extent as systems and software. Then again, on an industry-wide basis they did not fall as much either during the worst of the recession.
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