IBM's earnings strength calms tech jitters

By Tiffany Wu

NEW YORK (Reuters) - IBM (IBM.N) posted a higher-than-expected preliminary quarterly profit and affirmed its full-year outlook, calming some fears that the financial crisis is sparking a meltdown in technology demand.

Shares of IBM, the world's largest computer services company, rose 6 percent on the news, which also bolstered other technology shares that have been hammered on fears that a global recession would crush corporate IT spending.

"It is very nice to see some positive news, not just for IBM but for -- to a degree -- the tech space overall, given the downdraft we have seen in recent weeks," said Chuck Jones, technology analyst for Atlantic Trust Private Wealth Management, which manages $16 billion of assets.

But he and other investors were wary of calling a bottom for the battered tech sector, pointing to pockets of weakness such as the warning on Monday from European software giant SAP AG (SAPG.DE) that it had seen a sudden drop-off in sales.

"In this market you are gun-shy about everything. It is hard to have a lot of conviction about anything out there," he said, but added, "This also can be a good time to buy stocks. When things look the bleakest, this is a good time to put some money to work."

International Business Machines Corp said on Wednesday its third-quarter net income jumped 20 percent to $2.8 billion as revenue rose 5 percent to $25.3 billion, including 3 points from currency benefits.

Earnings per share from continuing operations rose to $2.05, compared to $1.68 a year earlier, IBM said.

Analysts were looking for earnings of $2.01 per share on revenue of $26.5 billion, according to Reuters Estimates.

Chief Executive Samuel Palmisano said in a statement that IBM was confident about its 2008 outlook, citing a steady base of recurring revenue and profits, and investments for growth in emerging markets.

"For companies to be reaffirming their outlook through the end of the year is h-u-g-e," said Mike Holland, chairman of investment company Holland & Co, who oversees assets in excess of $4 billion, including IBM.

"In this environment, the combination of meeting current expectations but also reaffirming their outlook is an incredible performance," he said. "You made my evening," he told Reuters after getting the news.

IBM AS SAFE HAVEN

IBM has been one of the bright spots in technology this year as the Armonk, New York-based company gets about two-thirds of revenue from outside the United States.

Although a quarter of revenue comes from the hard-pressed financial services sector, IBM enjoys recurring income from services and software contracts that account for about half its business, providing a buffer during sharp economic downturns.

In the second quarter, IBM's profit had blown past Wall Street expectations and it had raised its 2008 profit per share forecast to at least $8.75, or 22 percent year-on-year growth.