By Allan Krans, TBR Senior Analyst

(Editor’s Note: This is the first of a three-part series providing commentary and analysis from Technology Business Research on IBM’s first quarter earnings report released in April. Today’s analysis focuses on software.)

IBM Software is driving profitable growth across corporate growth initiatives

IBM further emphasized the importance of software as a driver of corporate profitability and growth with the announcement that IBM would be divesting its Retail Store Solutions (RSS) business to Toshiba. IBM’s software business enables the IT intelligence behind broader corporate goals, including Cloud, Smarter Planet and Business Analytics, through data management, information security and business intelligence/analytics. Underlying these broader initiatives is IBM’s goal to drive business results through IT by powering actionable insights across industries and lines-of-business through analytics and Smarter Planet.

The result of IBM Software’s long-term goal of driving business results through IT was 5.5 percent year-to-year revenue growth for the software division, slower growth for software, but still outpacing 0.3 percent corporate revenue growth. Highlighting IBM’s software revenue growth was more than 25 percent growth for Smarter Planet, and 14 percent growth from Business Analytics. Double-digit growth from Cognos contributed to the overall growth of Business Analytics. Data management, comprising more than 31 percent of software revenue, grew 5.0 percent during 1Q12 to $1.8 billion. While software revenue growth declined 30 basis points year-to-year, IBM was able to expand software pre-tax margins by 170 basis points to 34.7 percent as the company continues to leverage core analytics and data management capabilities to drive profitable growth.

IBM is deploying industry and business function specific solutions to drive analytics growth

In recent years, specifically since the 2008 acquisition of Cognos, IBM has been building out its analytics capabilities to fuel broader growth initiatives, Business Analytics and Smarter Planet. IBM’s Smarter Analytics portfolio, projected by the company to be a $16 billion business by 2015, segments the market by taking a line-of-business and industry specific approach to drive actionable insights from incoming data, highlighted by the acquisition of Varicent Software, and the recent deployments within the Smarter Analytics portfolio. During the quarter, IBM announced a trio of deployments within its Smarter Analytics Signature Solutions package, focused on both industry and line-of-business opportunities. The first, Anti-Fraud, Waste & Abuse is targeted at the insurance industry, providing insight to help insurance companies predict and anticipate fraudulent cases. The second and third solutions announced are tailored to the needs of business functions, specifically the marketing, customer services, and finance departments.

In addition to organically improving its analytics portfolio, IBM also acquired Varicent Software at the end of 1Q12 to continue driving towards a line-of-business and industry-focused analytics strategy. Through Varicent’s Software Performance Management portfolio, IBM is able to better serve sales departments within the financial services, insurance, communications, retail, IT and banking industries. IBM’s improvement to its Business Analytics portfolio mirrors broader corporate goals of enabling businesses to turn IT insight into profitable outcomes.

Core software businesses get an upgrade to map to customer IT needs

As data continues to grow, and lines of business increasingly demand ready-access to information, the ability to effectively manage and access information for IT departments is crucial. To combat these issues for IT departments, and capitalize on the growing opportunity in the data management space, IBM announced a series of upgrades to its DB2 & InfoSphere portfolio in 1Q12.

Building off 5.0 percent growth for the Information Management business, the upgrades were focused on improving business decisions and results by increasing the availability and speed of which data is accessed, and improve bottom-line results by lowering storage costs and manual labor required to manage data. Highlights from the product upgrades were data compression capabilities, and Multi-Temperature Data Management functionality to allow IT departments to more effectively manage mission critical data. As the role of IT departments shifts from solutions purchaser to an in-house service broker to lines-of-business, IBM will continue to position its solutions with the focus being on driving business results.