This year was the 90th anniversary of IBM's (NYSE:IBM) listing on the New York Stock Exchange (although back when the company was founded, it was called Computing-Tabulating-Recording Company). Despite its old age, it continues to grow, as seen yet again in 2006. The stock has gone from $80.97 in January to about $95.00 today.

So, let's take a look at the year that was:

In the first quarter, IBM showed that it was making progress in its restructuring, with net income increasing 22% to $1.7 billion or $1.08 per share.

It was encouraging that IBM's global services business increased 3% (if currency movements are filtered out). More importantly, there was $11.4 billion in new contract signings -- a catalyst for future growth.

However, by July, the software sector had a big sell-off, and so did IBM, whose stock price was at $74. Still, it was able to post a solid quarter. Earnings increased 14% to $2.02 billion or $1.30 per share. Sales inched up 1% to $21.89 billion (adjusting for the sale of its PC division).

However, there was some slippage in bookings for its services business ($9.6 billion for the quarter).

But big changes were afoot as IBM went on an M&A spending spree, shelling out billions on a variety of software companies, such as Webify, MRO, and FileNet.

It was good timing as the third quarter was a blowout. Net income hit $2.2 billion, or $1.45 per share, which was up from $1.52 billion, or $0.94 a share, in the same period a year ago. During this period, there was a jump in gross margins from 40.6% to 42%.

And, yes, IBM got a nice pick-up from its software business, which grew 9% to $4.4 billion in sales.

The Foolish bottom line
All in all, it was a solid year for IBM. The company has been taking steps to improve its services business (which is a majority of its revenues), but it's also making strategic investments in the software space. Besides, it looks like the software industry may be growing again, as seen with the rally in software stocks, such as Oracle (NASDAQ:ORCL), Cognos (NASDAQ:COGN), (NYSE:CRM), and even Microsoft (NASDAQ:MSFT).

So, what does the Motley Fool CAPS community think about IBM's prospects? Here's a look:

CAPS Rating

2 stars (out of 5)

Total Bulls


Total Bears


Bull Ratio


Bear Ratio


Here's same analysis form CAPS player Ayax2006:

Increasing focus on software (higher margins) rather than services and hardware. Turnaround story that should pay off. Also, IBM processors are the core chips in all major videogame consoles. According to its CEO, IBM has top share in servers and Linux, #1 in blade servers (huge growth potential), #1 in supercomputing and Service Oriented Architecture (SOA) and #1 in middleware. Finally, they are investing and building a stronger presence in India and China. Start building a position and add on weakness or any correction. Risks: competition from firms in lower cost countries, mainly in Asia.

Further Foolishness:

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 758 out of 17,523 in CAPS. Microsoft is a Motley Fool Inside Value pick.