IBM profits beat forecasts, lifts Wall Street
By siliconindia   |   Friday, 17 July 2009, 15:55 IST   |    1 Comments
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IBM profits beat forecasts, lifts Wall Street
Bangalore: IBM Corporation's profits for the second-quarter ruled out all earlier profit projections and boosted its full year earnings forecast on Thursday, showing a rare sign of confidence in spite of the recession. The profit for the period stood at $3.1 billion, on a revenue of $23.3 billion, as the profit grew by 12 percent. The 2009 profit forecasts surpassed to at least $9.70 per share, from $9.20 per share, a target set by IBM in January. IBM had earned $8.89 per share last year. Though IBM's sales are skidding, the results define the company's belief that it can continue making out more profit from its services and software divisions. IBM has taken stern actions by cutting costs by automating tasks and shifting labor to cheaper locales, while protecting prices. In a way to improve earnings per share, IBM regularly buys back its stock, because it reduces the company's share count. This step alone had boosted IBM's earnings per share by 42 cents last year. But IBM's Chief Financial Officer, Mark Loughridge, had said that the company would not need to accelerate buybacks to meet the newly raised forecast. According to IBM, profit in the latest quarter ended June 30, rose 12 percent to $3.1 billion, or $2.32 per share. Analysts had expected $2.02 per share. Meanwhile, sales dropped by 13 percent to $23.25 billion, lower than the $23.59 billion predicted by analysts polled by Thomson Reuters. Sales would have been down seven percent without currency fluctuations. "We are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers," said Sam Palmisano, Chairman and Chief Executive, IBM. Shares of Armonk, a New York based IBM rose to $1.63, 1.5 percent, to $112.27 in extended trading after the earnings report. The stock had closed regular trading at $110.64, up 3.2 percent on the day. IBM's result does not mean overall corporate technology spending has improved. According to the rival Accenture, there are fewer opportunities in higher-end services. Dell is still finding it hard to sell PCs to corporations, which are holding on to machines longer than normal. Even chip maker Intel said large companies have not loosened their strings yet. IBM's services and software divisions were important factors while hardware fell behind. Pre-tax income rose 23 percent in services and 24 percent in software. IBM says those divisions can prosper in down times because they help make customers more efficient. Hardware, which includes mainframe computers and servers, things that are easier for companies to put off in rough times, registered a 26 percent dropped in revenue to $3.9 billion. IBM's services signings fell five percent to $14 billion in the second quarter. However, analysts keep a close look on IBM's services backlog, which is the total value of work IBM has under contract and has yet to complete. One reason the backlog can fall is if customers are renegotiating contracts to cut costs. According to IBM, backlog stands at $132 billion, six billion dollars more than at the end of March.

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