January 14, 2008 / 1:13 PM / 12 years ago

IBM preliminary profit beats estimates, shares jump

NEW YORK (Reuters) - IBM (IBM.N) reported a better- than-expected 24 percent rise in preliminary quarterly earnings on Monday on strong sales in overseas markets, driving its shares up 5 percent and spurring a broader tech rally.

A view of IBM headquarters at la Defense in Paris, May 6, 2005. REUTERS/Philippe Wojazer

The surprise report ahead of International Business Machines Corp’s scheduled earnings release on Thursday eased some concerns about how much the slowing U.S. economy has hurt the world’s largest technology services company.

IBM said 6 percentage points of its 10 percent revenue increase in the fourth quarter were due to currency benefits as the dollar weakened.

“We think IBM saw fundamental upside from most of its operating segments, though much of the December quarter upside was driven by the strength of its international end-markets,” Goldman Sachs analysts said in an investor note.

IBM’s report boosted the Dow Jones Industrial Average and the Nasdaq, following a dismal start to the year on concerns the United States may be heading into a recession.

While analysts said concerns remained about the strength of U.S. corporate demand, IBM’s news spurred gains in other tech shares such as Intel Corp (INTC.O), which is due to report results on Tuesday and whose shares rose 4.96 percent.

The U.S. shares of another tech bellwether, German software maker SAP AG (SAPG.DE), rose 4.21 percent after it also posted solid quarterly results. Analysts said investors were relieved SAP did not repeat last year’s disappointing earnings report.

IBM said fourth-quarter earnings from continuing operations rose to $2.80 a share from $2.26 a share a year ago. That beat by 20 cents the average Wall Street forecast for earnings of $2.60 per share, according to Reuters Estimates.

Revenue rose 10 percent to $28.9 billion, also beating the average analyst estimate of $27.8 billion.

IBM gave no outlook beyond a quote from Chief Executive Samuel Palmisano that it was “on track to achieve our long-term earnings-per-share road map objective in 2010.”

Based in Armonk, New York, IBM had forecast earnings per share would grow to about $11 in 2010 from $6.06 in 2006.

Asked why IBM reported preliminary results four days before the scheduled release, a spokesman said: “Given the economic climate in which there’s been a good deal of speculation about market conditions and the performance of technology companies, IBM wanted to deliver this information to investors.”

US CONCERNS REMAIN

The report pushed IBM shares as high as $105.59 on the New York Stock Exchange, before they closed at $102.93, up 5.39 percent. The stock had fallen 18 percent since its last earnings report on October 16, when it said third-quarter revenue growth was held back by weakness among U.S. banking clients.

Before Monday, tech had been the worst-performing sector on the Standard & Poor’s 500 index this year, down nearly 10 percent through Friday.

Analysts remained concerned about the strength of technology demand from U.S. companies.

Jyske Bank analyst Robert Jakobsen said some companies may have inflated spending in the last quarter to protect 2008 budgets in case of a slowdown.

“We just need to see the guidance for the first quarter or 2008,” he said of IBM.

Peter Misek, an analyst at Canaccord Adams, said the fact that IBM only referred to overseas markets meant the United States was likely weak, but it boded well for other internationally focused companies.

“Our view is this is very positive for the likes of Intel and Microsoft and any other large multinational that gets a large proportion of its revenue overseas,” he said.

Microsoft Corp (MSFT.O) shares rose 1.42 percent.

Tim Ghriskey, chief investment officer of Solaris Asset Management, which has about $2 billion in investments and does not own IBM shares noted that, while U.S. weakness did not appear to a problem abroad, that could change quickly.

“We are seeing some weakness in housing in Europe and weak housing is what has hurt the U.S. economy, so we could see the same thing beginning to unfold in Europe over the coming months,” he added.

IBM said full-year diluted earnings per share rose 18 percent to $7.18, including 5 cents per share related to the sale of the Printing Systems Division in the second quarter. Full-year revenue rose 8 percent to $98.8 billion, including 4 points of currency benefit, it said.

IBM’s cash balance at the end of 2007 was more than $16 billion, with strong free cash flow performance, it added.

Additional reporting by Jim Finkle in Boston and Philipp Gollner in San Francisco, editing by Mark Porter/Andre Grenon

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