IBM's Lotus Gets Fresh Legs

IBM also inked Lotus deals with banks in the U.S., the UK, and Germany during the quarter.

Picciano credits Lotus' and Sametime's Web 2.0 capabilities that enable businesses to incorporate social networking internally, as well as the product's collaboration portal and unified telephony.

These new deals went a long way to growing Lotus revenue 21% year over year during the second quarter ended in June, compared with growth of 12% for the same quarter of 2007.

Revenue in IBM's software segment grew 17% year over year to $5.6 billion during the second quarter. The company doesn't break out Lotus revenue, but the brand is one of five so-called middleware lines that together accounted for $4.3 billion during the quarter and $15.5 billion in 2007.

And software is one of IBM's highest-margin businesses, at 23.7% during the quarter, compared with 14.2% for the company.

In a recent IDC survey of business's future plans for spending in communications products, Cisco(CSCO Quote) came out in the lead -- not surprising given its networking and telephony equipment, Levitt said. But Microsoft and IBM ran fairly evenly as the second choice, with Microsoft having a slight lead in a couple of industries as the vendor they will turn to, he added.

"Long term, Microsoft has a stronger presence in the desktop with Office," Levitt says. "But IBM is looking to find places where Lotus Symphony can meet the needs of users who don't need full-blown Office."

"They are still head-to-head competitors. Each one is going to claim winners and competitive wins from the other," Levitt says.