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is betting big on consulting services to drive its revenue growth over the coming years, according to Sam Palmisano, the company's CEO, who made a rare

public appearance

at the company's annual investor meeting Wednesday in New York.

"We think that this space will be as large as Enterprise Resource Planning in the next five years," he said, alluding to the phenomenal growth of business management software. "Services has been a terrific story -- we now have the best margins in the service business of anybody."

IBM's overall gross profit margin reached 43.4% in its recent first quarter, up from 41.5% from the prior year, thanks to improving services and software margins.

The company also launched a new consulting wing dedicated to analyzing and improving customers' business functions. This is expected to generate revenue of $2 billion next year, according to Frank Kerns, IBM's senior vice president of global business services.

"Analytics will be pervasive across all of our consulting practices," he added. "Clients are struggling today with massive amounts of data -- exploding amounts of data."

Despite this trend, the tech giant recently reported

first-quarter sales

below Wall Street's expectations.

IBM nonetheless grew its first-quarter earnings 4%, and recently boosted its


by 10%.

Even in a tough economy, Palmisano struck a bullish tone at the investor meeting, explaining that the firm is delivering on its plan to increase profits from software.

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"Software profit grew 13% compounded over the last two years and represents 43% of IBM profit," he said. "We would argue that we're pretty much on track."

IBM, which competes with the likes of


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(MSFT) - Get Microsoft Corporation Report

, also ramped up its software strategy Wednesday, unveiling data analysis software which it describes as "stream computing."


This is where you can monitor market trends in real time," said Palmisano, explaining that the software could be used to track trading data in the financial markets. Other potential uses for the software include trawling through patient information in healthcare and even crunching environmental data.

IBM isn't the only firm with its eye on the real-time analysis market, however. It will face stiff competition from

Progress Software's

(PRGS) - Get Progress Software Corporation Report

Apama product and offerings from





In addition to software, Palmisano also highlighted regions outside of the U.S as key to IBM's broader strategy.

The company is seeing solid growth in emerging markets, he explained, despite the global economic slowdown. Revenue from Brazil, Russia, India and China grew 15% in 2008, just 3% less than the prior year, he said, adding that IBM is also targeting 16 other emerging countries.

"We will continue to invest there," he said. "These markets are building out large data centers, networks and banking and wireless infrastructure -- these are big, big markets."

As one of the biggest names in the tech sector, IBM is seen as a key indicator for both customer spending and the M&A climate.

The Armonk, N.Y.-based firm, for example, recently hit the headlines when it walked away from


its server rival

Sun Microsystems

( JAVA). Looking forward, Palmisano said that the firm will remain cautious in M&A.

"We're not over-caffeinated," he said, but acknowledged that this is a buyer's market. "It's a perfect opportunity to prudently invest in the future

but don't do crazy deals just because they are available."



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eventually grabbing Sun, there has been plenty of speculation about the next big deal, with


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even touted as a possible target for IBM. SAP CEO Leo Apotheker, however, has said that it is in his firm's best interest to remain independent, and IBM software guru Steve Mills recently poured water on the SAP speculation, according to



IBM's shares slipped $1.96, or 1.89%, to $101.98 Wednesday, mirroring the broader decline in tech stocks that saw the Nasdaq fall 1.98%.