IBM's Q1 2010 Results In Align With Our Expectations -- A Bellwether for Other Vendor Results To Come

TECH DEVELOPMENTS: Like half a dozen Forrester colleagues, I have been stuck in London since last week due to the Icelandic volcano's disruption of air travel.  So, this allows me a UK perspective on IBM's results for Q1 2010.   These turned out to be very much what I expected (see "US And Global IT Market Outlook: Q1 2010 -- The Tech Market Recovery Has Begun").  I thought IBM's revenues would grow by mid-single digits; in fact, they grew by 5%.  I expected its software revenue growth to be in low double-digits; its hardware revenues to be around 3%-5%; its outsourcing revenues up about the same; and its consulting and SI revenues down by 5% to 10%.  Again, actual results came in pretty close: software revenues were up 10.6%; systems and technology revenues up 4.9%; outsourcing (GTS outsourcing) up 6%; and IT consulting and systems integration services (Integrated Technology Services and Global Businesses Services) flat with the year before. 

Based on the results we have seen so far from IBM, Oracle (quarter ending February 28), Accenture (quarter ending February 28), and Atos Origin, here's what I think we will see for vendors for the rest of the quarter:

  • Software will be strong, up 10% or more growth in US dollar revenues for most vendors.  Microsoft will do better than this, thanks to strong sales from Windows 7.
  • Hardware will also be strong, with PC vendors posting 15% growth and server/storage vendors coming in around 5% to 8%. 
  • IT consulting and systems integrations servies will still be down, lagging the upturn in software investment.
  • Outsourcing -- both ITO and BPO -- will continue to grow at around 5%.
  • Communications equipment will be up by 6%, though none of the major vendors have reported yet to confirm this projection.

Currencies continue to be a factor in the tech market.  With the euro's value against the US dollar in Q1 2010 higher by 6% than the year before, US vendors enjoyed a positive lift to their reported revenues.  European vendors like SAP or Alcatel-Lucent reported revenues in euros will thus be lower than the forecasts above, but converted into dollars should be in this range.  However, the recent strengthening of the dollar against the euro in particular means that the currency impacts will be reversed in Q2.  Still, with growth gaining momentum in the US, the Americas, and Asia/Pacific (Europe is looking shakier), I think we will continue to see these kinds of growth rates in dollar terms, even with the shift to the dollar's strength causing a drag on reported dollar revenues.