The results could be even better. In a note to clients issued Monday, Chris Whitmore, an analyst with Deutsche Bank Securities, said that while he expects sales to be in line with the consensus, IBM could report earnings that are as much as 10 cents above the consensus. One reason he expects a beat is the services business: Past deals should start paying off, Whitmore says.

You can’t go very far with IBM before you hear the word “analytics.” IBM has this thing about making different bits of the world smarter. Commerce is one thing; cities are another.

Then there’s the planet itself: IBM says it wants to generate $20 billion from new initiatives by 2015, and one of those is making things smarter using its analytics technologies. There’s money to be made in taking data that has previously been ignored, finding patterns in it, then gaining helpful insights. Other companies are getting analytics religion, too: Hewlett-Packard spent $12 billion last year to acquire Autonomy, which specializes in analytics software. Meanwhile, Splunk is coming public in an IPO slated for later this year.

I had the chance to talk about all this recently with Mike Rhodin, the senior vice president of IBM’s Software Solutions Group, during a visit to IBM’s headquarters in Armonk, N.Y.

AllThingsD: Mike, we hear a great deal about how important the analytics business is to IBM, to the point that we rarely hear from IBM these days when you don’t talk about analytics. Yet I think people are still getting their heads around what it means. Walk me through how IBM sees this.

Rhodin: The observation we’ve made, and you have to be careful with observations, is that analytics is something that’s becoming embedded in everything else. It used to be a thing. Analytics was initially business intelligence and dashboards, and when you say the word, that’s what many people still think of. They think of a dashboard with statistics and pie charts that kind of show you what’s going on. We think of it different. It’s that plus real-time analytics, statistical models — it’s starting to look at analytics in real time versus the past. The idea is that you instrument your processes and capture the data as it’s occurring, using statistical models to predict potential problems. So you’re going from reporting on past events to predicting future events. It’s that combination that we find very interesting.

What’s a good example?

We’ve done a TV ad on this, so you’ve probably heard of it. But it’s Sick Kids Hospital in Toronto. [Also featured in IBM's Centennial film.] We instrumented their data flows, and then we built analytics triggers to look through their data. We’re finding anomalies 24 hours before the doctors and nurses do, simply by instrumenting the physical world, pulling data together, using analytics to gain insight and then using that insight to hopefully get to a better outcome. And that pattern of instrumentation through insight is a repeating pattern of everything we call Smarter Planet.

How did IBM come to see this as so strategically important?

The whole story behind how we put this organization together was driven around an observation we made in 2006 about how the world was going to change. And that we had seen enough examples of this to know that this was real, and it represented a fundamental shift. Some people thought Smarter Planet was simply a marketing campaign, but it’s not. So if you think about Smarter Planet in simple terms, it comes out of the digitization of the physical world, the instrumentation of physical processes that’s going to generate huge amounts of new data, which is going to drive issues around storage, and what to do with all the data, how to analyze it. That pushes you toward real-time analytics and streaming technologies, because with real time, you don’t have to save the data — you want to look for anomalies as they occur. It’s the combination of multiple things happening at once that give you that trigger. So that pattern you see repeating itself throughout the physical world: Smart transportation systems, water systems, intelligent smart-grid systems, health-care systems like the one I described, these are example of real change that are going to occur in parts of the world around us that have been less benefited by information technology in the past. It’s the next big wave of IT spending.

And yet it’s not all about the physical world — you can apply the same patterns to the digital world, too, right? I’ve seen a lot of analytics-related news coming out of IBM that looks at data gathered in the digital realm.

Sure. You’ve seen us do things like sentiment analysis, tracking people’s opinions on the social networks about the Grammy Awards and the Super Bowl. Those are just examples of the same pattern of instrumenting, pulling data together and then looking for patterns. We’re doing a ton around retail. Two years ago, I was at my house in Vermont, and I looked at the paper that morning, and saw a story saying that, according to IBM, luxury goods sales were up. And I wondered who at IBM would have put out that press release. And then, a few minutes later, it was my own group. That was after the acquisitions of Coremetrics and Unica. Coremetrics had previously put out these regular reports, and so they became an IBM report. As we went into Black Friday and Cyber Monday last year, we had enhanced it so that we not only knew what was being bought, but what device people were using to buy it. So we could track purchases on the iPad versus Android versus Blackberry. And we actually published the statistics on that.

What did Unica bring to the table?

The level of information we’re gaining on instrumenting data sets is pretty dramatic. But it’s not just finding out what people are buying — you can also figure out what people are not buying. So you start to see trends in commerce that can tell you how you’re doing against your competitors. So one thing we can do is help companies figure out why things aren’t selling on their Web sites, so they can think through new tactics and offers they might create to get people buying again. The Unica acquisition comes in as a real-time automation of marketing. You feed real-time information into a marketing management program that automates the marketing of those things. And recently we closed in the acquisition of DemandTec, which can automate the pricing of those offers. So you can see how we’re stringing together a group of things we collectively call Smarter Commerce.

So if, for example, Best Buy and Amazon are going to have a fight over who has the best price on a TV, they can just automate it.

Yeah, they can automate it and just watch it go. It is a very interesting set of dynamics that’s unfolding around us. Commerce was one of those areas that we thought was ripe for transformation. We had some of our own internal technologies with our own e-commerce engine, WebSphere Commerce. But that was really about traditional order-capture e-commerce. Then we started thinking about commerce in a very broad sense. There are a lot of processes that exist between companies that do business with one another, and then helping those companies do business with their customers. So we put together a big process map that showed what products we had that addressed those processes, and where we didn’t have them, we had white boxes. Then we identified companies that did, and started to buy them. And over time, we’ve filled in that map.

Have you filled in the map entirely, or are you going to be buying more companies?

We’ve publicly said we’re going to spend $20 billion on acquisitions between now and 2015, and we haven’t finished yet. [Since this conversation, IBM has announced plans to acquire Varicent, a compensation and sales performance analytics company.] We’re always looking for good companies, and it’s part of our business model, and we have a stated intention to buy more.

And the highlight of that letter was an update on Big Blue’s progress toward meeting its growth targets for the year 2015. IBM has long promised to add $20 in per-share earnings and $20 billion in incremental revenue growth by that year. The crux of Rometty’s letter: “We’re on it.”

“The next decade holds enormous promise for IBM, most importantly because of what it holds for business and society at large. We are uniquely positioned to deliver the benefits of a vast new natural resource — a gusher of data from both man-made and natural systems that can now be tapped to help businesses and institutions succeed in an increasingly complex and dynamic global economy.”

So how will it get there? By doing more of what it’s been doing the last several years. In broad brushstrokes, that means pursuing lines of business that have a lot of value — and which carry a higher margin — and focusing less on hardware. Generally speaking, that has meant a big shift into services that bear a long-term revenue stream with them.

But it also means a shift to software. One key piece of the strategy has IBM generating about half of its segment profits from software by 2015. As of 2011, it was already at 44 percent.

It also means going global in a big way and reaching into smaller markets that are breaking out. About 22 percent of IBM’s revenue came from these so-called “growth markets” in 2011, and the plan is to push that to 30 percent by 2015. And it’s not coming from the BRIC countries you always hear about (Brazil, Russia, India, China) but others in Africa and Asia: Some 60 percent of revenue from growth countries comes from non-BRIC countries.

There’s a lot more of these interesting facts from IBM’s annual report in an infographic here.

Deutsche Bank analyst Chris Whitmore expects some difficulties for Big Blue stemming mainly from the company’s exposure to the troubled economies of the euro zone and related currency weaknesses there. He expects the company to report sales of $29.8 billion and per-share earnings of $4.62, with his sales forecast slightly more optimistic than that of the consensus of Wall Street analysts.

Even so, he expects the strength of the U.S. dollar relative to the euro in recent months will create a headwind effect worth about 2 percentage points compared to IBM’s prior forecast in October. “Although the stronger dollar is likely to impact reported revenue, IBM remains one of the most defensive names in our universe due to its high exposure to recurring profit streams, past backlog growth and wide geographic and business diversification,” he wrote in a note to clients yesterday.

Hardware sales should be in line with forecasts as IBM has continued to gain market share away from Hewlett-Packard and Oracle. Services should continue to be a sign of IBM’s strength as its backlog of prior contracts should continue to deliver a stable stream of revenue.

One problem may come from service bookings. Whitmore thinks the consensus estimates on this closely watched number are, at $21.5 billion, a little high and thus could disappoint. IBM announced only five deals in the fourth quarter compared to seven in the same quarter of 2010. And though information about the size of the deals was limited generally, two of them combined to amount to about $740 million. “IBM’s services bookings figure is always a wildcard and the lack of many announced deals clouds visibility,” Whitmore wrote. He rates IBM a buy with a price target of $210.

The earnings report will also be the first with Ginni Rometty as IBM’s new CEO. Having already had a busy first few days on the job, it will be interesting to see if she uses the occasion of an earnings conference call to announce anything new, though that’s unlikely.

Today, Big Blue closed its first acquisition of the Rometty era, announcing a deal to buy privately held Green Hat, a company that specializes in software for conducting quality tests on software applications for the cloud. It’s small enough that IBM didn’t disclose financial terms. Green Hat dates to 1996 and is based in London and Wilmington, Del. Its main stock in trade is to simplify the capital- and labor-intensive job of testing software applications by moving the entire process to the cloud. Once the deal closes, Green Hat will become part of IBM’s Rational Software business unit.

And if acquisitions weren’t enough, there have been some promotions too. As first reported by Bloomberg News, which obtained an internal memo, Rometty named Bruno Di Leo as senior vice president of sales and distribution and Bridget Van Kralingen as new senior vice president of IBM Global Business Services, IBM’s consulting arm. Van Kralingen is replacing Frank Kern, who is retiring after 35 years at IBM.

Di Leo is a native of Peru, and joined IBM in 1975. His last job was running the high-profile growth markets unit, which specializes in business in the BRIC countries — Brazil, Russia, India and China. James Bramante was named as his replacement and will be based in Shanghai. The job is an important one as IBM has set a goal of boosting its revenue in these markets to 30 percent of sales by 2015.

And while it was something of a publicity stunt to put a sophisticated and specialized IBM computer in people’s living rooms, the fact remains that Watson is, well, a pretty sophisticated and specialized computer.

Since schooling humanity at “Jeopardy” — which was the subject of a book — Watson went on to get a real job working for the health insurance company Wellpoint.

Now IBM has decided it is ready to tackle something a little more involved. Watson is about to go to medical school, and will even study a specialty: Oncology. Sometime this year, after studying and even taking exams to prove what it has learned, Watson will be assigned to assist human physicians in the treatment of breast, lung and colon cancer.

If this seems like kind of a big deal, it is. Watson won’t be the first computer to serve as a reference tool, helping doctors do their jobs. But then there has never been a computer quite like Watson, which can learn so readily from natural language — and play TV game shows and win.

Last week, I talked with Manoj Saxena, general manager of the Watson program at IBM, to talk about what Watson will — and won’t — be doing in helping doctors treat humans with cancer, and what that might mean for the future of medicine.

My first question was about what Watson has been doing since its big win:

AllThingsD: So, Manoj, last I knew, Watson had been working for Wellpoint, which is a large health insurer. What exactly has it been doing?

Saxena: Let me bring you up to speed. In August, we announced the first commercial relationship of Watson with Wellpoint, one of the nation’s largest health insurers. They have 35 million customers in 14 different states. One out of nine Americans are covered by them. The first area was around utilization or approval. Let’s say you or I call up a clinic or hospital saying we have flu-like symptoms. Where Watson would come in is on the approval process, saying we’re covered. Then Watson looks at the history that the hospital has in its records. It might say that it’s early December, and I come in at this time every year saying the same thing; and the last two times it was a ragweed allergy, not the flu. And the medical journals say there’s a connection between ragweed and fever that looks like the flu. And by the way, the newspaper says there was an outbreak of ragweed in Central Texas. And then, in addition to treating for flu, also look for allergies. So Watson is considering the medical record; the patient history that the insurance company has; and third, the medical journal and news information about what may be causing a certain thing. So that’s what it’s doing with Wellpoint so far.

How then do you make the pivot to working with cancer?

We’ve installed another adviser — these solutions are called Watson Advisers. This one is called Watson Oncology Adviser, and this is a big one. As you may remember, medical information is doubling every five years. Doctors tell us that they are spending only five hours per month going through new information in medical literature. On one hand, you have all this medical information coming out. We’ve decided to focus first on breast, lung and colon cancers as the three to apply Watson to. And Cedars-Sinai has partnered with Wellpoint to help come up with the right cancer solutions. And the point is to build the expertise within Watson to help treat cancer.

So Watson won’t be directly involved with the treatment, but rather to build up its own knowledge base?

Watson doesn’t make the decisions. It’s a physician’s assistant. But before it becomes that, it has a lot to learn. Out of the box, Watson has the knowledge of a first-year medical resident. That is where it’s at today. With Cedars-Sinai and Wellpoint, we’re going to teach it all about cancer during the next six months. We’re going to show it actual cases that were solved in the past. And over time, we’ll tweak and teach it, using things we already know.

Is there a human analog to this process?

A good human analog is how we learn. As children, our teachers and parents sit with us and ask questions to understand how well we learned from what we read. And then, later, we learn by doing. This will address the first two phases. Watson will read on its own, and then oncologists are going to ask questions of Watson to understand how well he has learned and then understood. And then once we feel comfortable that it has learned enough, then we will let it begin working as a physician’s assistant, and then it will go from there.

Since, in the end, there are humans being treated, do you have to get any kind of regulatory approval to do this?

No. It’s very similar to how doctors refer to medical journals. Doctors might turn to Google or something like that to look up info from their medical journals. That doesn’t require any approvals. Someone else asked me what happens if Watson suggests a particular treatment, the doctor accepts it, and the patient dies. Or what happens when Watson suggests something and the doctor doesn’t take his advice. Our view is that it’s the same as looking up textbooks and information. The physician is the one who makes the final decision.

And that will always be the case?

That will always be the case, yes. We are far, far away from computers doing medical treatments. I don’t even see it in the forseeable future.

How do you actually go about feeding information to Watson? How does it learn?

It’s a good question. There are four different types of information that’s fed into Watson. At the base of the pyramid, it’s general information like Wikipedia and Google and general information like that. And a lot of that is general knowledge; and a lot of that is already in place, because we needed that to play Jeopardy! Then the second layer is the medical textbooks and medical journals and vocabularies, and those are fed in as natural-language information. It can be any scanned information or text information because Watson understands natural language. So that information is the second part. It can process text and tables, but it can’t process pictures and videos, but we’re working on that. And then there’s the actual test cases, the information on people with 30 years of cancer treatment history. We feed that into what are called “answer keys.” The fourth layer are new domain-specific information models that are specific protocols and procedures that the health insurance companies will want to feed into Watson.

Where do you draw the line? There is an accepted mainstream body of knowledge and accepted treatments for different cancers, and then there are newer things that may be controversial for some reason.

The way we approach it is in two parts. One is the body of knowledge that is already known. But it does not get applied and in context, and often doctors don’t have access to it in context. There are things like cancer treatment guidelines and well-understood things about radiation and effects on different cancers. Call them the known treatment pathways. The second are the emerging treatment pathways, particularly in the area of genomics. That is the one that can get added on. It’s the one our partners are looking at. In about a decade, most cancer treatments are going to shift to genomics-based treatments, rather than chemotherapy-based treatments. There’s a deluge of information about converting the knowledge about DNA into biological knowledge, and then converting that into treatment knowledge. That is the second part of what we’ll be doing.

Do you have other diseases that you think Watson can help treat in the future?

Yes. Diabetes and cardiology, heart problems are next on the horizon. We’ll also be applying Watson in financial services.

The New York Times published something of an exit interview with Palmisano over the weekend. It read a bit like a victory lap, and that’s not undeserved. The record books will show that IBM shares during the Palmisano era (2003-2011) rose by 125 percent; sales grew from $81 billion in 2002 to an expected $107 billion; and annual profits on a per-share basis went from $3.07 to a consensus forecast of $13.38.

But it got me to thinking about one of the highlights of the Palmisano era; one that generated a great deal of attention at the time: IBM’s decision to sell its personal computer division to Lenovo, the Chinese PC maker. It was a relatively small deal, worth less than $2 billion at the time, but it was a controversial move. Despite the fact that IBM wasn’t making much money on the business, IBM PCs, especially its ThinkPad line of notebooks, were generally considered to be pretty good.

Nearly seven years later, it’s worth noting that Lenovo is now the world’s second-largest PC vendor, behind Hewlett-Packard, having vaulted past Dell earlier this year, according to the market research firm IDC. It’s also worth noting that Lenovo is in fifth place in the U.S., behind HP, Dell, Apple and Toshiba, in that order.

IBM initially owned 15 percent of Lenovo and maintained a stake in that company until February of this year, when it sold its remaining 4.3 percent shares at a profit of more than a quarter-billion dollars.

Lenovo’s biggest shareholder is Legend Holdings, of which 36 percent is owned by the Chinese Academy of Sciences, a.k.a. CAS Holdings, a state-controlled entity. The state has pared back its stake, though: When the IBM-Lenovo deal was announced in 2005, Lenovo was 57 percent state-owned.

There was a lot of natural controversy, and even national security concerns in 2005, about selling so red-blooded an American product as the IBM PC to China. But there was also a solid business case to consider. The PC business was a drag on earnings because of downward price pressure exerted by Dell and all the others, and it wasn’t even leading the market, as was the case with Hewlett-Packard, which engaged in some very public contemplation about spinning off its own PC division.

But there was also a potential strategic benefit, which Michael Useem, a professor a the University of Pennsylvania’s Wharton School of Management, pointed out at the time: Making friends with China.

By selling an underperforming asset to a buyer willing to take it and run with it, IBM got solid access to the exploding Chinese market. In paraphrased remarks to the Times, Palmisano concedes the point:

Palmisano says he deflected overtures from Dell and private equity firms, preferring the sale to a company in China for strategic reasons: the Chinese government wants its corporations to expand globally, and by aiding that national goal, IBM enhanced its stature in the lucrative Chinese market, where the government still steers business.

So how has that worked out? It’s a little hard to tell from reading Big Blue’s Byzantine financial statements. In fiscal 2005, the year the deal closed, IBM reported $18.6 billion, or about 20 percent of revenue, came from the Asia-Pacific region, including China.

And though it declined to provide specific dollar amounts, it said that year that sales in China had dropped by 19 percent, but after after stripping out the PC division, would have grown by 8 percent.

For the first nine months of fiscal 2011, IBM reported that the Asia-Pacific region accounted for exactly the same dollar figure — $18.6 billion — amounting to 24 percent of its overall sales of $77.4 billion, and there’s still a quarter to go. That would put Asia on track to account for a little less than a quarter of IBM’s revenue.

In its earnings statement, IBM also makes a point of calling attention to what it calls “growth markets,” which are generally the BRIC countries — Brazil, Russia, India and China. These markets combined for 23 percent of sales in IBM’s most recent quarter.

This is about as close to understanding the size of IBM’s business in China as we’re going to get. On balance, it looks to have been a positive move, especially when you consider that if IBM had kept its PC division, it would have likely only gotten smaller and become more of a profit drag on a company that’s increasingly focused on high-margin businesses like services and consulting.

Nor can we judge by IBM’s headcount. Globally, as of the publication of its last annual report, IBM employed 426,751 people. But it has stopped providing a geographical breakdown. A report in the Times of India in 2010, mentioned by The Wall Street Journal, suggested that Big Blue’s headcount in India might be as high as 130,000; which, if true, would make it one of that country’s top 10 employers.

There is no question that IBM’s presence in China has grown. You can tell by the press releases. There was for example, a new IBM Research lab in Shanghai in 2008, and another in 2010. Just last month, IBM announced that it had closed a significant IT deal for a major health-care provider in Hong Kong, and another with a Chinese province to improve the safety of pork (which included a food-safety video I embedded below).

For better or worse, Palmisano will be remembered as the man who traded PCs for access to China. On balance, it seems to have been a good trade, but the jury is still out.

Tomorrow is the first business day of IBM’s Rometty era. Assuming she retires at age 60, a well-established IBM tradition, she’ll have about six years to make her mark. One wonders what she’ll be remembered for most.

One example is the annual tech prediction by analyst Mark Anderson, which I wrote about last week. Another is IBM’s recurring “Five in Five” series, wherein Big Blue looks at the unfolding technology landscape and predicts what innovations are still just this side of “gee whiz” today, but will be commonplace within five years.

Think back to what we were doing in 2006, and how far things have come in that short period of time in terms of consumer and enterprise technology. The iPhone existed only as an Apple prototype. Facebook had just opened itself up to the population at large, beyond just college and university students. Twitter was just getting started. And a tablet was a not-terribly-popular PC design.

As you’ll see, some of these five predictions aren’t exactly mind-blowing, especially if you pay attention to general technology trends. Over the past decade, you’ve probably already heard predictions saying that computer passwords will go away and be replaced by biometrics of some kind, whether in the form of fingerprints or voice authorization or some part of your eyeball. Also: Junk mail I actually want? That one I’ll believe when I see it. However, I really like the “think to call” idea, which sounds like a super speed-dial.

Anyhow, here are IBM’s predictions for stuff we’ll see by 2016, and a video explaining them in a little more detail:

You will make your own energy: Anything that moves has the potential to create energy. Your running shoes, your bicycle and even the water flowing through your pipes can create energy. Advances in renewable energy technology will allow individuals and scientists to collect this energy and use it to help power our homes, offices and cities.

You will not need a password: Your biological makeup is the key to your individual identity, and soon, it will become the key to safeguarding it. Each person’s unique biometric data such as facial definitions, retinol scans and voice files will be composited through software to build your DNA-unique online password. You will be able to log into your mobile phone or have access to an ATM machine by simply speaking your name or looking into a camera.

Mind reading is no longer science fiction: Scientists are researching how to link your brain to your devices, such as a computer or a smartphone, so you just need to think about calling someone and it happens. Scientists have designed headsets with advanced sensors to read electrical brain activity that can recognize facial expressions, excitement and concentration levels, and thoughts of a person without them physically doing anything.

The digital divide will cease to exist: In five years, the gap between information haves and have-nots will narrow considerably due to advances in mobile technology. Growing communities will be able to use mobile technology to provide access to essential information and better serve people with new solutions such as mobile commerce and remote healthcare.

Junk mail will become priority mail: Think about how often we’re flooded with advertisements we consider to be irrelevant or unwanted — it doesn’t have to be that way anymore. In five years, unsolicited advertisements may feel so personalized and relevant it may seem spam is dead. Systems will be able to filter and find only the data that’s important and relevant to you and will bring you the information without you having to ask for it.

Emptoris is based in Burlington, Mass., and its customers include American Express, ADP, Kraft Foods and Samsung America.

IBM is describing the deal as the latest move to fill out its “smarter commerce” initiative. And if you follow IBM, you know that making something “smarter” — whether it’s commerce or a city or the entire planet — generally means throwing some computing power and analytics up against a classic, complicated problem, which frankly, supply chains always are.

When you start looking at the patterns of what companies buy in the normal course of doing business — how often and how much not having some critical component or material can disrupt production — you start to see inefficiencies that cost time and money. Eliminate those inefficiencies, the thinking goes, and you start shaving down those costs, and start running the business in a more efficient manner. Usually, the saved costs go straight to the bottom line. That’s something that any CEO or CFO can get behind, and IBM says that doing this sort of thing is a $20 billion global market opportunity on software purchases alone.

IBM’s press release quotes Craig Hayman (pictured above), its general manager of industry solutions, who talked to AllThingsD in July about how IBM is helping companies manage their marketing. Hayman says that corporate procurement departments are increasingly being asked to show how they deliver value to a company. Emptoris will fit alongside IBM’s 2010 acquisition of Sterling Commerce.

Financial terms of the deal haven’t been disclosed, which means it’s a relatively small deal for Big Blue. But it’s also the second deal it has done this month in the smarter-commerce area. Last week, IBM spent $440 million to grab DemandTec, a software outfit that specializes in analyzing buyer behavior.

By 11:15 am ET, IBM shares fell on the news by 99 cents, or less than 1 percent, to $187.73. The shares have been on a steady climb all year, and as of yesterday’s close were up nearly 29 percent since the start of 2011.

Buffett made the disclosure in an interview, which at this moment is still underway, on CNBC’s “Squawk Box.” Why IBM? “They treat their stock with reverence,” which he says is unusual.

The shares are also on a nice steady climb. IBM ended 2010 at $146.76 and closed Friday at $187.38, good enough for a rise of nearly 28 percent this year.

Berkshire Hathaway’s 13F disclosure statement with the U.S. Securities and Exchange Commission is due later today. But from my glance at this Yahoo Finance list of IBM’s biggest shareholders, it looks like it will eclipse the investment firm State Street as Big Blue’s biggest institutional shareholder.

IBM shares are going up in premarket trading. As of about 8:40 am ET, the shares were heading up by more than $2, or about 1.1 percent, to $189.46.

Here’s the video:

Well, Mr. and Ms. Entrepreneur, your friends at IBM are thinking of you today. Big Blue will today announce the availability of $1 billion in new financing options specifically aimed at small and medium businesses to pay for purchases of new tech hardware, software and services.

Now before you roll your eyes, harrumph, and restrain yourself from saying “Who cares about small and medium businesses anyway?” allow me to answer: You do. In the U.S., small businesses account for a huge swath of the economy, accounting for about two-thirds of new jobs created over the last 15 years, and they hired 40 percent of high-tech workers. They also employ roughly 90 percent of the workforce of the entire world.

And get this: According to IBM, the total amount spent on technology each year by small and medium businesses — IBM defines them as having fewer than 1,000 employees — amounts to a quarter of a trillion dollars.

Compared to that, well, a billion is a little slice. But when credit is hard to get from ever-more-cautious banks in a tough economy, CIOs will see it as a welcome move. Half of small businesses crash and burn within five years because they can’t get access to capital.

Not only is IBM making the cash available but it is making it easy to get. Most of IBM’s small and medium business customers interact with Big Blue not directly, but through business partners — third parties like CDW and Ingram Micro — who sell IBM gear and do the heavy lifting associated with getting different bits of hardware and software working right. They also tend not to have huge IT departments as larger companies do, says Andy Monshaw, the general manager of IBM Midmarket Business. “It’s a really fragmented market with literally thousands of local players,” he says. “It’s a market based on long-term local relationships.”

Entrepreneurs are running up against expectations of the so-called “consumerization of IT.” They have easy-to-use technology at home, but the stuff at the office is older and not cutting it. One big thing these companies are looking at is cloud computing. An IBM survey found that 60 percent of them are shopping around for cloud services. That got the attention of IBM’s Global Financing unit, which helps customers pay for new gear and services in much the same way that car dealers help people buy cars — by providing attractive financing packages.

On top of that, IBM has come up with a long list of products and services that are priced in ways that make sense to smaller companies — stuff that gets charged on a per-user or consumption basis. IBM has hacked together a list of products and services to fit with the effort, including cloud services, analytics and security, as well as products from recent acquisitions like Netezza, Cognos and Cast Iron.

Certainly there’s a lot of hand-wringing going on, especially in the U.S., about what it will take to get the economy creating jobs again. In fact, the president of the United States is going to talk about that very subject in an address to Congress and the nation tonight. And a survey done by Pepperdine University and Dun & Bradstreet found that 35 percent of small business owners say their biggest impediment to hiring more workers is access to capital.

It was part of a long-term strategy at IBM to build out its business in services, and it has really paid off. In 2010, 57 percent of IBM’s $100 billion in revenue was derived from services. And the profit margins aren’t bad, either. One business segment, Global Business Services, reported 2010 profits of nearly 29 percent; the other, Global Technology Services, reported margins just shy of 35 percent. The move has since made IBM the envy of the IT services industry, and as IBM’s most recent quarterly results show, the services business is growing, too.

IT is complicated and costly, and when you’re in the business of building something or shipping stuff around the world or doing pretty much anything that’s not IT itself, there’s a certain amount of economic sense in hiring someone to run your IT for you and take some of the burden off your books.

In that nine years, IBM has learned a thing or two about services. It has 15,000 patents around the delivery of services and software, and has since coined the phrase “services as a science.” You can’t treat something as a science unless you’re dedicated to researching it. And today IBM announced that it is throwing its considerable research muscle behind services: It has opened a new research lab devoted to services only.

Dubbed the Services Innovation Lab, or SIL, it will boast 200 technology experts from around IBM. Their brief will be simple: Push the expansion of cutting-edge computing processes like real-time analytics and software automation more deeply into IBM’s service offerings.

Scott Hopkins, IBM’s general manager for global technology services sales, told me that other companies in the IT services business try to grow by squeezing costs by moving assets or the workforce into less expensive locations. “Some try to do the same thing with a little for a little less cost. Others squeeze and cut the labor base,” he told me. “That’s basically how the industry operates. We’re coming to our clients with our base of experience from research and with our ability to leverage our software, and give them a service that changes their business model. It’s not just taking over their mess for less.”

The lab’s director will be Mahmoud Naghshineh, an IBM vice president who joined the company in 1988. He says that IBMers have been doing this research in the course of IBM’s normal services business for more than 20 years. “What we’re trying to do with this research lab is take it up a notch,” Naghshineh told me. “The idea is to really help our business and our clients by accelerating growth in the services area.”

For example: Cloud computing. Clearly, businesses are looking seriously at ways that cloud computing can reduce operational costs but also efficiently add new computing resources to the available mix. “But when we talk to our enterprise customers, there’s huge complexity involved in moving the computing workloads to the cloud. There’s diverse infrastructure, there are concerns about security, and it all has to be reliable,” Naghshineh told me. One of the major research topics at the new lab will be finding ways to make that transition easier.

Another classic problem in IT outsourcing is planning for service outages, or what I like to call expensive, unwanted surprises. Traditionally, Hopkins says, the primary focus on the problem is on how to get systems recovered and running normally after an outage. “The focus has been on how you react.” IBM put the problem to a team of mathematicians. They captured real-time operational data from numerous data centers in order to come up with a way to predict an outage and head it off before it happens. “I can now go to a client and say that if we don’t do certain maintenance jobs, we’re going to have an outage,” he says.

The lab will operate out of IBM’s worldwide network of research labs, including New York, California, China, Israel, Japan, Switzerland and Brazil. Aside from cloud computing, its initial focus will be on analytics, the automated delivery of services and helping companies adapt to mobile technologies.

Big Blue’s approach will be a little different from that of Amazon’s Web Services, where customers can spin up an instance when they need it and pay only for what they use. With many CIO’s still skeptical of the security and reliability of cloud services that run outside their own premises, IBM is bringing its heft and assurance to enterprise clients and letting them choose a mix of public, private and hybrid cloud options based on what they need. The options are built around five aspects: The need for security and isolation, availability and performance, the technology platforms needed, management and ease of deployment, and payment and billing.

One service available today is an expansion of IBM’s development and test cloud, the one that IBM Cloud Services VP Ric Telford talked about in January. Customers can use the the IBM cloud to develop and test their own internal applications at a considerable cost savings compared to typical environments. IBM is calling this version Smartcloud Enterprise. Then there’s Enterprise Plus: Coming later this year, this will add a bunch of additional services on top of the Enterprise offering.

The company is also making a big move in setting standards. IBM says it’s working with 45 companies as varied as Citigroup, Lockheed Martin, State Street Bank and Rackspace to set cloud computing interoperability standards around management, reference architectures, hybrid cloud, as well as security and compliance. The point is to get everyone working on the same page.

As part of the larger picture, this push is part of CEO Sam Palmisano’s plan to push IBM to bring an additional $20 billion in sales by 2015. The cloud is just a part of it. The other big piece is its Smarter Planet initiative, aimed making infrastructure like, say, the electrical grid in the U.K., more efficient and less costly to operate.

Remember how IBM recently said at its analyst meeting that projects related to its Smarter Planet initiative will drive $10 billion in revenue by 2015? It also promised to spend $20 billion on software acquisitions over the next five years. This is one of the deals that Big Blue says will help get it there. IDC has pegged the worldwide market for smart buildings at $3.9 billion this year.

Tririga specializes in software that helps its clients get the most out of their real estate portfolio, run capital projects efficiently and manage energy usage inside buildings. Its customers include Nokia, General Electric, NASA and The U.S. Department of Defense.

When you consider that, for large companies, real estate and facilities costs are usually the second-highest line item after salaries and benefits and can account for 30 percent of annual expenses, it makes sense to get into a business that aims to help them keep those costs under control. IBM shares rose 22 cents to 157.90 on the news.

Often they’ll turn to public cloud providers like Amazon or Google or Microsoft. Those are the three names that usually get mentioned in the same breath whenever enterprise cloud services come up. But what about IT giant IBM? It turns out it’s a significant player in the cloud game, offering both public and private cloud services. Last week I sat down with Ric Telford, IBM’s VP of Cloud Services to talk about how Big Blue’s cloud business is going and what its priorities are in the year just started.

NewEnterprise: Ric, let’s start at the top. Tell me how IBM sees the cloud business right now?

Telford: Initially the cloud is all about doing more with less. Suddenly you could deliver the same IT services for less. Fast-forward to today, and it’s not all about saving money. People are realizing they can do things they never could before with the cloud. I was recently met with a small aircraft engineering company, and the guy running it described how he competes with much larger companies for defense contracts. It used to be that doing all the modeling and simulations he needed required buying hardware and software and running it all on premise. Now he can go out to the cloud, pay for what he uses and be done with it. He can now compete for contracts he wouldn’t have been able to go after before. And we’re seeing a lot of examples like that in industry after industry.

Someone said to me the other day that the cloud is going to have to have all the parts of the mainframe. Do you agree with that?

There’s a lot of parallels between the cloud and the mainframe. IBM’s view is that we have a single-reference architecture. It’s the same whether we’re delivering the service or if we build it for you. We did a deal recently with France Telecom where they are going to be a cloud services provider to their clients. They already have the network connections. But they’re not a cloud company. So they’re using IBM’s cloud architecture to give them all the pieces in one easy-to-consume bite. So we have that architecture and we use the same blueprint in all the various permutations of the cloud. For some people it’s confusing, but for us it’s all the same whether you want to have it inside your firewall or outside.

Which do your customers tend to prefer–a private cloud or a public cloud?

We do surveys every year and right now we’re seeing about a two-to-one preference for private versus public. About 60 to 70 percent of respondents say they’re working on a private cloud, and about 30 to 40 say they’re working on the public cloud. To us it’s all the same. We offer a core set of services from the IBM cloud–development, test, compute, storage, collaborations, desktop. But we can also build the same thing inside your firewall.

How big is your public cloud business?

I can’t give you a revenue figure because different business units take advantage of it to deliver different things. We just opened up a delivery center in Research Triangle Park. It’s probably one of the most advanced data centers in the world. And now we’re rolling out a model that we are cloning around the world. We just opened one in Germany and another in Canada. And then we’ll just keep adding them. We manage about eight million square feet of data centers around the world.

How does a company typically get started with the cloud?

Usually I suggest they start with their develop-and-test operations. It’s usually not mission-critical, and there’s usually a lot of hardware that’s not being used. Usually that’s the group that buys hardware long before it’s needed and it ends up sitting idle 90 percent of the time. At IBM we put our whole research division on the cloud because they were the worst hardware hoarders, putting servers under desks and whatnot. They knew that if they needed a new server it would take weeks to get it. Now they go out to the research and compute cloud, and the services they need are usually ready to use in minutes or at most an hour. It just makes a huge difference in people’s ability to get going.

So what you are your priorities for this year?

One of the big things we started seeing last year was an uptake of cloud delivery in industry-specific ways. We’re working not just on the generic things like email and collaboration, but on the specific applications that are used in various industries. Health care, banking and government are a few that have complicated regulatory needs that vary state by state and country by country, and we have the deep understanding required to work with them. We also built a private cloud to help the 29 countries involved in NATO share data on logistics and troop deployments. We also have an initiative with the consumer electronics industry. Utilities is another, and it gets tied in with our Smarter Planet initiatives.

Will IBM be making deals in the cloud this year?

IBM will make a few billion in acquisitions. Cloud is one of the four key growth areas we’re focused on. The others are Smarter Planet, analytics and the growth markets. We’ve said that in those four growth initiatives we’re going for $20 billion in additional revenue by 2014. Four initiatives, five years and $20 billion dollars. That’s certainly not all going to happen organically.

The technology giant has seemed more interested in software and services lately, but still manufactures servers and the microprocessor chips that power many of them. That strategy requires billions of dollars to operate semiconductor factories and develop chip production processes. IBM helps defray those costs by operating a foundry service that makes chips for other companies.

IBM this week is announcing the latest production recipe it will offer foundry customers, promising big benefits for companies designing chips for devices such as routers and switches used in high-speed communication networks. The new offering comes with blocks of pre-designed circuitry-–including microprocessor technology from ARM Holdings, the favorite in cellphones–so that customers can mix and match features to handle particular communications or computing chores.

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Terms of the deal were not disclosed, but Bloomberg figures IBM paid about $400 million for BigFix, which will add vulnerability management and endpoint protection products to its software portfolio and 700 or so customers to its client list.

Evidently, now that Sterling is, in the words of an AT&T (T) spokesperson, “no longer core to AT&T’s long-term strategic objectives,” the carrier was happy to unload it, even at a loss.

And that loss, of course, is IBM’s (IBM) gain. Sterling, whose global client list is about 18,000 strong, is certain to bolster IBM’s presence in the business-to-business market and aid Big Blue’s efforts to transform itself into a global business services company.

Great news for the open-source community and for the long-suffering Novell (NOVL), which has been battling SCO for quite some time now.

“Novell is very pleased with the jury’s decision confirming Novell’s ownership of the Unix copyrights, which SCO had asserted to own in its attack on Linux,” the company said in a statement. “Novell remains committed to promoting Linux, including by defending Linux on the intellectual property front.”

Which is great, because SCO, while obviously struck low by today’s verdict, evidently intends to forge on with its suit against IBM (IBM), which it also claims misappropriated Unix and built it into Linux. Former U.S. District Judge Edward Cahn, the trustee for SCO’s bankruptcy, told the Salt Lake Tribune that the jury decision will not dissuade it from pursuing its lawsuit against Big Blue. Said Cahn: “The copyright claims are gone, but we have other claims based on contracts.”

Astonishing. As I wrote of SCO back in 2004:

“There’s a scene at the end of Martin Scorsese’s remake of ‘Cape Fear’ in which villain Max Cady, having been shot, stabbed, burned and beaten, continues to threaten his victims even as he’s drowning, handcuffed to a sinking houseboat. I think of that scene every time I read that SCO has filed another motion in its ill-starred copyright infringement suits.”

Analysts surveyed by Thomson Reuters had expected IBM (IBM) to earn $3.47 a share on revenue of $26.96 billion.

“We concluded a strong year with a solid performance in the fourth quarter in which we again delivered growth in margins, profit and earnings,” IBM CEO Sam Palmisano said in a release. “IBM continued to benefit from our strategic transformation, offerings that our clients value in this economy, and our commitment to developing countries around the world.”

Looking ahead, IBM said it now expects a profit of at least $11 a share in 2010 compared with a previous target of $10 to $11 per share.

“On my birth certificate, under my father’s occupation, it says cowboy. So I will admit to being a cowboy, but not sue-happy.”

– Former SCO CEO Darl McBride, November 2003

Looks like Darl McBride, SCO’s “sue-happy cowboy” CEO, has seen his last roundup. In a new 8-K filing with the Security and Exchange Commission, the company reveals that under the order of a bankruptcy court, it has eliminated the chief executive officer and president positions and consequently sacked McBride.

Which means SCO’s seemingly endless legal campaign may have finally found its end. For though the company says it plans to pursue litigation against IBM (IBM) and Novell (NOVL), there seems little promise in it now. SCO is mired in bankruptcy. It’s evidently still unable to prove that Linux illegally contains its UNIX System V source code. And now it has fired the guy who devoted the past six years attempting to do just that.

And, frankly, SCO is better off for it. As Free Software Foundation General Counsel Eben Moglen once said, “As an amateur scholar of constitutional law, Mr. McBride is longer than he is deep.” And this does appear to be the case. Because despite vast swaths of evidence to the contrary, McBride always appeared certain that SCO had successfully defended its intellectual property in court.

“We’ve obviously overachieved on that objective,” McBride said of SCO’s efforts to defend against IBM’s alleged intellectual property infringements in 2004. “If I had to make this decision [to sue IBM] ten times over, the decision would be the same one ten times. Big Blue is no doubt a formidable opponent and we still expect to win. Keep your eye on the [court] filings. Over the coming year, one of the things that you’re going to see is that Big Blue has got big problems.”

Obviously, Big Blue wasn’t the one with the big problems.

Under the terms of the deal, IBM will pay $50 per share in cash for SPSS. That’s a 43 percent premium over the company’s closing price Monday, but one that’s well worth it to IBM, which sees great value in SPSS’s specialized software and its expertise in data collection, predictive analysis and statistical modeling.

Big Blue says the acquisition will do great things for its newly-formed Business Analytics and Optimization Consulting structure, a unit that offers clients strategic guidance through data analysis.

This is IBM’s second business analytics-related acquisition this summer. In May, the company acquired data discovery technology provider Exeros for an undisclosed sum. When IBM CEO Sam Palmisano pledged earlier this year to “go on offense” in the recession by making acquisitions and investing in research, he wasn’t kidding. Business analytics powerhouse SAS best watch its back.

On Thursday, Big Blue said it plans to invest $100 million over the next five years in mobile computing efforts, specifically emerging market mobility, mobile enterprise enablement and enterprise-to-end-user mobile experience. “Mobility and the associated analytics will change virtually every enterprise business process,” said Paul Bloom, chief technologist, IBM Telecom Research. “It will change the relationship between enterprises and their customers, their employees and their partners, enabling them to do business in more intelligent, efficient ways.”

A smart move for IBM, I think. With innovation in the mobile sector so focused on the everyday consumer, there’s certainly room for more corporate computing initiatives. And IBM (IBM) has the market heft and reputation to spur adoption there–particularly if it manages to develop some strong authentication and security measures.