AP
IBM 2Q profit jumps 22 percent, beats forecast
Thursday July 17, 6:06 pm ET
By Jordan Robertson, AP Technology Writer
IBM 2Q profit jumps 22 percent, blows past Wall Street estimates


SAN FRANCISCO (AP) -- IBM Corp.'s second-quarter profit leaped 22 percent, blowing past Wall Street estimates as the technology company's bread-and-butter services division continued to thrive despite economic malaise in the U.S.

The Armonk, N.Y.-based company also raised its profit outlook for 2008, saying it expects to earn at least $8.75 per share on the year, an improvement of 25 cents per share over IBM's previous guidance.

The large jump reflects IBM's optimism that it will continue to benefit from its broad international penetration and highly profitable blend of services, software and hardware.

More than half of IBM's business comes from selling services to companies looking to cut costs or better manage their information technology infrastructure. That business has held up remarkably well for IBM despite fears that the economic downturn in the U.S. has started to pinch off corporate spending in other parts of the world.

IBM said Thursday it earned $2.77 billion, or $1.98 per share, in the three-month period ended June 30. That's 16 cents per share higher than the average estimate of analysts polled by Thomson Financial.

Last year IBM earned $2.26 billion, or $1.55 per share, for the same period.

Sales for the period jumped nearly 13 percent to $26.8 billion, about $900 million more than analysts were expecting. That revenue rise would have been just 6 percent, however, if not for weakness in the dollar. Deals IBM does in other currencies translate into more dollars as the U.S. currency falls.

Investors have been betting that IBM would continue to be a bright spot in an otherwise dreary economic picture. IBM shares are up from under $100 per share in January to over $125 per share today.

The stock rose 58 cents per share, or a fraction of a percentage point, to $126.52 during the regular trading session. Shares gained another $2.40, or 1.9 percent, to $128.92 in after-hours trading. Many analysts were expecting IBM to handily beat Wall Street's tepid targets, but the scale of the upside surprise helped juice the stock price.

"Big Blue is firing on all cylinders," said analyst Bob Djurdjevic with Annex Research.

As expected, some of IBM's strongest growth came from its services divisions in the second quarter. Technology services grew 15 percent to $10.1 billion, and business-consulting revenue rose nearly 18 percent to $5.11 billion.

Investors closely monitor how many new service contracts IBM inks during a particular quarter because it helps gauge the company's future revenue. That figure jumped 12 percent in the second quarter to $14.7 billion.

The health in services and software, which saw a 17 percent revenue rise, helped overcome growth of just 5 percent in IBM's hardware business, to $5.2 billion. That would have been flat without the soft dollar.