IBM Profit Tops Forecast; Outlook Better than Expected

International Business Machines beat Wall Street estimates of its quarterly earnings, helped by rigid cost controls and a lower tax rate, and forecast a higher-than-expected 3 percent rise in 2009 earnings per share.

The computing services and software giant reported a profit of $3.28 a share in the fourth quarter on sales of $27.01 billion, compared with a profit of $2.80 on a topline of $28.87 billion last year.

Analysts surveyed by Thomson Reuters expected IBM to earn $3.03 per share on $28.15 billion in sales.

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IBM also said that it expects to earn at least $9.20 a share in fiscal year 2009.

Wall Street's consensus forecast put IBM's profit for the year at $8.75.

IBM shares jumped more than 4 percent in late trading. The stock finished the regular session down 3.46 percent at $81.98.

"The guidance of $9.20 is awesome... looks like their outsourcing, packaging, cost containment strategy is working. They executed really well," said Peter Misek, who follows the company for Canaccord Adams. "As sales seem to be getting hit, they're pulling cost containment and cost reduction levers all over the place. I still expect a major restructuring."

IBM said revenue would have decreased only 1 percent were it not for currency fluctuations, but sales were down in all major geographic areas.

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Revenue in services, IBM's largest business segment, dropped 4 percent, but IBM was able to ink $17.2 billion in new services contracts. That was a healthy showing that demonstrates companies are still forking out for outsourcing and other technical support contracts, which are often viewed as moneysavers in the long run.

Hardware revenue fell 18 percent. Mainframe revenue fell 6 percent, and sales of lower-end servers based on industry-standard processors fell 32 percent.

"IBM has enjoyed certain attributes that other tech stocks don't enjoy. They have recurring revenue streams that also translate into profitability,'' said Keith Wirtz, chief investment officer for Fifth Third Asset Management. "That's great for IBM and that's one of the reasons why, in today's uncertain environment, IBM's a very attractive name to hold.''

- Reuters and AP contributed to this report.

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