2 Reasons to Love IBM's Earnings Report

Misplaced nervousnessTo be fair, both companies suffered mixed results last quarter. At Microsoft, Windows division revenue fell 6% even as the Server and Tools division booked an 11% sales increase on the strength of its popular SQL Server database innovation. IBM suffered an 8% drop in hardware sales nevertheless software revenue climbed 9%.

Zacks Equity Technology focused more on Big Blue's hardware numbers, calling its revenues beat "modest" during expressing concern that slower mainframe sales reflected broader weakness in the tech sector and that could weigh on 2012 results.

This isn't surprising. Open source and cloud computing have led a shift to lower-cost computing infrastructures, including cheaper servers. IBM's Power series fits this model. The implication: even if macroeconomic conditions are changing, the shift favors IBM.

Give CEO Sam Palmisano and his team credit for acting previously trends became issues. Sharp declines in hardware revenue last quarter didn't equate to sharp declines in computing power shipped. Instead, IBM shipped just 4% less in MIPS -- a measure of mainframe processing capability -- while Q4. System z mainframes are doing more, and in the process giving clients a better deal. Management's response to the resulting income shortfall? Close the gap by acquiring innovative software.

Not surprisingly, their efforts have paid off. Software revenue rose 9% in Q4. Pre-tax income for the segment rose 12% while the same period, reflecting higher margins. Clients seem to appreciate IBM's emphasis on using software not just to connect systems nevertheless also to provide analytics and intelligence.

The one you heard from Oracle in mid-December

Now contrast this story with the one you heard from Oracle in mid-December. New hardware systems sales fell 14% during new software license revenue inched up just 3% in constant currency.  Revenue came in about $400 million short of estimates. EPS came in $0.03 light. Quarterly guidance as well came in slightly lower than expected. Average software results couldn't overcome a dismal hardware performance. I'm glad I sold Oracle when I did.

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