IBM Corp.'s earnings, used to gauge the health of global technology spending, were a bright spot in an otherwise dreary economic landscape.

The Armonk, N.Y.-based company reported Thursday that its profit leaped 22 percent in the second quarter, sailing past Wall Street estimates on the continued strength of its bread-and-butter services division. But continued worries about the health of the broader market tamped down IBM's shares, stunting an expected rally in the stock.

IBM has managed to thrive despite the economic malaise in the U.S. because of its broad international penetration and highly profitable blend of services, software and hardware, which helps shield the company from downturns in specific sectors or geographic regions.

As a reflection of the company's bullishness about its prospects, IBM also raised its profit outlook for 2008, saying it expects to earn at least $8.75 per share on the year, an improvement of 25 cents per share over the previous guidance.

More than half of IBM's business comes from selling services to companies looking to cut costs or better manage their information technology infrastructure. That business has held up remarkably well for IBM despite fears that the economic downturn in the U.S. has started to pinch off corporate spending in other parts of the world.

IBM said it earned $2.77 billion, or $1.98 per share, in the three-month period ended June 30. That's 16 cents per share higher than the average estimate of analysts polled by Thomson Financial.

Last year IBM earned $2.26 billion, or $1.55 per share, for the same period.

Sales for the period jumped nearly 13 percent to $26.8 billion, about $900 million more than analysts were expecting. That revenue rise would have been just 6 percent, however, if not for weakness in the dollar. Deals IBM does in other currencies translate into more dollars as the U.S. currency falls.

Investors have been betting that IBM would continue to be a bright spot in an otherwise dreary economic picture. IBM shares are up from under $100 per share in January to over $125 per share today.

The stock rose 58 cents per share, or a fraction of a percentage point, to $126.52 during the regular trading session. The stock fluctuated in after-hours trading, falling 40 cents to $126.12, apparently because of concerns that worsening economic conditions could still harm the company.

"This is not a good sign in terms of investor sentiment," said analyst Shaw Wu with American Technology Research. Even for industries that are doing well, he said, "the fear is inevitably they'll be pulled down by gravity." Continued...