Robust Financials for Five Top IT Vendors

Microsoft Corp. recorded a banner year while IBM Corp. and SAP AG saw double-digit second quarter revenue increases. In other financial news, EMC Corp. and VMware Inc. posted record-breaking quarterly results.

Focal Points:

• Microsoft posted a banner fiscal 2011. For the fiscal year ending on June 30, the company increased its annual revenues to $69.9 billion, up 12 percent from the previous fiscal year. Net income on a GAAP basis was $23.2 billion, a jump of 23 percent from 2010. For the fourth quarter alone, Microsoft reported revenues of $17.4 billion, an eight percent rise from the same period a year prior. Net income for the quarter was $5.9 billion, a 30 percent increase. The company's Business Division's revenues grew by 16 percent for the year while its flagship Windows and Windows Live Division saw a revenue decline of two percent for the year. Microsoft's Server and Tools Division grew its annual revenues by 11 percent while the Entertainment and Devices Division posted the largest revenue growth – a staggering 45 percent gain for the full year. While the Online Services Division, the home of "Bing," saw revenue grow 15 percent for the full year, it was the only division to post a loss - $2.6 billion.
• SAP reported its second quarter revenues increased by 14 percent year over year to €3.3 billion based on international financial reporting standards (IFRS). Software revenues jumped 26 percent to €802 million, while software and software-related service revenues were €2.58 billion, a gain of 14 percent. Profits after taxes for the quarter were €588 million, a 20 percent jump from the previous year's quarter. Business ByDesign, its software as a service (SaaS) suite for smaller companies, now has 550 customers and is on track to meet a goal of 1,000 by year's end, according to company executives.
• IBM enjoyed a strong second quarter, with revenues of $26.7 billion, up 12.4 percent from the year-ago quarter. Net income on a GAAP basis was $3.7 billion, up 8.2 percent year over year. IBM Global Services drove in $15.1 billion in revenues, a gain of 10 percent. Global Technology Services accounted for $10.2 billion of the sales, an increase of 11 percent, while Global Business Services, which delivers application hosting and outsourcing, systems integration and consulting, and business process re-engineering, had $4.9 billion in sales, a gain of nine percent. IBM's Software Group revenues were up by 16.9 per cent to $6.2 billion while the group's gross margins increased slightly to 88.4 percent. The company's Systems and Technology Group (STG) posted revenues of $4.7 billion, a jump of 17.5 percent year over year, while the group's gross margins expanded by nearly five points to 40.6 percent. System z mainframe revenues shot up 61 percent, Power System revenues spurted 12 percent, System x revenues gained 15 percent, and storage grew 10 percent.
• EMC's second quarter revenues jumped 20 percent over the same period last year to $4.85 billion while net income on a GAAP basis rose to $547 million, up 28 percent over the  $426 million it recorded in the second quarter of 2010. Information Storage product revenues grew 19 percent year-on-year. Within that group the Symmetrix revenues, which include VMAX arrays, grew 15 percent while the mid-tier VNX storage revenues increased 27 percent. Atmos revenues doubled while Isilon revenues more than doubled. RSA revenues gained 13 percent. Numbers were not given for VCE revenues but EMC did state that 2011 revenues year-to-date exceeded full year 2010 VCE revenues. Meanwhile, VMware sales surged to $921 million, an increase of 36.7 percent. Net income growth tripled to $220 million.

Experton Group believes Microsoft Windows revenues were impacted by the slowing of PC revenues with the shift to Apple Inc. iPads. This shift away from the traditional PC client devices will continue, and, as of now, it is unclear if Microsoft will have an answer for the problem when Windows 8 finally comes to fruition. The company continues to invest heavily in Bing, as it believes its search engine technology contains a decision engine that will prove to be a significant differentiator over time. SAP is back on track with its core products while its ByDesign, HANA and mobile product have yet to contribute much to the overall revenue stream. Executives claim they are happy with ByDesign progress but its growth has been slow in coming and its business model does represent a problem for the company's traditional business model. Overall, SAP still has a ways to go before it is humming on all cylinders. IBM had a excellent quarter, although from an STG vantage point, this year's quarter had all new products while in 2010 the new mainframes and power servers were not yet out. The company made some good strides but still needs to make more headway in the x86 segments, if it expects to regain some of its lost market share. EMC and VMware continue to plow ahead and demonstrate the vision, innovation and acquisition acumen required to remain ahead of the pack.

IT executives should meet with their key strategic partners to understand their visions and roadmaps, so that they can get a better image of future developments, and then incorporate key components into their own visions and strategies.