IBM profit soars past forecasts
IBM posted stronger-than-expected quarterly results yesterday and raised its 2008 outlook, boosting shares three per cent and sending a bullish signal about technology earnings in the face of a weak U.S. economy.International Business Machines Corp.'s technology services, consulting and software revenues were particularly strong and investors breathed a collective sigh of relief a day after microchip maker Intel also gave a rosy outlook for the year.
IBM said the $5-billion takeover of Ottawa-based Cognos helped drive software sales. Cognos was with IBM for two months of the first quarter. IBM said software revenues rose 14 per cent to $4.8 billion, with foreign exchange generating eight per cent of the gain.
"This is great for the Street, great for technology. IBM is a bellwether for global technology issues, especially the services area," said Ted Parrish, co-portfolio manager at Hen-ssler Equity Fund.
First-quarter net income rose 26 per cent to $2.32 billion, or $1.65 per share, from $1.84 billion, or $1.21 per share, a year earlier. Revenue grew 11 per cent to $24.5 billion from $22 billion.
The results topped analysts' average targets for profit of $1.45 per share and revenue of $23.7 billion, according to Reuters Estimates.
The company increased its full-year earnings forecast to at least $8.50 per share from a February projection of at least $8.25.
"The magnitude of the beat was unexpected," said Zach Rosenstock, an analyst at Wayne Hummer Wealth Management. "You're seeing strength in all of their business lines. The U.S. is definitely a drag, but it is only 35 per cent of revenues. They have really positioned themselves well for a downturn in the U.S. market."
IBM, the world's largest technology-services company, said its global reach and strong recurring revenue and profit contributed to the results.
"We feel good about the rest of the year," CEO Samuel Palmisano said in a statement.
The company's total gross profit margin improved to 41.5 per cent from 40.2 per cent a year earlier.
IBM shares rose to $124.40 in extended trading following the earnings report after closing up 2.8 per cent at $120.47 on
Revenue in IBM's global business services unit, which provides consulting on financial management, human resources, business strategy and software applications management, rose 17.4 per cent to $4.9 billion.
Revenue in global technology services, which includes outsourcing and management of technology infrastructures, gained 17.2 per cent to $9.68 billion.
Software, IBM's most profitable business, had revenue of $4.85 billion, up 14 percent. Sales at IBM's systems and technology business, which includes server and mainframe computers and data storage for companies, fell 6.7 percent to $4.22 billion.
IBM said in February that strong fourth-quarter growth in services contracts lasting a year or less was paying off. IBM said those benefits gave it more confidence in its U.S. business, even as other technology companies were seeing weaker spending amid concern over the U.S. economy.
IBM shares, seen as a safe haven by many investors, have added almost 10 per cent this year compared with the Dow Jones Industrial index's 6.8-per-cent decline and the Nasdaq Composite Index's 14-per-cent drop through Tuesday.