IBM 3Q profit a positive sign for tech sector

[October 09, 2008]  SAN FRANCISCO (AP) -- For the second time this year, IBM Corp. offered an early peek at its quarterly results, showing in a surprise announcement that it was still plenty prosperous in the third quarter despite the worsening economic climate.

The Armonk, N.Y.-based company's results, released more than a week ahead of schedule Wednesday, will likely help stop a steep slide in IBM's stock price and could lift other big technology stocks in Thursday trading. IBM is a component of the Dow Jones industrial average.

IBM's profit per share beat Wall Street's forecast by 4 cents and the company reaffirmed its full-year earnings guidance. Both were strong signs that IBM's core businesses are holding up well despite the deteriorating U.S. economy.

Sales were short of analysts' estimates by more than $1 billion, but the average estimate likely would have been lower by the planned Oct. 16 announcement because many analysts had started cutting their forecasts.

After running up steadily the first half of the year, IBM shares started sliding this summer and dropped off precipitously in the last week on fears about its heavy exposure to the crippled financial services sector, which makes up nearly 30 percent of its business.

IBM's stock was down 31 percent since July. After the unexpected announcement Wednesday, it gained $5.35, or 5.9 percent, to $95.90 in after-hours trading, having closed down $5.10, 5.3 percent, at $90.55 during the regular trading session.

IBM said after the market closed Wednesday that it earned $2.05 per share in the July-September period, four pennies higher than the average estimate of analysts polled by Thomson Reuters. Net income for the period was $2.8 billion, an increase of 20 percent over the same period last year.

Sales increased 5 percent to $25.3 billion but fell short of Wall Street's expectations. Excluding the effects of currency fluctuations, IBM's sales increased 2 percent.

Analysts were expecting sales of $26.5 billion, but analysts had started lowering their estimates ahead of the unexpected announcement Wednesday. They cited the economy and a strengthening U.S. dollar as reasons for cutting their forecasts.

A strengthening dollar makes deals done in other currencies worth less when IBM accounts for the sales, which is done in dollars.

IBM maintained its forecast of at least $8.75 per share in profit in 2008, a 22 percent improvement over last year.

The results are reassuring in that they suggest that the biggest tech companies are still inking sales deals despite tightened spending, analysts said.

"It's relief, that's why the stock's rallying," said Peter Misek, an analyst with Canaccord Adams. "It seemed like a global freeze happened in late September and extended, so it's nice to see the biggest companies are still dealing with the biggest of their suppliers ... the markets are still moving along, demand is still there."

IBM's stock had been performing well for most of the year despite the ailing U.S. economy, rising 25 percent and hitting a 52-week high of $130.93 on July 24 before the shares started falling.

IBM rarely reveals its quarterly results early but has done it twice so far this year. The last time was in January, when IBM reported sparkling profit for the fourth quarter -- typically its most prosperous period -- that was well above what Wall Street was expecting.

In both cases, IBM's stock price was falling and it wanted to reassure investors about the company's financial health in tough economic times.

[Associated Press; By JORDAN ROBERTSON]

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