IBM Software – held back by its declining legacy

(By Philip Carnelley, 16 Oct 09, 09:00) IBM’s software sales remain an important indicator for the software industry as a whole. Overall in Q3, its software revenues fell 3% to $5.1bn but were flat at constant currency. Despite this decline, its pre-tax margin leapt from 26% to an impressive 32%. Underlying those figures is a continuing shift away from its legacy – operating systems revenues fell 12% to just $521m. This is no doubt linked to the declining mainframe business - revenues from System z mainframe server products decreased 26%. Whereas, Websphere middleware did very well - up 14%. Lotus continues to struggle, as we noted last quarter (IBM’s mantra – Margins, Margins, Margins!) with revenues down a further 9%.

Surprisingly to us the information management segment was also flat. Though the company claimed it had taken market share in that area, we think it should be doing better. All the indications we get from elsewhere are that companies are trying to operate smarter – more analytics is the order of the day. And it’s not as if IBM’s short of initiatives or products – it keeps telling us it’s helping to build a ‘smarter planet.’ It’s not clear how much the planet wants IBM’s help with that.