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IBM profit and outlook beats Street projections
BOSTON (Reuters) - IBM (IBM.N) issued a 2009 profit outlook that blew past Wall Street expectations, underscoring the ability of the world's top technology services firm to weather the global downturn and boosting its shares 4 percent.
The fourth-quarter earnings of International Business Machines Corp also trumped analysts' expectations on Tuesday, presenting a rare bright spot for the tech industry, which has been hit by profit warnings and sweeping job cuts as companies and consumers reduce spending.
Although IBM's fourth-quarter revenue came in a little shy of expectations, falling 6.4 percent from a year ago, the company also managed to cut costs by 3-4 percent. A lower tax rate also helped.
"IBM clearly is watching their expenses closely," said Andy Miedler, an analyst at Edward Jones who expects revenue to drop in the mid-single digits on a percentage basis in 2009.
"IBM can't control its revenue in this environment so they're focusing on cost control, Miedler said"
Chief Executive Samuel Palmisano said IBM was "ahead of pace" on a plan to boost earnings to $10 to $11 per share by 2010. That was more optimistic than its last assessment in October, when the firm said only it was on track toward meeting that goal.
The upbeat projections contrasted with more somber comments from other industry giants that have announced layoffs and warned this year's business outlook was grim.
No. 1 corporate storage equipment maker EMC Corp (EMC.N) is shedding 2,400 jobs, chipmaker Advanced Micro Devices Inc (AMD.N) is cutting 1,100 workers and high-end server maker Sun Microsystems Inc JAVA.O plans to cut up to 6,000 employees.
While IBM is cutting jobs that add to overhead, it is hiring more consultants, sales staff and other workers that directly bring in revenue.
IBM -- which competes with the likes of Hewlett-Packard Co (HPQ.N), Microsoft Corp (MSFT.O) and Oracle Corp (ORCL.O) -- posted a gross profit margin of 47.9 percent, up 3 percentage points from a year earlier.
Chief Financial Officer Mark Loughridge said the firm will keep improving margins.
"We will continue our focus on structural changes that reduce our spending levels and improve productivity in 2009," Loughridge said on a conference call.
Those efforts include standardizing services products so they are less costly to deliver to IBM's customers, which are predominantly among the world's biggest corporations. The company will also shift staff from headquarters to local offices where they can directly work with clients.
It has moved to a more profitable revenue mix since 2000, dumping commodity hardware units that made personal computers, printers and PC hard drives. At the same time, it spent about $20 billion on acquisitions of software makers and IT services firms, which tend to do better in tough economic times because they have highly predictable sales.
Keith Wirtz, chief investment officer of Fifth Third Asset Management, said his firm was buying IBM shares after the results.
"IBM has enjoyed certain attributes that other tech stocks don't enjoy," he said. "They have recurring revenue streams that also translate into profitability."
2009 FORECAST BEATS ESTIMATES
IBM, the world's biggest maker of mainframe computers and No. 2 software maker, predicted 2009 earnings of least $9.20 a share, trouncing a consensus of $8.77, according to Reuters Estimates.
The Armonk, New York company said net income rose 12 percent to $4.43 billion, or $3.28 per share, in the fourth quarter ended December 31, from $3.95 billion, or $2.80 per share, a year earlier. That easily beat the average analyst forecast of $3.03.
Revenue fell 6.4 percent to $27.0 billion, but turnover in its software segment climbed 3 percent to $6.4 billion.
It signed services contracts totaling $17.2 billion, at actual rates, a decrease of 5 percent. But its backlog of services bookings rose to a currency-adjusted $117 billion at the end of December, up $3 billion from the end of September.
IBM shares climbed to 85.32 in after-hours trade from a regular close of $81.98 on the New York Stock Exchange.
The stock has dropped about 16 percent over the past year, less than half the 36 percent drop in the Nasdaq Composite Index .IXIC. Shares of Microsoft are down about 41 percent, while Hewlett-Packard's stock has fallen 22 percent over the same period.
(Writing by Edwin Chan, editing by Richard Chang and Andre Grenon)
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