IBM profit tops targets, forecast up

By Jim Finkle

BOSTON (Reuters) - IBM (IBM.N) reported a 22 percent rise in quarterly profit, blowing past Wall Street targets and raising its 2008 forecast, as emerging markets used its services, software and equipment to expand, and larger countries turned to technology to save money.

IBM posted a 12 percent rise in service contract signings, a business in which it leads the world, and said major Western countries were buying technology to reduce costs, as well as manage risks and compliance.

The results were much sunnier than those posted by Google Inc (GOOG.O) and Microsoft Corp (MSFT.O), which both missed analysts' targets, with the software maker citing a tough U.S. economy and Google blaming lower returns managing its cash.

IBM Chief Financial Officer Mark Loughridge told a conference call that U.S. revenue grew 5 percent in the quarter, the weak dollar helped IBM and that currency hedges would help it mitigate any strengthening of the dollar next year. It was difficult not to say IBM was ahead on reaching its 2010 profit target, he concluded.

The company is widely seen as a defensive play for investors in a troubled market.

"Once again pretty impressive," said Zach Rosenstock, an analyst at Wayne Hummer Wealth Management. "They're focusing outside the U.S. to ride through the domestic downturn."

International Business Machines Corp said second-quarter net income rose to $2.77 billion, or $1.98 per share, from $2.26 billion, or $1.55 per share, a year earlier.

Revenue rose 13 percent to $26.8 billion. Currency gains added 7 percentage points to the growth rate, IBM said.

Analysts, on average, expected profit of $1.82 per share and revenue of $25.92 billion, according to Reuters Estimates.

But shares sagged slightly in after-hours trading.

"The Google number may cast a shadow on this stock," Fifth Third Asset Management Chief Investment Officer Keith Wirtz said.

IBM raised its 2008 earnings per share forecast to at least $8.75 from a previous outlook of at least $8.50 a share, taking it ahead of the Wall Street average view of $8.54 per share.

BUYER CONFIDENCE

Armonk, New York-based IBM gets about two-thirds of its revenue from outside the United States. Recurring revenue from services and software contracts accounts for about half its business, providing a buffer from sharp turns in the economy.

New signings in the quarter rose 12 percent to $14.7 billion. Loughridge said in an interview that he expects them to grow at a similar rate in the third quarter.