As Slowdown Drags On, IBM Looks to Governments for New Growth

Samuel Palmisano has been busy. The previously low-profile chief executive of International Business Machines Corp. has crisscrossed the globe in recent months, talking to government leaders about promoting the use of technology to improve everything from roads and water systems to the environment and health care.

Government spending on such programs can stimulate economic development, argues Mr. Palmisano. And it has another benefit: boosting IBM's bottom line.

No longer a slow-footed behemoth, IBM is proving nimble at finding new opportunities far afield of corporate computer centers. On Tuesday it expanded its portfolio by agreeing to pay $1.2 billion to buy SPSS Inc., whose data-mining software, among other things, is used by Atlanta police to predict which parolee is likely to become violent.

In its latest quarter, IBM's profit rose 12% to $3.1 billion, even as revenue fell. Public-sector business has been IBM's strongest this year, rising 7% to $4 billion in the second quarter, adjusted for currency changes.

The results sparked a rally in IBM's shares, whose 40% gain for 2009 has far outpaced broad stock indexes. With a stock market value of $155 billion, IBM has climbed to sixth among all U.S. companies-up from 19th in 2007.

Most of IBM's big high-tech rivals have suffered during the recession and many are wrestling with problems. Microsoft Corp., which reported its first full-year sales decline, Wednesday reached an alliance with Yahoo Inc. designed to shore up its Internet-search business. Hewlett-Packard Co. posted declines in sales and earnings in May even after doubling down on traditional computer services and outsourcing by buying Electronic Data Systems last year. Intel Corp. recently reported its first quarterly loss since the 1980's.

IBM's recent success is the result of a strategic turn in which the company is downplaying hardware, expanding software and focusing its giant services business on advising government agencies and companies on their fundamental operations.

Mr. Palmisano has become an informal technology adviser to White House, frequently exchanging phone calls with President Barack Obama's chief of staff, Rahm Emanuel, according to people familiar with the matter. Last month, Mr. Palmisano hosted a "smarter cities" gathering in Berlin that drew officials from 400 cities, including Madrid, Stockholm and Helsinki.

More: http://online.wsj.com/article/SB124891414229992099.html

Sam and Rahm buddies...who would've knew?