Software Adds To IBM’s Growth Potential

Article Excerpt

INTERNATIONAL BUSINESS MACHINES CORP. $79 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) has agreed to buy FileNet Corp., which makes software that help companies manage their web pages, email and other electronic documents. Demand for this type of software is rising fast as companies shift from paper-based to computer-based transactions. To put the $1.6 billion purchase price in context, IBM earned $1.30 a share (total $2.0 billion) in the second quarter of 2006. That’s 14.0% more than the $1.14 a share ($1.85 billion) that it earned from continuing operations a year earlier. IBM has aggressively expanded its software business in the past few years, mostly through acquisitions of niche firms like FileNet. That’s because software earns higher profit margins for IBM than its other businesses. Although software accounts for just 20% of IBM’s revenues, it contributes a third of its profit. A bigger software business also enhances IBM’s computer services division, which supplies roughly…

You are trying to access subscriber-only content.

To read this article, you may subscribe or sign in.
If you are already a subscriber, log in here.

If you wish to become a subscriber, click here. Or you may enjoy access to all our publications when you become a Member of Pat McKeough's Inner Circle Pro.