Update: IBM profits rise 11 percent

Thanks to a strong jump in revenue generated by its middleware software brands, IBM recorded profits of $3.54 billion for the fourth quarter, a rise of 11.1 percent over the same period in the previous year.

The company had revenue of $26.26 billion for the quarter ending Dec. 31, an increase of 7.5 percent from last year and better than Wall Street estimates of $25.67 billion, according to analysts polled by Thomson Financial. IBM posted earnings of $2.26 per share, excluding extraordinary one-time gains, beating the analyst forecast of $2.19 and the $2.11 it posted in the same quarter of the previous year.

IBM relied heavily on revenue from its middleware group, which includes WebSphere, Information Management, Tivoli, Lotus, and Rational. Together, those products generated $4.4 billion, up 18 percent from this quarter last year.

Revenue from other IBM business units rose by only single-digit percentages, including a rise of 7 percent for global technology services, 3 percent for global financing, and 3 percent for the systems and technology group, which includes System z servers.

For the full year of 2006, IBM reported total revenue of $91.4 billion, a rise of 4 percent over 2005, excluding the PC business sold to Lenovo Group. IBM recorded annual net income of $9.49 billion, up 19.6 percent from its mark of $7.93 billion last year.

All of IBM’s middleware brands grew faster than the overall market, Senior Vice President and Chief Financial Officer Mark Loughridge said on a conference call to discuss the quarter’s results.

In its services business, IBM signed deals worth $17.8 billion in the quarter, up 55 percent from a year earlier. The company signed 14 deals worth more than $100 million, Loughridge said. Big deals included contracts with Vodafone Group, the state governments of Indiana and Texas, and the German army.

The company expects to meet analyst’s expectations of 10 percent growth this year in income from continuing operations, Loughridge said. In addition, there is no reason to think IBM will slow down its acquisitions this year after buying 13 companies last year, according to Loughridge. Those acquisitions have paid off well, he said.

IBM will focus internal investments on its software business and on emerging markets, he said. Revenue from emerging markets grew 18 percent in the fourth quarter, adjusted for currency changes, compared with 5 percent growth in the Americas and Asia-Pacific and 3 percent in Europe, according to the company. Overall, business improved in France and Italy and recovered in the second half of the year in Japan.

In after hours trading Thursday, the company’s stock (IBM) was down $5.50 at $93.95 after falling $0.57 during regular trading on the New York Stock Exchange.