IBM aims to double profit

NEW YORK Wed May 12, 2010 3:39pm EDT

A view of the headquarters of IBM Japan in Tokyo in this March 18, 2010 file photo. REUTERS/Toru Hanai

A view of the headquarters of IBM Japan in Tokyo in this March 18, 2010 file photo.

Credit: Reuters/Toru Hanai

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NEW YORK (Reuters) - IBM forecast roughly doubling its profit by 2015 as it pushes further into emerging markets and lucrative services and software businesses, sending its shares up over 4 percent and boosting investor confidence in the tech sector.

International Business Machines Corp (IBM.N) Chief Executive Sam Palmisano told an annual investor briefing on Wednesday that the company expects earnings per share (EPS), excluding items, of "at least $20" for 2015.

That would be double its reported profit of $10.01 a share last year, and above some analysts' projections.

"At first glance, IBM's 5-year goal sounds lofty. It is considerably higher than our own 5-year forecast, updated earlier this year," said Annex Research analyst Bob Djurdjevic. "But the company's recent track record of meeting or exceeding expectations is also impressive. So Palmisano and his team have credibility in their corner."

IBM has over the past decade shifted its focus to high-margin software and services from commoditized hardware. It bought PwC Consulting from PricewaterhouseCoopers in 2002, and sold its personal computer business to Lenovo Group Ltd (0992.HK) in 2005.

IBM has also been increasing investment in new technology services, including "business analytics" which helps clients plot trends, predict risk and cut costs by combining

"More and more of our profits will come from these higher profit segments," Palmisano said.

The upbeat outlook helped IBM shares rise 4.45 percent to $132.50 on the New York Stock Exchange, and also helped lift other technology shares and the Dow Jones industrial average

.DJI.

Collins Stewart analyst Louis Miscioscia reiterated a "buy" rating and $160 price target on IBM, while Cowen & Co analyst Moshe Katri forecast that the company would outperform the market by 20 percent during the next six to 12 months.

ACQUISITIONS

Palmisano said IBM would benefit from expansion in fast-growing markets like China, where a burgeoning middle class means greater technology spending. He forecast that by 2015, around 25 percent of IBM revenue would come from growth markets compared with around 19 percent last year.

The CEO also said that IBM planned to spend around $20 billion in acquisitions from now through 2015. For all of 2009, IBM spent $1.5 billion on acquisitions, including a $1.2 billion cash deal for business analytics company SPSS Inc.

IBM's top rivals include Hewlett-Packard Co (HPQ.N) and Cisco Systems Inc (CSCO.O), both of which have announced new services and acquisitions that have raised the stakes in the competition for corporate tech dollars.

IBM's recent acquisitions have been relatively small and focused on niche technologies rather than game-changing deals, and Palmisano's comments suggested that may continue to be the case. He said that despite the higher spending, IBM would remain disciplined and "very shareholder-friendly."

The Armonk, New York-based company had earlier bid for computer server maker Sun Microsystems, but talks fell apart and Sun finally ended up in the hands of Oracle Corp ORCL.O.

IBM's 2015 outlook was an update to its long-term road map given in 2007, in which it targeted EPS of around $10-11 by 2010.

The company also reiterated its forecast for EPS of "at least $11.20" for 2010. Palmisano said the economy was showing positive signs although there were still some challenges.

(Reporting by Ritsuko Ando; Editing by Gerald E. McCormick, Matthew Lewis and Richard Chang)

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