(Editor’s Note: This is the second 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 the company’s computing and storage practice.)

By Krista Macomber, TBR Analyst

IBM is successfully leveraging investment in R&D and acquisitions to accelerate corporate initiatives such as Analytics, Cloud and Smarter Planet that are shifting the product mix toward sales of higher-value, integrated solutions, posting corporate profitability expansion despite a flat revenue base in 1Q12.

Investments in 1Q12 included closing five primarily software-focused acquisitions, including Platform Computing and DemandTec, for a total of $1.3 billion. IBM reported total gross, pre-tax and net margins all expanded in 1Q12 while revenue of $24.7 billion remained flat compared to the year-ago quarter.

IBM will remain committed to establishing its hardware portfolio as the backbone of solutions that enable more effective IT environments in 2012. The company reported Systems and Technology revenue declined a 7 percent year-to-year due to a challenging 1Q11 compare driven by cyclicality in System z and Power servers. IBM reported System z revenue declined 25 percent and Power revenue remained flat year-to-year, but both of the lines gained unit share. The company reported total System x revenue remained flat, but increased 17 percent in Growth Markets. System Storage hardware declined a reported 4 percent while software was up 18 percent, as IBM continues to highlight software as boosting system efficiency. Going forward, IBM will maintain corporate and hardware profitability expansion by leveraging integrated solutions of hardware and software wrapped with services to paint a picture of high return on investment.

IBM will protect its trusted advisor status amidst a shifting IT landscape in 2012 by aligning its hardware strategy around vertical and solution expertise.

IBM will highlight consolidation and simplicity across its portfolio in 2012 to protect its trusted advisor proposition as competing vendors also seek to help customers navigate diminishing time and budgets with holistic, end-to-end technology solutions and support. Faced with increasingly complex IT challenges and technologies, IT decision makers are prioritizing new means of efficiency such as integrated infrastructure and faster system configuration and deployment. Spearheaded by its new line of integrated systems, PureSystems, IBM is aligning its multifaceted technology portfolio, highlighting integration of the server, storage and networking design roadmaps, management and security to cultivate a compelling message of efficiency and reliability that will support hardware unit shipment growth by resonating with these needs.

Announced on April 11, PureSystems represents more than $2 billion invested by IBM over four years in R&D and acquisitions targeted at automating IT expertise that delivers finely-tuned workload optimization and makes IT environments easier to manage. IBM will target a variety of customers and verticals, ranging from MSPs to manufacturers and banking to retail, with a story of freeing administrative time to invest in higher-value projects, and accelerated adoption of more efficient cloud and virtualized environments.

IBM is elevating its Smarter Commerce strategy by divesting from its Retail Store Solutions portfolio

IBM is selling its lower-margin Retail Store Solutions (RSS) portfolio to enable a sharper focus on core initiatives, such as Smarter Commerce, which increasingly revolve around differentiating and meeting customer demand for a higher ROI with software and services. IBM announced on April 17 its intent to sell RSS to Toshiba TEC for $850 million. The deal is expected to close by early 3Q12.

The sale of RSS elevates software and services to the forefront of IBM’s retail strategy. IBM will shift focus from hardware to expanding its portfolio of Smarter Commerce software and services, positioning to more effectively capitalize on what it has identified a $90 billion global opportunity. IBM will continue to support its existing RSS customers by establishing Toshiba as a Premier Business Partner. Additionally, it will work to link Toshiba’s retail solutions with the industry-specific expertise IBM is cultivating with its Smarter Commerce campaign.