U.S. News

IBM Tops Estimates, Helped by Acquisitions and Services Business


IBM, the world's largest technology services company, posted a higher quarterly profit after markets closed Wednesday as revenue rose 9%, helped by software-company acquisitions and growth in computer services.

Shares of IBM rose 1.2% in after-hours trading following the earnings report, after closing up 0.3 percent at $111.08 on the New York Stock Exchange. The shares had added 14 percent this year as of Tuesday's close.

IBM Earnings & Reaction

Second-quarter net income advanced to $2.26 billion, or $1.55 per share, from $2.02 billion, or $1.30 per share, a year earlier. Revenue rose to $23.8 billion from $21.9 billion.

Excluding one-time items, IBM earnings came in at $1.50 a share. Analysts, on average, had forecast earnings per share of $1.47 before certain items and revenue of $23.1 billion, according to Thomson Financial. Second-quarter net income included a gain of $81 million, or 5 cents per share, on the sale of IBM's printer division earlier this year.

The company's gross profit margin improved to 41.8 percent in the second quarter from 41.2% a year earlier.

International Business Machines, of Armonk, N.Y., has made more than $5 billion of acquisitions of software makers in the past year to boost sales in its most profitable business, while improving profitability in its technology services unit, its largest business.

Revenue in IBM's global technology services business rose 10.1% to $8.76 billion. Global business services revenue grew 10% to $4.34 billion. IBM signed services contracts totaling $11.7 billion, compared with $11.1 billion in the first quarter and $9.6 billion a year earlier.

IBM said on Monday it signed a $1.4 billion outsourcing agreement with drug maker AstraZeneca, expanding an existing contract.

In software, revenue rose 13% to $4.8 billion, partly reflecting more than $5 billion of acquisitions in the business in the last year.

Systems and Technology revenue, which includes sales of mainframe computers, servers for businesses and microchips, advanced 1.8% to $5.1 billion.

IBM shares, which hit a five-year high earlier this week, trade at about 16 times expected 2007 earnings per share, compared with a multiple of 17 for rival Hewlett-Packard.