IBM Keeps Revving

A lot of people were surprised when IBM(IBM Quote - Cramer on IBM - Stock Picks) made three rapid-fire software acquisitions in August. They shouldn't have been. Big Blue's software group has been averaging 8 to 11 takeovers a year and has become IBM's most profitable business unit.

In 2005, the software group posted sales of $15.8 billion, or about 16% of the company's total revenue, but 37% of its profit. If it stood alone, it would be the world's second-largest software company behind Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks). It has a workforce of about 44,000, including 26,000 software developers and a sales force of 13,000.

Top-line growth is a major priority for Senior Vice President Steve Mills, who heads the group. Last year, the software business grew by 4%; going forward, Mills expects to grow revenue by 6% to 9% a year, with new acquisitions adding 2% or 3%. Significantly, 2005 marked the first year in which the newer, faster growing parts of the software business, including WebSphere, Lotus, Tivoli and Rational, contributed the bulk of the group's revenue -- 52%.

Mills' performance has won him lots of notice, but he's in no position to relax. The software group has been a standout at a time when Big Blue's growth has slowed; the company's stock is well below its two-year high of just under $97. He needs to keep that machine humming.

To watch Farnoosh Torabi's interview with Steve Mills about IBM's software, please click here.

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