IBM 3Q09 Quarterly Earnings
by Volker Weber
ARMONK, N.Y., October 15, 2009 . . . IBM (NYSE: IBM) today announced third-quarter 2009 diluted earnings of $2.40 per share compared with diluted earnings of $2.04 per share in the third quarter of 2008, an increase of 18 percent. ... Revenues from the WebSphere family of software products, which facilitate customers’ ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, increased 14 percent year over year. ... and revenues from Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, decreased 9 percent.
I was waiting for IBM's quarterly results because that is the only chance to get some hard data on Lotus. I am being told that Lotus is winning on all fronts. Notes customers on maintenance up up up. Connections being the fastest growing business ever. Portal very very successful.
And yet, the numbers are down. Again. Not all numbers. Just the Lotus numbers. And with extraordinary growth in the Lotus portfolio other products must be suffering even more than the aggregate numbers are showing.
The only bright side I can see is that in the second quarter Lotus was down 14% and now it's only 9%. On the other hand, last quarter Websphere grew 8% and this time 14%.
Comments
This is an overview of Notes revenues since 2008:
IBM Quartly earnings:
-------------------------
2008 Q1 +17% (http://www-03.ibm.com/press/us/en/pressrelease/23930.wss)
2008 Q2 +21% (http://www-03.ibm.com/press/us/en/pressrelease/24651.wss)
2008 Q3 +10% (http://www.ibm.com/investor/3q08/press.phtml)
2008 Q4 0% (http://www.ibm.com/investor/4q08/press.phtml)
2009 Q1 -12% (http://www.ibm.com/investor/1q09/press.phtml)
2009 Q2 -14% (http://www.ibm.com/investor/2q09/press.phtml)
2009 Q3 -9% (http://www-03.ibm.com/press/us/en/pressrelease/28591.wss)
Poll: should companies using Lotus products start looking for alternatives?
In other words, how long will IBM continue with Lotus?
B.
Years of stealth marketing are coming home to roost. It is going to be interesting to see if the "Lotus Knows" campaign helps. I sure hope that it does.
In the past IBM denied everything negative about Notes and basically did nothing but business as usual. Now they are doing a marketing campaign, iPhone support. Notes 8.5.1 is an improvement too. They are even doing some consumer stuff with Symphony and Lotus Domino Designer is now a free download. I don't agree with everything that IBM does and in some areas they are doing the wrong thing (imho) but they are not giying up yet.
Of course they are not giving up. Look at the gross margins. The numbers just don't match the propaganda.
...And for the Q1 there is the simplification in the Notes Client licensing with now only two possible licenses for most of people - Enterprise CAL or Messaging CAL. Both come with a price rise, in some specific cases up to 32%. (much lower for most other cases). So it becomes easier to sell while the revenue should go up by at least 3% just out of the price adjustments. I'll bet, the Q12010 will be in positive growth again.
Q3 might also benefit from the release of 8.5.1 - certainly if I was a new buyer I would likely have delayed purchasing until it had been released.
Predictions are very hard. Lotus was down 12% when Notes Domino 8.5 shipped. You could have made a case that customers waited for that and numbers should have been up. We will see what the 4Q09 and 1Q10 numbers are when they are released.
I have now spent a few hours trying to penetrate these numbers but I can't say I'm making much headway. Predictions are indeed very hard. I personally might well have made the case that the numbers should have been up when 8.5.1 shipped except that 8.0.x was so buggy I was anything but convinced 8.5 would be much better. R8.5.1 is basically the first R8 release that works satisfactorily (at least so far) so I am more hopeful it will sell. The glass is half full ;)
The thing is budgets are under pressure everywhere these days and it doesn't take much of an excuse or reason to shelve or delay expenditure plans - at least that seems to be the case at my company. We are descoping things left, right and centre and that will contribute to a hit on our suppliers across the board.
In a previous life I trained as an investment analyst and - in the context of procuring replacement stock market price delivery systems - I recall once pointing out to our chairman that Reuters had posted strong results. His reply was that the results were not really any good at all; that sales were down and the increased profitability was down to cost cutting. That was my view of IBM sales last quarter and it's the best I can make of them this time as well.
Ian, if I remember correctly, IBM has always claimed that THIS is the release to deploy. Replace THIS with 8.0, 8.0.1, 8.0.2, 8.5. Performance has also been "very good", according to design partners. I am hearing good initial reactions, but I have heard those before as well. So far I am with you on "glass is half full".
I agree with you on the budget situation, and still, some parts of Software Group are doing pretty well, as far as revenue is concerned. And you are also right with your profitability and cost cutting.
Volker, I am a Notes enthusiast but it is difficult even for me to imagine anyone buying any version of R8 standard prior to 8.5FP1 and them being anywhere close to happy with it. I could tell within a day or two that those versions didn't cut it.
This is speculation but if we proceed on the basis that the cutomer 'wins' are real maybe the truth of it is that IBM has been either giving Lotus software away with server sales or is selling it cheap. There is nothing inherently wrong with loss leading in the pursuit of momentum and especially if the rest of the business can afford it. Given the bugginess so far maybe IBM had to.
Obviously I've only been using 8.5.1 for a few days and although I am starting to find wee things in it that I wish weren't there it does seem like night and day compared to earlier versions of the R8 code stream and I reckon it probably is fit for purpose. We'll see :-)
