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By GREG RICHARDSON, special to LTW
Editor’s note: Greg Richardson is an analyst with IBM posted first quarter revenues and profits that on Monday. Richardson looks inside the numbers.
HAMPTON, N.H. – (NYSE: IBM) is using BRIC(s) to build its Smarter Planet.
IBM’s efforts to continue expanding its presence in emerging markets through the recession are paying off.
In 1Q10, IBM reported 14 percent year-to-year revenue growth from BRIC countries, led by increased demand from customers in Brazil, Russia and India. TBR believes IBM has built the foundation for growth in BRIC by continuously investing in its Smarter Planet initiative.
By positioning its solutions as tools to solve specific needs – such as power and water management – IBM has built a value proposition which is correlating in strong demand from government-backed programs and initiatives. Additionally, as competitors pared back emerging market investments and focused resources on cost cutting during the recession, IBM remained steadfast on increasing its presence in the world’s emerging markets, paving the way for post-recession revenue growth.
Midmarket grows, too
Midmarket customers are pushing IBM’s hardware business up the growth hill.
IBM leaned upon strong demand from midmarket customers to drive growth in its Systems and Technology Group in 1Q10, marking the group’s first quarter of year-to-year revenue growth since 2Q08. TBR believes IBM is benefiting from renewed confidence in the global economy, which is correlating to more businesses opening their wallets for IT hardware spending.
With strong growth in System x and disk storage revenue, IBM has taken a clear aim at growing its midmarket footprint, in order to establish a larger foundation of customers to build revenue upon. IBM reported 5 percent year-to-year growth in STG revenue in 1Q10, led by 36 percent growth in System x and 11 percent growth in storage products.
Looking to 2Q10, TBR believes IBM STG will continue to benefit from customers that are revisiting hardware buildouts which were put on hold through the recession. Furthermore, the addition of new Power7-based systems through 2010, including a refresh of System z mainframe in the second half of the year, will help drive more profitable growth in the high-end hardware market.
Slow and steady wins the share race
Although Oracle’s acquisition came to a close in 1Q10, IBM continued to chip away at Oracle’s base of Sun customers through competitive displacements. Through the investigation of the Oracle-Sun deal in 2009, IBM aggressively pursued Sun customers, taking advantage of the uncertainty surrounding the combined company.
As a result, IBM announced more than $600 million in revenue from competitive displacements in 2009. Although the future of Oracle-Sun is more certain, IBM continued to chip away at hardware share during 1Q10. IBM reported more than 170 competitive wins, resulting in $125 million of revenue in 1Q10, resulting in share gains in low-end and midrange UNIX, disk and tape storage, and x86 servers.