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IBM, the biggest computer-services provider, forecast full-year profit that beat analysts' estimates, defying an industrywide slump that has curbed growth at other technology companies.
Shares rose as much as 5.3 per cent in extended trading after IBM said yesterday that net income will rise to at least US$9.20 ($17.44) a share in 2009, topping the US$8.75 average of estimates compiled by Bloomberg. Fourth-quarter profit also exceeded projections.
IBM's earnings advanced even as sales fell in all units save the software division. IBM's strategy of focusing on more profitable businesses, such as software, helped the company overcome "an extremely difficult economic environment," chief executive Samuel Palmisano said.
"They're using the current climate as an opportunity to cut costs," Gartner analyst Carl Claunch said. "This is a pre-emptive strategy for improving profitability."
Selling, general and administrative expenses dropped 3.1 per cent to US$5.83 billion last quarter. IBM reduced expenses partly by using more contract workers, chief financial officer Mark Loughridge said.
IBM, based in Armonk, New York, rose as much as US$4.38 to US$86.36 in extended trading after closing at US$81.98 on the New York Stock Exchange. The stock has dropped 21 per cent in the past year.
Net income climbed 12 per cent to US$4.43 billion, US$3.28 a share, from US$3.95 billion, or US$2.80, a year earlier, IBM said. Total sales fell 6.4 per cent to US$27 billion, compared with the US$28.2 billion average of estimates compiled by Bloomberg.
Revenue in the software unit advanced 2.6 per cent to US$6.42 billion. IBM has spent more than US$5 billion in the past year on acquisitions to bolster its software unit, the company's most profitable business. Gross margin, or the percentage of sales left after production costs, widened to 87.7 per cent from 87.1 per cent a year ago. IBM bought at least six software companies last year, adding new products to take on larger Microsoft.
The biggest of those was the purchase of Cognos for US$4.9 billion, giving IBM programs that track corporate performance. The company spent US$6.3 billion on acquisitions last year, the most ever, Loughridge said.
"They're being opportunistic," said New York-based UBS analyst Maynard Um, who has a "neutral" rating on the stock and doesn't own it. "I continue to be surprised as to how they can grow" software sales.
Sales of computer services, which account for more than half of total revenue, fell 4 per cent to US$14.3 billion.
Revenue in all of IBM's geographic segments declined, with the largest drop in Europe, the Middle East in Africa.
Sales there dropped 12 per cent, compared with a 2 per cent decline in the Americas and a 1 per cent decrease in Asia. The European decline would have been only 1 per cent when adjusted for currency fluctuations, IBM said.
Corporate earnings have slumped as the first simultaneous recessions in the US, Japan and Europe since World War II tighten credit markets and curb spending.
This month Intel, the world's largest chipmaker, said profit in the fourth quarter fell 90 per cent as demand for computers ebbed. In November, Dell, the world's second-biggest personal-computer maker, posted sales that trailed analysts' estimates by more than US$1 billion, hurt by slowing technology spending.
IBM is trying to woo users away from Microsoft programs by offering its Lotus Symphony for free, making money instead from related technology and services. It adapted the software for use with Apple's Macintosh computers and the Linux operating system in November.
- BLOOMBERG
