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Local Tech Wire

RESEARCH TRIANGLE PARK, N.C. – IBM (NYSE: IBM) beat Wall Street expectations with third-quarter earnings that hit $2.40 per share and revenues of $23.6 billion, the world’s largest information technology company said Thursday after the markets closed.

Analysts polled by Thomson Reuters had predicted a $2.38 per share profit and revenues of $23.6 billion.

Net revenue was $3.2 billion, $400 million better than the same quarter a year ago.

Shares in , which employs some 10,000 people in the Triangle area, closed down 37 cents on the day at $127.98 before the earnings announcement.

However, shares did plunge $5 after the state of Indiana announced just before the earnings release that it was cancelling a 10-year contract with IBM and Affiliated Computer Services due to problems in handling a government services contract.

While overall revenues were down 5 percent from 2008, showing the effects of the global economic recession, they were up 1 percent from the second quarter.

“Our long-term strategic shift to higher-value businesses again enabled us to deliver outstanding margin, earnings and cash flow growth in the third quarter,” said Samuel Palmisano, IBM’s chairman and chief executive officer. “We also saw improved revenue trends in our business and share gains in software and hardware.

“We continued to invest for growth in areas where clients see potential for value creation including Smarter Planet solutions, cloud computing and advanced business analytics. We are optimistic about 2009 as we again raise our full-year expectations and we remain well ahead of pace for our 2010 roadmap of $10 to $11 per share.”

IBM increased its projections for earnings to “at least” $9.85 a share, up from $9.70.

Big Blue also said it expected double-digit increases in profit for both its software and services segments.

However, some investors were apparently disappointed the increase wasn’t bigger.

"A lot of us thought you might get even better than this," said Peter Misek, an analyst with Canaccord Adams. "But these results are solid."

IBM’s net income in the quarter ended Sept. 30 was $3.2 billion, or $2.40 per share, versus $2.8 billion, or $2.04 per share, a year ago. Analysts expected $2.38 per share.

Sales were $23.6 billion, slightly better than the $23.4 billion expected by analysts polled by Thomson Reuters. Revenue would have been down 5 percent instead of 7 percent if it were not for currency fluctuations.

The value of services contracts that IBM signed in the quarter was $11.8 billion, a decline of 7 percent from the same period in 2008.

While IBM makes most of its money from services and software, hardware still makes up nearly a fifth of its revenue. Mark Loughridge, IBM’s chief financial officer, said in an interview that market share gains in servers at the expense of the world’s No. 4 server maker, Sun Microsystems Inc., were a significant help in the quarter. IBM has exploited uncertainty about Oracle Corp.’s proposed $7.4 billion acquisition of Sun to steal away customers.

IBM’s numbers show that corporations are still reluctant to spend on some kinds of technology. Accenture, an IBM rival in consulting, and Intel Corp., which makes most of the world’s computer microprocessors, have recently said a recovery might not happen until next year.

The AP contributed to this report.