IBM net jumps 12 pct as revenue gains on software
SAN FRANCISCO (Reuters) - IBM (IBM.N), the world's largest technology services company, on Wednesday posted a 12 percent jump in quarterly profit and raised its 2007 earnings forecast as revenue surged on software-company acquisitions.
IBM shares, which hit a five-year high this week, rose 3.3 percent to $114.72 in after-hours trading following the earnings report, which beat analysts' forecasts. The shares had added 14 percent this year as of Tuesday's close.
Citing the strong results, IBM increased its forecast for earnings-per-share growth in 2007 to 14 percent to 15 percent from a previous forecast of 13 percent to 14 percent, as it benefits from software acquisitions and improved profitability in its services division, its largest business.
Revenue growth of 8.6 percent, the strongest since 2001, was fueled by more than $5 billion of acquisitions of software companies in the past year.
The acquisitions are part of a strategy by International Business Machines Corp., based in Armonk, New York, to boost the software business's share of total profit to 50 percent by 2010 from 40 percent last year. About half of the software unit's second-quarter revenue growth of 13 percent, to $4.8 billion, came from recent purchases, IBM said.
"The software growth is a highlight," said Jane Snorek, a technology analyst at First American Funds, which manages about $66 billion, including IBM shares. "Everything here (at IBM) centers on the software -- being able to build someone a Web platform, a big data center, that they then surround with services. They are doing really well."
Second-quarter net income advanced to $2.26 billion, or $1.55 per share, from $2.02 billion, or $1.30 per share, a year earlier. Revenue rose to $23.8 billion from $21.9 billion.
U.S. revenue grew 6 percent to $10.1 billion, reversing a slowdown in the first quarter, Chief Financial Officer Mark Loughridge said on a conference call with analysts. Revenue in Europe, the Middle East and Africa rose 13 percent and Asia-Pacific revenue was up 10 percent.
"To get double-digit revenue increases in any part of the world is good news for them," said Kim Caughey, vice president and senior analyst at Fort Pitt Capital Group, which has about $1.2 billion under management, including IBM shares.
Analysts, on average, had forecast earnings per share of $1.47 before certain items and revenue of $23.1 billion, according to Reuters Estimates. Second-quarter net income included a gain of $81 million, or 5 cents per share, on the sale of IBM's printer division earlier this year.
The company's gross profit margin improved to 41.8 percent in the second quarter from 41.2 percent a year earlier.
Revenue in IBM's global technology services business rose 10.1 percent to $8.76 billion. Global business services revenue grew 10 percent to $4.34 billion. IBM signed services contracts totaling $11.7 billion, compared with $11.1 billion in the first quarter and $9.6 billion a year earlier.
IBM said on Monday it signed a $1.4 billion outsourcing agreement with drug maker AstraZeneca Plc (AZN.L), expanding an existing contract.
"We've got a good deal list as we go into the third quarter," CFO Loughridge said on the conference call. "Our objective is for full-year signings growth."
Systems and Technology revenue, which includes sales of mainframe computers, servers for businesses and microchips, advanced 1.8 percent to $5.1 billion.
IBM shares trade at about 16 times expected 2007 earnings per share, compared with a multiple of 17 for rival Hewlett-Packard Co. (HPQ.N).
(Additional reporting by Sue Zeidler and Gina Keating in Los Angeles and Scott Hillis in San Francisco)
