Wednesday, April 16, 2008

IBM's earnings jump 26%

Quarterly profits at IBM Corp. leaped 26% and blew past analysts' forecasts Wednesday, with U.S. operations showing surprising strength given the faltering economy. The technology company also increased its earnings forecast for the year.

In the first quarter, Armonk, N.Y.-based IBM (IBM, Fortune 500) earned $2.32 billion, or $1.65 per share, well ahead of its profit of $1.84 billion, or $1.21 per share, in the same period of 2007.

Revenue rose 11% to $24.5 billion, better than the $23.7 billion expected by analysts surveyed by Thomson Financial. The consensus earnings forecast had been $1.45 per share.

IBM's sales numbers were boosted by ongoing weakness in the dollar, since deals done in other currencies now translate into more greenbacks. IBM said its revenue would have risen just 4% if not for currency fluctuations.

Even so, this marked the second straight quarter that IBM showed relative immunity to broader economic troubles, especially those in the financial services sector, its largest customer segment.

IBM's chief financial officer, Mark Loughridge, said the performance reflected the company's balance between international and U.S. revenue, and the fact that IBM gets about half its money through contracts with recurring, annuity-like revenue streams. That makes IBM less vulnerable to downward cycles than companies that rely more heavily on selling stuff in individual transactions, which often get postponed when times turn rough.

Reflecting his confidence in that model, Loughridge said IBM now expects to earn at least $8.50 per share in 2008. Analysts had been expecting $8.25 per share.

IBM shares rose $3.30, 2.8%, to close at $120.47 before Wednesday's earnings report. The stock hit $124 in extended trading.

One particularly bright spot for IBM was its improved performance in its home market, which generates 35% of its revenue. U.S. sales increased 6%.

All of IBM's business units showed increased levels of profitability.

However, the services division's contract signings amounted to $10.8 billion, down 2%. That is a closely watched measure of future revenue. Services revenue actually booked in the quarter rose 17%.

Software revenue was up 14%, bolstered by several acquisitions.

Hardware revenue fell 7%, though it would have been 2% if not for IBM's 2007 sale of its printing division. The hardware numbers were helped by the launch of a new line of mainframe computers, partially overcoming weakness in lower-priced server lines.

Source: CNN

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