IBM Easily Tops Forecasts, Boosts Profit Guidance

IBM reported earnings that rose more than 25 percent, trouncing earnings expectations, and raised its profit outlook for the year.

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The company said it earned $2.32 billion, or $1.65 a share, on sales of $24.5 billion

Analysts, on average, were expecting IBM to report a profit of $1.45 per share on sales of $23.711 billion, according to a poll by Thomson Financial.

In the same period last year, IBM reported a profit of $1.844 billion, or $1.21 a share, on sales of $22.03 billion.

The company boosted its earnings outlook for the year to at least $8.50 a share, up from at least $8.25 a share previously.

Shares of IBM rose about 3.5 percent in extended electronic trading after finishing regular market hours up 2.82 percent at $120.47.

IBM's sales numbers were boosted by ongoing weakness in the dollar, since deals done in other currencies now translate into more greenbacks. IBM said its revenue would have risen just 4 percent if not for currency fluctuations.

Even so, this marked the second straight quarter that IBM showed relative immunity to broader economic troubles, especially those in the financial services sector, its largest customer segment.

IBM's chief financial officer, Mark Loughridge, said the performance reflected the company's balance between international and U.S. revenue, and the fact that IBM gets about half its money through contracts with recurring, annuity-like revenue streams. That makes IBM less vulnerable to downward cycles than companies that rely more heavily on selling stuff in individual transactions, which often get postponed when times turn rough.

One particular bright spot for IBM was its improved performance in its home market, which generates 35 percent of its revenue. U.S. sales increased 6 percent.

All of IBM's business units showed increased levels of profitability.

However, the services division's contract signings amounted to $10.8 billion, down 2 percent. That is a closely watched measure of future revenue. Services revenue actually booked in the quarter rose 17 percent.

Software revenue was up 14 percent, bolstered by several acquisitions.

Hardware revenue fell 7 percent, though it would have been 2 percent if not for IBM's 2007 sale of its printing division. The hardware numbers were helped by the launch of a new line of mainframe computers, partially overcoming weakness in lower-priced server lines.

"These are very strong results," said Analyst Haw Wu of American Technology Research. "They were able to beat both the top line and bottom line. It looks (like by a) pretty substantial (margin). It is quite impressive that they they are able to perform well in such a tough environment."

IBM, the world's largest technology-services company, 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 percent this year compared with the Dow Jones Industrial index's 6.8 percent decline and the Nasdaq Composite Index's 14 percent drop through Tuesday.

IBM trades at about 14 times expected 2008 earnings per share compared with about 13 for competitor Hewlett-Packard .

- Wire services contributed to this report.

© 2008 CNBC