IBM Boosts 2008 Outlook; Shares Jump
The world's largest computer services company forecast 2008 earnings would rise 15 percent to 16 percent, hitting $8.20 to $8.30 per share, while Wall Street analysts had expected $7.91 on average, according to Reuters Estimates.
"That is above the Street consensus. They are going to save $800 million from pension costs, year-over-year. But having said that, that is a good forecast." said Peter Misek, an analyst at Canaccord Adams.
"International is absolutely the saving grace of these guys. Right now I would not want to be a big tech company that was exposed to the U.S. consumer or heavily exposed to U.S. enterprises," he added.
Building on a strong preliminary earnings report earlier in the week, IBM said fourth-quarter net income advanced to $3.95 billion, or $2.80 per share, from $3.46 billion, or $2.31 per share, a year earlier. Revenue rose to $28.9 billion from $26.3 billion.
The company was seen reporting a profit of $2.68 a share on sales of $28.244 billion, according to a consensus estimate compiled by Thomson Financial.
IBM pre-announced results earlier this week, saying it expected fourth-quarter earnings of $2.80 a share and revenue of $28.9 billion. Both numbers were above analyst estimates, and IBM shares jumped on the news.
That initial release indicated that IBM's broadening international focus was shielding the company from the crisis in the financial industry, which supplies more than one-fourth of IBM's revenue. But Thursday's full report was sure to be scrutinized by investors seeking details about IBM's status and insights into overall corporate technology spending.
The report showed that Armonk, N.Y.-based IBM continues to increase its reliance on software, its most profitable line of business. The software division's revenue rose 12 percent to $6.3 billion. The gain would have been just 6 percent if not for weakness in the dollar.
Services revenue rose 17 percent to $14.9 billion. The increase would have been 10 percent at constant dollar values.
In another closely watched measure of IBM's strength in services, the unit signed $15.4 billion in new contracts in the fourth quarter, down 13 percent. Those signings reflect revenue that will flow to the company in the coming years.
The hardware division's revenue dropped 4 percent to $6.8 billion. However, the figure would have been flat from a year earlier if not for IBM's 2007 divestiture of its printing division.
For all of 2007, IBM earned $10.4 billion, $7.18 per share, on revenue of $98.8 billion. Those figures all rose from 2006, when IBM made $9.5 billion, $6.11 per share, on revenue of $91.4 billion. The revenue gain of 8 percent would have been just 4 percent at constant currency values.