Strong results from IBM this week reflect the early success of a key strategy: selling technology to help companies untangle the thicket of software and data they have amassed, analysts said on Wednesday.
Shares in International Business Machines Corp rose 3.3 percent on Wednesday, a day after it reported quarterly revenue and earnings that beat analysts' forecasts.
Software sales grew 8.5 percent, the best among IBM's three biggest business units, fuelled by 30 percent growth in sales of its WebSphere software, which provides the computer plumbing for companies who want to connect various programs.
IBM has made a concerted push to tap growing demand for such software to keep its position as the world's biggest technology services company, as competition heats up and revenue growth in its biggest business, consulting and outsourcing, slows.
"In a cautious growth environment, it's critical to have offerings and positions where the hot spots are," said Frank Gens, chief analyst at market researcher IDC. "It makes it more critical to focus on the megatrends where the growth is concentrated, and IBM's software group has done a pretty good job of that."
IBM revenue rose 5.1 percent to $22.6 billion in the third quarter, beating the average analyst forecast by 2.5 percent.
It was the first time since early 2004 that IBM beat the consensus revenue estimate by more than 1 percent, Sanford C. Bernstein & Co's Toni Sacconaghi, who rates IBM "outperform", wrote in a research note. Websphere's growth was the strongest since at least 2004, Goldman Sachs analysts said in a report.
IBM's third-quarter strength in software bodes well for competitors including BEA Systems Inc, whose fiscal third quarter ends this month, and Oracle Corp, Merrill Lynch & Co analyst Kash Rangan said in a note.
IBM said it was starting to see the fruits of more than $4 billion of software company acquisitions over the past year, most focused on the fast-growing business of software integration in corporate information technology departments.
IBM is selling more software and services designed to give companies an overview of disparate software and data stored in a sometimes chaotic array of programs, many of them incompatible with one another and developed over many years.
The problem is compounded when companies make acquisitions, resulting in redundant or incompatible databases for customers, employees, payroll and accounting, for example.
IBM's focus is often called services oriented architecture, or SOA, a buzzword that IBM describes as the next big thing in information technology and a key driver of future growth.
"WebSphere technology has accelerated the emergence and acceptance of services oriented architecture," IBM Chief Financial Officer Mark Loughridge told analysts on a conference call following the earnings report on Tuesday.