Last week IBM announced a strong set of Q3 results, with no apparent big blues from the combined chill of the credit crunch and the downturn – despite the company's exposure to the financial services sector.

Net income was up 20% to $2.8 billion, and revenues by five percent to $25.3 billion. The services and outsourcing sectors of its business seem strong, but the key lessons are the diversification, spread, and visibility of its business.

“This is a tough environment, but we were ready for it,” said IBM's chief finance officer (CFO) Mark Loughidge. “We are executing a play that we called some time ago. It has two major elements. First, we have been investing to capture opportunities in the emerging markets. You can see the benefit in our results again this quarter with double-digit revenue growth and good returns.

“Second, in the more established markets our goal has been to drive productivity. We’ve been systematically attacking our spending base, taking out infrastructure costs, reducing our cost and expense levels, and improving our efficiency.”

Because of this, IBM claims to have a more efficient structure than many of its competitors, and than it had before. “In the third quarter, when the revenue growth in the major markets slowed, we had great margin performance and hit our profit objectives,” confirmed Loughridge.

As many analysts have pointed out, IBM has also struck a balance between annuity and transaction-type businesses, with the former including its outsourcing, maintenance, and most of its software deals. As a result, the company has the two ingredients missing from many companies' balance sheets as the credit markets have dried up: long-term visibility and liquidity.

Its geographic spread has also inured it to the westerly depression of the past 12-18 months. Europe had the strongest performance, up four percent at constant currency, while the Americas was up two percent, and Asia Pacific up one percent.

“In the more established markets that we address through our major markets organization we are uniquely positioned to assist enterprise clients with high value transformational projects as they retool for efficiency and cost savings,” continued Loughridge.

“Now in the emerging markets, we’ve been investing heavily to capture opportunities to build out public and private infrastructures. Our growth markets organization grew 13% as reported and 10% at constant currency, representing 19% of IBM’s geographic revenue in the quarter.

"The BRIC countries, a subset of our growth markets, grew 19% as reported and 12% at constant currency with strong double-digit growth in Brazil, Russia and India. However, our results in China slowed to three percent growth, down four percent at constant currency.”

With the public sector and industrial components of its business doing well, Loughridge turned his attention to financial services, which just a fortnight before had seen many analysts forecasting doom and gloom for IBM's Q3 figures – the result of the short-term, muddy and alarmist thinking that stalks many a downturn and contributes to hysteria.

“I’ll remind you that about 60% of our financial services revenue is in annuity businesses,” said Loughridge. “US revenue was down one percent, slightly better than our second quarter performance. However, outside the US, where we generate over 75% of our business, revenue was up 10%, or four percent at constant currency. Globally, we had growth in banking and insurance but financial markets revenue was down at constant currency.”

Loughridge then pointed to a New York Times (Bloomberg informed) timeline of buyout and takeover activities of major financial institutions in the US and Europe since the middle of last year. The amount of revenue IBM generates from the 21 institutions listed, he said, represents only about one percent of IBM’s total revenue.

“Let me tell you what we’re seeing in the marketplace,” said a bullish Loughridge. “There are a lot of enterprises dealing with a tough environment, looking for ways to reduce costs, conserve capital, and in some cases just to survive so there’s a lot of good services opportunity out there. But frankly, there are also many deals that have very unattractive economics, and while these may be interesting to some of our competitors, they’re not to us.

"It’s not hard to drive revenue in a services business on a weak book of business. But we’ve built a strong and profitable business and we’re not going to put that at risk just to show a higher level of signings.”