Do IBM's strong software sales point to brighter days in the enterprise software business? Yes -- but only in select areas, said analysts.
In reporting its fourth-quarter and full-year results for 2004 on Tuesday, IBM said it had performed well in all its major lines of business -- services, software and hardware -- and voiced an optimistic note for the coming year. Revenue growth year-on-year for software in the fourth quarter was 7 percent, with its Tivoli systems management growing at 25 percent and WebSphere middleware revenue increasing 18 percent.
The report raised hopes that the corporate software industry as a whole might be turning the corner toward brighter days. IBM intends to deliver a double-digit jump in profit in 2005 as well, buoyed by a stable tech-spending environment among corporations.
But analysts warned that happy days at Big Blue do not mean the return of rapid growth across the board.
IBM's software results slipped downward in the second quarter of 2004, along with those of several other enterprise software companies. Despite IBM's optimism, things are not as rosy for the rest of the software market, said some analysts.
"IBM's results look pretty good, but there is nothing that really jumped out that lets you say here's a definable trend," said Gregg Moskowitz, an analyst at Susquehanna Financial Group.
Instead of a swell in software spending lifting all boats, the recovery in software is turning out to be spotty, with only certain sectors and companies benefiting. In particular, security, management, infrastructure and analytics software stand to do well this year, as do the larger suppliers in the marketplace, analysts said.
In fact, the market overall is expected to grow more slowly this year as compared with last year, even though some areas will remain hot. Based on its surveys of chief information officers at large companies, JP Morgan expects spending on software in 2005 to grow in the range of 4 percent to 7 percent, which is a slowdown from the 8 percent to 10 percent spending growth seen in 2004.
Despite the slowing spending rate, JP Morgan said certain software companies stand to do well this year, as corporate customers invest in software-related projects, such as regulatory compliance, software infrastructure overhauls and business intelligence applications.
"The market has begun to mature with most subsectors decelerating," said a report released by JP Morgan in January, which said software is no longer a high-growth industry. This "means that growth still exists but is harder to find."
