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IBM surprises with 12% profit riseJanuary 21, 2009 - 9:16AM
International Business Machines, the world's biggest computer-services company, posted a profit and released a forecast that topped analysts' estimates, sending the shares higher in late trading on Wall Street.
The stock climbed 4% after IBM posted fourth-quarter earnings of $US3.28 a share, exceeding the $US3.02 average of estimates compiled by Bloomberg. Profit this year will climb to at least $US9.20 a share, also beating projections.
IBM squeezed out a profit increase even as sales fell in all units except the software division. IBM's strategy of focusing on more profitable businesses, such as software, helped the company overcome "an extremely difficult economic environment,'' chief executive Samuel Palmisano said today in a statement.
"They're being opportunistic,'' said New York-based UBS analyst Maynard Um, who has a "neutral'' rating on the stock and doesn't own it. He said he continued to be surprised at how they increased software sales.
Shares in New York-based IBM rose $US3.35 to $US85.33 in extended trading after closing at $US81.98 on the New York Stock Exchange. The stock has dropped 21% in the past year.
Net income climbed to $US4.43 billion from $US3.95 billion, or $US2.80 a share, a year earlier, IBM said in the statement. Total sales fell 6.4% to $US27 billion, compared with the $US28.2 billion average of estimates compiled by Bloomberg.
Revenue in the software unit climbed 2.6% to $US6.42 billion. IBM has spent more than $US5 billion in the past year on acquisitions to bolster its software unit, the company's most profitable business. Gross margin, or the percentage of sales left after production costs, increased to 87.7% from 87.1% a year ago.
Corporate earnings
IBM bought at least six software companies last year, adding new products to take on larger Microsoft. The biggest of those was the purchase of Cognos for $US4.9 billion, giving IBM programs that track corporate performance.
Corporate earnings have slumped as the first simultaneous recessions in the US, Japan and Europe since World War II tighten credit markets and curb spending. This month Intel, the world's largest chipmaker, said profit in the fourth quarter fell 90% as demand for computers ebbed.
Sales of computer services, which account for more than half of total revenue, fell 4% to $US14.3 billion.
The company is trying to woo users away from Microsoft programs by offering its Lotus Notes software free, making money instead from related technology and services. It adapted the software for use with Apple's Macintosh computers and the Linux operating system in November.
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