IBM earnings up 10 percent, helped by weak dollar

AP News
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Posted: Apr 19, 2011 7:18 PM
IBM earnings up 10 percent, helped by weak dollar

IBM Corp. on Tuesday reported stronger-than-expected net income and revenue for the first quarter, helped by the weak dollar and strong performance from its hardware division.

The computer and consulting-services company also raised its full-year forecast for operating earnings by 1 percent. However, the stock retreated, possibly in reaction to a decline in new contract signings in the outsourcing business.

Net income rose 10 percent to $2.86 billion, or $2.31 per share. In the year-ago period, IBM earned $2.6 billion, or $1.97 per share.

Excluding mostly acquisition-related charges, earnings were $2.41 per share, beating the average analyst estimate as polled by FactSet of $2.29.

Revenue rose 8 percent to $24.6 billion. The increase would have been 5 percent at constant currency rates. Analysts expected $24.02 billion, or about a 3 percent increase at constant currencies, IBM said.

IBM said it expects full-year operating earnings of "at least" $13.15 per share, up from an earlier forecast of $13. Its goal for 2015 is to boost that to $20 per share, and it says it's well on its way to getting there.

In extended trading, after the release of the results, IBM shares were down $3.41, or 2 percent, at $161.99. The shares are close still to their all-time high of $167.72, hit March 9.

Analyst Toni Sacconaghi at Sanford Bernstein noted on a conference call that service contract signings were down 18 percent compared to last year, surprising him.

IBM Chief Financial Officer Mark Loughridge said it was natural for the signings to be down after a strong fourth quarter, and the signings are, in any case, a volatile measure that doesn't directly predict service revenue.

Bob Djurdjevic, an analyst with Annex Research, agreed, calling the overall results "significantly better than expected."

Investors had been fearing that the economic disruption in Japan after the earthquake could have affected IBM, Djurdjevic said, and should be relieved that the impact was minimal. That demonstrates that IBM, because of its globe-spanning reach, isn't dependent on any one market or product, he said. IBM's revenue from China rose 33 percent, and Russia was even stronger, at 53 percent.

"When one part fails, another part more than makes up for it," Djurdjevic said.

The U.S. and Asia, excluding Japan, were the strongest markets, with Europe and Japan lagging.

Hardware sales did particularly well, rising 16 percent at constant-currency rates from last year. The new System Z mainframe, which extends a four-decade old line, was the best performer, with sales up 38 percent.

Hardware accounts for 16 percent of IBM's revenue but little of its pretax profits. Its consulting and outsourcing businesses, which account for more than half of revenue were more sluggish, with revenue rising just 3 percent in constant-currency rates. However, they expanded their profit margins.