IT services growth buoys IBM

In April, IBM Corp. announced the creation of a new unit, Business Analytics and Optimization Services, to improve the speed and quality of business decisions and better analyze potential consequences and outcomes. It was the first launch of a new service line by the company’s Global Business Services unit since its formation in 2002 following the acquisition of PricewaterhouseCoopers Consulting.

The new service draws on IBM’s considerable information management portfolio, including technologies from the $5 billion January 2008 acquisition of Canadian firm Cognos and the $340 million July 2008 buy of French company ILOG.

IBM’s success in 2008 was good enough to earn Big Blue a No. 18 ranking with $1.6 billion in federal prime contracts.

The creation of the business analytics venture includes 4,000 IBM consultants and more than 200 mathematicians and advanced analytics experts from what IBM terms the only research department in private industry dedicated to mathematics and business analytics.

“Technology has advanced to such a point that, in terms of data management and processing, you can federate information from a variety of sources,” said Todd Ramsey, managing director of IBM’s U.S. federal business unit. “Business analytics is taking advantage of that capability to help manage businesses very effectively. That opportunity is before us now in the federal sector.”

In particular, that translates into next-generation versions of IBM’s Cognos software that will do for government agencies what the company is touting for the private sector. One imminent application in the Defense Department will track the reach and impact of stimulus spending initiated by the Obama administration. And because of reporting requirements associated with federal stimulus funds, several states also have expressed interest in the Cognos software.

The company is promoting its Cognos 8 Go! dashboard product’s ability to collect and visually display information culled from corporate systems and databases, in addition to pre-built reports, score cards and metrics. Gauges, maps, charts and other graphic elements can synthesize the data, keeping a real-time running tab on business activity.

The stimulus-reporting initiatives play directly to IBM’s expertise, Ramsey said, as is an increasing emphasis on protection and close management of all online resources.

“The marketplace is now focused on security, cybersecurity, accountability and transparency," he said. "That agenda lines up very well with our strengths. Certainly, the Obama administration is staking their reputation on doing all those things well.”

IBM’s revenue growth from such work might garner few headlines but appears to be creating a solid bottom line. For 2008, the company noted a record pre-tax overall profit of $16.7 billion, with another record in earnings of $8.93 per share. Services signings accounted for $17.2 billion, with 24 deals greater than $100 million each.

Shawn McCarthy, research director for infrastructure optimization at IDC subsidiary Government Insights, said IBM business continues to grow “not by leaps and bounds but steadily.” However, one potential threat does loom: As services increasingly become commoditized, the market pushes prices downward. Although IBM might be at some risk, McCarthy predicts the company will adapt handily.

“IBM has been a major long-term player in the government market space," he said. "I certainly don’t see that changing. On any given year, you can be up or down. But having multiyear contracts smooths things out.”

McCarthy applauded IBM’s commitment to open-source platforms for IT services “It’s nice to see they’re not exclusively pitching their own solutions,” he said. “They have a decent and substantial hardware and software business.”

The company is conducting a number of open source-based projects, including one for InSite One Inc., a cloud computing provider for medical image data archiving, storage and disaster recovery. Under the terms of the $15 million deal announced in April, IBM will oversee a substantial data center expansion of InSite’s Connecticut facilities and provide upgrades to boost the company’s storage capabilities to more than one petabyte.