IBM reports Q1 2005 earnings -- Lotus up 11% (slight update)

April 14 2005

The press release is posted on www.ibm.com/investor.  Here's the key excerpt (emphasis mine):

Revenues for WebSphere family of software products, which facilitates customers' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, increased 11 percent. Revenues for Information Management increased 5 percent including revenues for DB2 database software, which enables clients to leverage information on demand, increased 9 percent. Revenues from Tivoli software (infrastructure software that enables customers to centrally manage networks and storage) increased 15 percent, and revenues for Lotus software, which allows collaborating and messaging by customers in real-time communication and knowledge management, increased 11 percent. Revenues from Rational software (integrated development tools) were flat compared with the first quarter of 2004.

As a result, IBM expects to gain or hold market share for the first quarter in the collaborative software, systems management and security software, Web services and data management categories.
From the analyst call's prepared remarks:
Lotus software was up 11 percent year-to-year for the quarter driven by strong Notes/Domino growth and continued acceptance of our Workplace product.
Remember, I can't disclose more detail than this due to IBM policy.  I'd really like to, though...

Remember that Q1 2004 was also a barn-burner for Lotus.  Growth on top of growth in the first fiscal quarter....a good thing.

Ed Brill Highland Park, IL USA Category:  Lotus  Add/View Comments [13]

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  1. 1  Rick Sizemore  | 4/14/2005 5:43:04 PM

    Bill was saying something about decreasing market and revenue share....

  1. 2  Nanook  | 4/14/2005 5:45:49 PM

    ...remember, Bill uses Excel to browse his business data... ...he must have a formula error somewhere.

  1. 3  Duffbert http://www.twduff.com | 4/14/2005 5:56:42 PM

    Let me just beat everyone to the punch and get it over with quickly...

    "I'm sure it was all currency gains and losses..."

    "How much of that was actual Domino software?"

    "Wasn't most of that gains in WAS and WP?"

    "So now we're as behind or less behind than we were before?"

    "But IBM missed expectations by a nickle..."

    Now, can we just concentrate on this being *good* news?

    :-)

  1. 4  Duffbert http://www.twduff.com | 4/14/2005 6:11:44 PM

    OK... after your edits, I must amend my comments...

    'Lotus software was up 11 percent year-to-year for the quarter driven by strong Notes/Domino growth and continued acceptance of our Workplace product.'

    "So Workplace is driving the growth and Notes/Domino is going to die off?"

    That should cover the objections completely. :-)

    Now, in a serious tone... great job, Ed. I think this is the market proof and validation that the changes we've seen over the last six to twelve months are paying off.

  1. 5    | 4/14/2005 6:14:37 PM

    This is great news, I think we were all really pleased and relieved when IBM sorted out its message about Domino, I know of companies that were questioning their Domino investments, but are now investing heavily in Domino.

    It seems obvious that the positive message is having a real impact on the bottom line....

  1. 6  Eric Parsons startingblockcomputing.com | 4/14/2005 9:15:38 PM

    Great news! 11% is nothing to sneeze at.

    I'm more excited about Domino jobs starting to open a bit.

  1. 7  Gerco Wolfswinkel http://www.domino-weblog.nl | 4/15/2005 1:46:37 AM

    Good news, thanks! I wanted to make a remark about Bill Gates and his excel business tool, but Rick and Nanook beat me to it :-)

  1. 8  Chris Whisonant http://cwhisonant.blogspot.com | 4/15/2005 6:23:06 AM

    Great news Ed - keep up the good work!

  1. 9  Alan Lepofsky http://www.alanlepofsky.net | 4/15/2005 8:56:55 AM

    Why no comments from Cliff, Peter, Sarah, Dan?

  1. 10  tonyo - the new implants work very well thank you  | 4/15/2005 11:25:21 AM

    I hear lots of communal back slapping, but the earnings are disappointing...

    IBM, Sun Shake Confidence in Tech Growth

    Fri Apr 15, 9:09 AM ET Business - Reuters

    NEW YORK (Reuters) - Shares of IBM (NYSE:IBM - news) and Sun Microsystems (Nasdaq:SUNW - news) fell in premarket trade on Friday, a day after reporting disappointing quarterly results that shook confidence in growth prospects of the tech sector

  1. 11  Dave  | 4/15/2005 11:44:03 AM

    @10) Yeah, but it looks like a lot of that is coming from poor performance of Global Services. No shock there...

    Overall, the report is a good sign for Lotus products, although IBM as a whole may need to re-org a bit. Of course, they do that every few months anyway. :)

  1. 12  Ben Poole http://www.benpoole.com | 4/15/2005 12:36:33 PM

    @11 "Who is going to be left to deploy Workplace?"

    Good question. Well, I'll do a load of it if they want. It can't be any worse than what I'm doing now.

  1. 13  Cliff Reeves  | 4/15/2005 5:48:22 PM

    The market has spoken on this earnings announcement and IBM finished off more than 8% for the day. I'm certainly not happy about that, as IBM stock represents a good portion of my savings.

    I am glad to see Lotus growth. Notes/Domino is by far the better of IBM's two collaborative platforms on just about any measure.

    Two reasons not to get too excited about even the Lotus results, though:

    1) It's the law of snall numbers. IBM doesn't publish revenue by product family but Lotus represents less than $1B/yr of IBM's total $15.9B. Lotus, Websphere and Tivoli together don't amount to much of IBM's $15.9B sofwtare revenue. If anyone doubts this, ask how Lotus, Websphere and Tivoli grew 11%, 11% and 15% respectively this year and overall sw growth was just 2%.

    2) The prior years were very bad for Lotus, so they are not hard to beat. Specifically, year-on-year Lotus growth has been "negative" (2001); "negative" (2002); 0.9%(2003) 2,7% (2004).

    To be fair, though, +11% is good news; it's just not surprising or great news. Given that both Tivoli and Websphere also went up, it's more likely the result an industry uptick in middleware than a result of market messaging or a big switch in acceptability.

    The more interesting story (and it's been this way for a while) is that IBM SW grew at just 5.5% (compared with the same qtr a year ago) and neither Websphere nor Notes make much difference. The figures for IBM year-on year software revenue growth has been -0.5% (2000); 2.7% (2001); 1.9% (2002); 9.4% (2003); 5.5% (2004).

    Most of this very modest growth has come from acquisitions. Without acquistions, IBM's SW revenues would be close to very low single digits.

    Throughout this period, IBM has steadily increased gross margin(currently about 87% compared to the about 25% for services) from software. However, Global Services represent 48% of revenue (and growing) vs software at (15.7%) and declining.

    Now, why is it important they keep those software margins up and what does that mean for Notes? What happens when your high-margin business is a shrinking minority of your product line? Any ideas?

    On a minor point .... @7 and 2) note that IBM also uses Excel for their reporting ftp://ftp.software.ibm.com/annualreport/2004/ibm04ar_statements.xls :-)