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IBM Q1 profits beat Wall Street expectations

IBM reported strong quarterly profits on Wednesday that easily surpassed Wall Street’s estimates, as its reach across global markets and its healthy services and software businesses left it unscathed so far by the weakness of the US economy.

The performance was helped by the decline of the dollar. Most of IBM’s business is outside the US, so a falling dollar lifts reported earnings.

But even in the American market, IBM has proved remarkably successful in sidestepping problems, with sales rising 6 percent in the quarter, an improvement from the last quarter last year, when revenue in the US rose only 2 percent.

IBM, the world’s largest technology services company, reported net profits of US$2.32 billion, an increase of 26 percent from the year-earlier quarter when it earned US$1.84 billion.

Its earnings per share were US$1.65, well ahead of the analysts’ consensus, as compiled by Thomson Financial, of US$1.45.

Revenue for the quarter was US$24.5 billion, an 11 percent increase from a year earlier.

PROFITS

In a conference call, Mark Loughridge, IBM’s chief financial officer, said the company was raising its profit projection for the year.

IBM expects profits of at least US$8.50 a share, up from the previous guidance of US$8.25.

In after-hours trading, IBM’s stock price rose to nearly US$124. In regular trading, before the earnings report, the shares closed at US$120.47, up US$3.30 for the day.

IBM resilience in challenging times, Loughridge said in an interview, has been the result of its strategy, which was fine-tuned early last year. He described it as “two separate views of the global market.”

In advanced economies, including the US, where customers were likely to be tightening their belts, IBM tailored its services and software offerings to help customers cut costs, conserve cash and improve productivity. Those kinds of technology investments, Loughridge said, make sense when the economy is weak.

GROWING MARKETS

In fast-growing markets like China, India and Eastern Europe, Loughridge said, IBM has invested heavily to capture opportunities for new business.

IBM’s strong quarterly results were led by its big services business, where revenue rose to US$14.6 billion, up 17 percent, or 9 percent after adjusting for currency gains. Services represent the majority of IBM’s business, and in recent quarters the growth and profit margins have been improving.

“Fundamentally, the thing that is really rocking for IBM now is the services business,” said AM Sacconaghi, an analyst at Sanford C Bernstein & Co.

The software business grew to US$4.8 billion, up 14 percent, or 6 percent without the currency effects. Computer hardware and microprocessor sales fell to US$4.2 billion, but that business picked up toward the end of the quarter when IBM introduced a new version of its mainframe, the z10.

IBM’s total revenue, after excluding a 7 percent lift from currency gains and 1 percent from an acquisition, grew a modest 3 percent.

“It isn’t that IBM is rocketing ahead of everyone, but it is executing so well in this environment,” Sacconaghi said.


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