IBM blows past forecasts, services contracts rise

IBM shares rose 2.7 percent after-hours after the company reported that fourth-quarter net income rose 9 percent to USD 5.3 billion.

New York: International Business Machines Corp's quarterly
profit blew past Wall Street estimates, and a long-hoped-for recovery in its
services business raised optimism that global companies were confident enough
to spend more on technology.

IBM shares rose 2.7 percent after-hours after the company
reported that fourth-quarter net income rose 9 percent to USD 5.3 billion. Its
earnings per share (EPS) of USD 4.18 easily exceeded its USD 3.59 of the
year-earlier quarter and Wall Street's average forecast of USD 4.08, according
to Thomson Reuters I/B/E/S.

Investors were particularly relieved with the pick-up in
signings of services contracts, an early indicator of future revenue from
outsourcing and other IT projects. Many clients had been wary of committing to
multiyear contracts amid an uncertain global economy.

"One of the key issues for IBM was the services area,
and I think that was a big concern for investors," said Channing Smith,
portfolio manager at Capital Advisors.

IBM, which has been shifting its focus from commoditized
hardware to higher-margin services and software over the past decade, said it
signed signed services contracts worth USD 22.1 billion during the quarter, up
18 percent.

Analysts also noted USD 142 billion worth of backlog in the
services business, up $5 billion from a year earlier -- a sign of strong
revenue growth ahead.

"It's an indication of increased spending for the IT
sector. As goes IBM so goes corporate America these days," said Annex
Research analyst Bob Djurdjevic.

IBM forecast 2011 EPS of "at least USD 12.56," up
from USD 11.52 in 2010, and said it was on track to achieve its operating EPS
target of USD 20 by 2015.

Its gross profit margin rose to 49 percent from 48.3 percent
a year earlier.

"We think that the risk-reward here is pretty
attractive and we see fairly limited downside to IBM," said Smith at
Capital Advisors. He saw room for the shares to rise, but not too much more
than the overall market.

IBM's price-to-earnings ratio of 12 lags behind multiples of
around 14 for both Oracle Corp and Accenture although it is higher than those
of Dell Inc and Hewlett-Packard Co.

Bureau Report

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