IBM raises earnings outlook despite weak tech spending

NEW YORK/BOSTON Wed Jul 18, 2012 6:43pm EDT

A worker is pictured behind a logo at the IBM stand on the CeBIT computer fair in Hanover February 26, 2011. REUTERS/Tobias Schwarz

A worker is pictured behind a logo at the IBM stand on the CeBIT computer fair in Hanover February 26, 2011.

Credit: Reuters/Tobias Schwarz

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NEW YORK/BOSTON (Reuters) - IBM (IBM.N) raised its full-year earnings target, even as it posted a quarterly revenue shortfall, reflecting its ability to manage costs as global technology spending sputters.

International Business Machines Corp, a bellwether for the global IT industry because of its global span and breadth of businesses, now expects full-year earnings per share - excluding items - of at least $15.10, versus at least $15.00 previously.

The company known as Big Blue has shifted its focus from hardware to higher-margin services and software over the past decade. But like rivals Hewlett-Packard Co (HPQ.N) and Oracle Corp ORCL.O, it continues to grapple with sliding budgets as the European crisis tightens spending and emerging market growth decelerates.

IBM said on Wednesday its revenue fell 3 percent to $25.8 billion in the quarter, missing average expectations of $26.27 billion. It said it took a $1 billion hit because of a weaker euro and other foreign exchange "headwinds" that translate into fewer dollars.

Chief Financial Officer Mark Loughridge told analysts on a conference call after IBM reported earnings that they foresaw a $2 billion hit from foreign currency factors in the second half.

Richard Sichel, chief investment officer for Philadelphia Trust Co, said it was encouraging to see IBM raising its profit forecast after a string of recent earnings disappointments by other technology firms. But he said investors also wanted to see sales rise.

"You want to see earnings grow by top-line growth and not by cutbacks and buybacks and that sort of thing," he said.

IBM said second-quarter earnings per share, excluding items, was $3.51, beating average analysts' estimate of $3.43.

A number of companies such as Cisco Systems Inc (CSCO.O) have cautioned that tech spending may slow down in the second half of 2012 and companies such as Advanced Micro Devices Inc (AMD.N) have warned that earnings would suffer.

(For a graphic: U.S. tech companies since July 2 link.reuters.com/rew39s)

IBM shares rose 2.5 percent to $193 in extended trade, from their New York Stock Exchange close of $188.25.

The stock has fallen 11 percent in the three months since it reported a quarterly revenue shortfall when it last released earnings.

Those results raised concerns among some investors that the stock had gotten ahead of itself after hitting a record high of $210.69 on April 3. The broader Nasdaq composite index .IXIC has fallen 4 percent over the past three months.

"The big message is they beat EPS handily and they're raising the full-year EPS target, and that's probably enough for the stock to keep working," said RBC Capital Markets analyst Amit Daryanani. "It's a sign that this company can keep executing despite the revenue headwinds they have."

(This version of the story has been corrected to fix headline to make clear the environment reflects weak tech spending)

(Reporting by Nicola Leske; Additional reporting by Jim Finkle; Editing by Richard Chang)

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Comments (2)
tmc wrote:
IBM – Indian Business Machines

Jul 18, 2012 6:08pm EDT  --  Report as abuse
mb56 wrote:
So IBM is raising earnings estimates despite the fact that spending and revenue is falling…. I wonder where their profits will come from? Could it be from the hides of their employees? Corporate profits are at record highs. Corporate free cash is at record highs. Employee productivity is at record highs. BUT employees share of income as GDP% is at record lows and wage increases aren’t even keeping place with inflation. How much longer are corporate CEO’s going to abuse their workers to enrich themselves? This has gone beyond ridiculous.

Jul 18, 2012 6:55pm EDT  --  Report as abuse
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