IBM Profit Grows, Tops Wall Street Expectations

IBM reported a higher-than-expected profit and raised its outlook for the full year, helped by sales of new hardware products, but its shares retreated on sluggish sales of technology services.

IBM Sign
Aaron Brown: Photography
IBM Sign

The technology giant said it earned $2.82 a share in the third quarter, against $2.40 a share in the same period last year.

Revenue for the quarter was reported at $24.27 billion, versus $23.56 billion last year.

Equity analysts who follow IBM expected the company to turn in a profit of $2.75 a share on sales of $24.13 billion, according to Thomson Reuters.

The company said it expects earnings of "at least $11.40 per share" for the full year, up from its previous forecast of "at least $11.25."

Shares of IBM fell more than 3 percent in extended trading Monday. Get after-hours quotes for IBM here.

The stock finished the regular New York Stock Exchange session more than 1 percent high , hitting a historic high of $143.03 intraday.

"This was a very strong performance overall with earnings above estimates and good revenue as well," said Edward Jones analyst Andy Miedler. "For them to continue to again raise guidance for 2010 and continue to perform well overall means they're a company to invest in."

Over the past decade, IBM has shifted its focus to profitable software and IT services and away from low-margin computer hardware.

IBM's third-quarter net margin rose 1.1 points to 14.8 percent, and its increasing profitability has been a key attraction for investors.

But the biggest growth in the quarter was in IBM's traditional hardware business. Its "System z" mainframe revenue rose 15 percent, leading a 3 percent gain in overall revenue to $24.3 billion.

Numbers from its services business, by contrast, were disappointing. IBM said it signed $11 billion worth of services contracts in the quarter, down 7 percent, and outsourcing signings of $5.7 billion, down 15 percent.

Services signings are seen as a key benchmark for future revenue growth. The company noted, however, that it added that it won a major deal right after the quarter closed, and Edward Jones' Miedler said the services business was volatile.

"IT services are very large in nature and difficult to predict quarter to quarter," he said, adding that he saw room for the shares to rise further despite their recent gains.