IBM (NYSE: IBM) beat Wall Street expectations for earnings in the third quarter with an 18 percent jump in profits to $2.82 per share, the technology giant reported after the markets closed Monday.
Analysts polled by Thomson Reuters had expected $2.75 in earnings.
For the same quarter a year ago, IBM earned $2.40 a share.
However, IBM shares slipped in after-hours trading by 3.3 percent, or $4.73, to $138.10.
The flip side of being a company with a nearly eight-year streak of higher profits, and a stock that is trading at all-time highs, is that perceived missteps are punished swiftly. ()
Investors were apparently rattled by a dip in IBM’s outsourcing business..
IBM’s results help Wall Street check in on corporations’ appetite for new technologies, though it’s a cloudy window. IBM has some unusual characteristics that help it ride out economic slumps, such as its enormous pipeline of long-term service contracts that provide steady revenue even when new sales dry up.
As the world’s biggest provider of technology services, one key barometer for IBM is the number of services deals it signs during a particular quarter.
In the latest period, the value of the services contracts IBM signed fell 7 percent from last year to $11 billion, dragged down by a shortfall in outsourcing deals, in which companies offload their technical chores to IBM. IBM argued the figure was misleading, since one large outsourcing contract would have caused overall signings to rise if it had been signed about a week earlier. The company pointed to its $134 billion backlog of services contracts as a better indicator of future revenue.
The jitters illustrate a frequent worry among analysts and investors about IBM’s ability to meaningfully improve revenue.
Net revenues also increased, growing 12 percent for the quarter to $3.6 billion from a year ago. Further, IBM increased its revenue margin to 14.8 percent, up 1.1 points.
Overall revenues climbed to $24.3 billion, slightly higher than estimates of $24.1 billion.
"In the third quarter we grew revenue in our hardware, software and services businesses, expanded margins and again increased earnings per share at double digits," said IBM Chairman and Chief Executive Officer Samuel Palmisano in a statement.
"We achieved excellent performance in our growth markets unit, reflecting sustained investments through the downturn and the continued strength of the infrastructure build-out in these countries,” he added.
IBM shares closed at $142.88, up $1.82 or 1.3 percent Monday.
Palmisano said he expected IBM to continue its growth and increased its profit forecast/
"Looking ahead, we are uniquely positioned in the enterprise, investing in high value segments like business analytics, advanced systems and smarter planet solutions. As a result, we are confident we can deliver strong business performance to grow profit, return value to our shareholders and to achieve full-year 2010 diluted earnings per share of at least $11.40."
In specific categories, IBM reported revenue growth in:
• Business analytics revenue up 14 percent;
• Systems and Technology revenue up 10 percent, 11 percent adjusting for currency;
• System z mainframe revenue up 15 percent;
• Software revenue excluding divested operations, up 4 percent, 6 percent adjusting for currency;
• Services revenue up 2 percent, as reported and adjusting for currency;
• Services backlog of $134 billion, up $5 billion quarter to quarter, down $2 billion adjusting for currency, and flat year over year.
For the full earnings report,
IBM employs some 10,000 people in the Triangle.
(The Associated Press contributed to this report.)
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