Global CIO: IBM CFO Offers 7 Key Insights In Earnings Analysis

During his earnings call yesterday with financial analysts, IBM CFO Mark Loughridge offered some intriguing perspectives on IBM's strong performance for the quarter and the year, and those perspectives should be considered by CIOs seeking to get a tighter grasp on today's business-technology challenges and opportunities. We'll take a look at 7 of those viewpoints.

1) "We see growing opportunity around the world, much of which is outside the traditional IT opportunity, to help our clients drive efficiency in their physical infrastructures," said Loughridge, according to a transcript of the earnings call offered on SeekingAlpha.com. Interesting choice of words there: "outside the traditional IT opportunity." Two thoughts on that: first, as you look at your own business, are you seeing it only as it has traditionally been? Are you thinking about only traditional opportunities for your company, although the world has changed a great deal in the past couple of years? And second: as you consider what you want and need from your IT suppliers in 2010, are you asking or requiring any of them to help you think about possibilities "outside the traditional IT opportunity" that could enhance the value that your IT team offers to your company?

2) "Application Outsourcing signings were up 65% at actual rates and 55% at constant currency" for the quarter, Loughridge said. "For the full year, signings were up 25% at constant currency." So while many IBM clients throughout 2009 were looking to outsource their applications, the strong year-long trend really boomed in the fourth quarter with those huge jumps in signings. So in looking at the applications-outsourcing category overall and not just at that part of IBM's business, is there something to this surge in turning to outside partners to run, manage, and maintain your apps? Is it something you've evaluated—or should have? Is it just a play for cost savings? Or, as important as that cost savings are, could it also allow you to reduce operational complexity and plow more of your precious resources toward growth initiatives and away from the internal-spending side of the 80/20 ratio?

3) "Business Analytics continues to be a key growth area," Loughride said. "Cognos posted strong double-digit growth and gained share providing a proof point on analytics demand in the market." Loughridge returned to this theme at multiple points during his discussion with the analysts, repeatedly stressing the strategic and high-level contributions business analytics are making and that predictive analytics will make in the future. At one point he said, "When we look at business analytics we think that opportunity is going to be as big as TRM (trading and risk management) or ERP." He also underscored IBM's 14 related acquisitions totalling $10 billion over the past several years as a key element in its transformation away from low-margin businesses and into high-value areas that give customers new capabilities. How about you: have you made predictive analytics a key priority for 2010, or do you believe your CEO will be satisfied with trying to guess the future?

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4) "System P has gained share in 10 of the last 12 quarters," Loughridge said. "In the fourth quarter our success with competitive UNIX displacements continued with almost 200 competitive wins totaling nearly $200 million in the quarter." So, reports of the death of IBM's hardware business have been greatly exaggerated, and its ongoing gains against Unix installations during the hard times of 2009 underscore the need for CIOs to leverage the enhanced buying power they have these days to do everything possible to lower the cost of infrastructure and liberate money from keeping the lights on so that it can be applied toward revenue-growth projects. And some of those, Loughridge said, can come in small packages: 5) "One of the trends that we saw in the fourth quarter that was quite encouraging is the performance of smaller deals," Loughridge said in the SeekingAlpha.com transcript. "That is, smaller deals across our hardware business, our software businesses, our services business both in major markets and [inaudible] in our growth markets. Number one, smaller deals are a significant portion of our total revenue stream but I think what we are seeing in smaller deals have been more characteristic of a leading indicator." Nice to hear someone talk about "leading indicators" in a positive context. Are you and your team taking steps to help your company optimize small-deal opportunities?

6) "Frankly underneath that the retail industry saw growth for the first time in seven quarters," Loughridge said. "As we said, if you look at public sector it had the strongest performance in the quarter and for the year." He added that "we had growth in healthcare and life sciences that marked an 11th consecutive quarter of growth." Again, discussions of growth—and not only in sectors like healthcare where it's been happening for some time, but also in troubled areas like retail. If you've had your team and its capabilities in suspended animation for the past 18 months while your budget's been hacked, this is a pretty powerful wake-up call because when your CEO says it's time to fire up all those great ideas that have been on hold for a couple of years, it probably won't be a good career move to reply that you'll need six months to unthaw everything.

7) "The thing you clearly saw though is the difference between major-market performance and growth-market performance actually expanded in the quarter to about a nine-point differential," Loughridge said, emphasizing that declining revenue from Russia has stabilized. Nine points—that's pretty significant—are you and your team helping your company leverage this growth-market potential in India, China, Brazil, and Russia?