Thanks to a strong jump in revenue generated by its middleware software brands, IBM recorded profits of $3.54 billion (£1.79bn) for the fourth quarter, a rise of 11.1% over the same period in the previous year.

The company had revenue of $26.3bn for the quarter ending 31 December, an increase of 7.5% from last year and better than Wall Street estimates of $25.7bn, according to analysts polled by Thomson Financial.

IBM relied heavily on revenue from its middleware group, which includes WebSphere, Information Management, Tivoli, Lotus and Rational. Together, those products generated $4.4bn (£2.23bn), up 18% from this quarter last year.

Other IBM business units’ revenue rose by only single digits, including a rise of 7% for global technology services, 3% for global financing, and 3% for the systems and technology group, which includes System z servers.

For the full year of 2006, IBM reported total revenue of $91.4bn (£46.35bn), a rise of 4% over 2005, excluding the PC business sold to Lenovo Group. IBM recorded annual net income of $9.49bn, up 19.6% from its mark of $7.93bn last year.

All of IBM's middleware brands grew faster than the overall market, senior vice president and chief financial officer Mark Loughridge said on a conference call to discuss the quarter's results.

In its services business, IBM signed deals worth $17.8bn in the quarter, up 55% from a year earlier. The company signed 14 deals worth more than $100 million, Loughridge said. Big deals included contracts with Vodafone Group, the US state governments of Indiana and Texas, and the German army.

The company expects to meet analyst's expectations of 10% growth this year in income from continuing operations, Loughridge said. In addition, there is no reason to think IBM will slow down its acquisitions this year after buying 13 companies last year, according to Loughridge. Those acquisitions have paid off well, he said.

IBM will focus internal investments on its software business and on emerging markets, he said. Revenue from emerging markets grew 18% in the fourth quarter, adjusted for currency changes, compared with 5% growth in the Americas and Asia-Pacific and 3% in Europe, according to the company. Overall, business improved in France and Italy and recovered in the second half of the year in Japan.