Friday, 16 October 2009

IBM services – it’s still about the margin

(By Anthony Miller – Friday 16th October 2009 7:15am). IBM’s Q3 results served to reinforce the message of the past several quarters (see IBM’s mantra – Margins, Margins, Margins!) that when the going gets tough, the tough get more profitable. And so it was with both of IBM’s services businesses, yet again expanding gross and pre-tax margins yoy and sequentially.

The revenue story was a bit more revealing. Global Technology Services (essentially infrastructure and ‘below’) revenues fell 2% yoy at constant currencies (ccy) to $9.4b, though this was 8% higher than Q2 as reported. However, Global Business Services (apps and ‘above’) revenues fell 11% ccy and were about 1% lower than Q2 as reported. Indeed, Consulting & SI signings were down 15% yoy ccy, whereas outsourcing signings grew 1%. The star of the show was application outsourcing which staged a remarkable recovery in signings, up 39% ccy.

This can’t all be about cost-cutting, though clearly that’s part of the picture. It looks like IBM is winning ‘smarter’ business too. But even so, the total 15.5% services pre-tax margin is a surely a wonder to behold!

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