IBM net earnings up 7% at $3.84 billion

IBM has reported solid quarterly profits, showing despite the shaky economy, corporations continued to spend on information technology. But the company’s stock dropped, as sales fell short of expectations.

The giant company provides a gauge of business investment trends because it is the largest supplier of computing technology—hardware, software and services— to corporations. IBM’s performance echoes the reassuring results in recent weeks from a handful of corporate technology companies, like Oracle and Salesforce.com, whose quarters end in July or August instead of September.

Corporations, analysts note, are holding ample cash reserves and continue to spend on technology to cut costs and lift productivity, despite uncertain economic prospects in many countries.

Still, the profit outlook for technology companies, and most other companies, is dimming somewhat as growth slows, especially in Europe and the United States.

IBM reported net earnings of $3.84 billion, a seven per cent increase from the year-earlier quarter. Its earnings per share from continuing operations — the number most closely watched on Wall Street — rose 15 per cent, to $3.28.

The average estimate of analysts was $3.22 a share, according to FactSet.

In a conference call with analysts, Mark Loughridge, IBM’s chief financial officer, singled out major sources of strength. First, he said, was the continuing rapid growth of markets abroad, including China, India, Brazil and a few dozen other emerging nations, which grew 19 per cent and now account for 23 per cent of IBM’s revenue.

Loughridge also pointed to newer products and services like business analytics, which helped companies sift through data to spot sales opportunities and streamline operations. “We’re on track for a great year,” Loughridge said.

Based on the third quarter and outlook, IBM raised its estimate slightly for full-year profits to “at least $13.35 a share,” up from the previous guidance of “at least $13.25 a share.” But investors were apparently looking for more. In after-hours trading, the stock fell four per cent. In regular trading, it dropped two per cent, or $3.94, to $186.59, in a down day for the market.

IBM’s sales, analysts noted, were a little less than estimates, and the company’s earnings benefited from a lower tax rate than in the first half of the year. That contributed to the pullback in after-hours trading, they said, as did profit-taking; IBM’s shares had run up 27 per cent so far this year.

“It was still very solid,” said A M Sacconaghi, an analyst at Sanford C Bernstein & Company, “but it didn’t have the breathing room that IBM quarters have typically had recently.”

Revenue for the quarter increased eight per cent, to $26.2 billion, slightly less than analysts’ estimates. Excluding gains from currency translation, revenue rose three percent. With the dollar strengthening recently against the euro, currency-related gains will most likely decline in the current quarter, analysts say.

IBM is more stable than most technology companies regardless of the economic conditions. Analysts point to its global reach, skilled management and the fact that so much of its business comes from steady revenue from software licenses and services contracts instead of sales of new hardware products.

©2011 The New York
Times News Service