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IBM Earnings Beat Street but Revenues Slide

IBM earnings

IBM today reported better-than-expected earnings for its first quarter of the year, but Big Blue's miss on sales expectations took its toll on shares in after-hours trading.

The company reported diluted earnings of $1.70 per share for Q1, beating analysts' estimates of $1.66 per share. IBM's (NYSE: IBM) net revenue totaled $2.295 billion, down $24 million from the same period a year ago, on total revenues of $21.7 billion, down from $24.5 billion in Q1 2008. Wall Street had forecasted an average of $22.56 billion in total revenues, according to Reuters Estimates.

The results were good performance in a tough environment and validate IBM's strategy, said Samuel Palmisano, IBM's president, chairman and CEO.

"IBM continued to perform well in a very difficult economic environment," he said in a statement. "This was due to our long-term strategic focus: shifting into software and services, divesting of commodity businesses, and creating solutions that help clients reduce cost and conserve capital. At the same time we have a disciplined approach to cost and expense management giving us a strong financial position."

Going forward, the company is ready to ramp up deployment of services as the economy improves. "We expect double digit profit growth in the second quarter," Mark Loughridge, IBM senior vice president and CFO, said during a conference call with analysts.

The company reiterated its full year 2009 earnings guidance of $9.20 per share.

Although revenue declined in most segments, the company reported an increase in WebSphere revenues of 5 percent. The product line, the company said, "facilitates customers' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems."

Revenues from Tivoli software decreased by only 1 percent.

New services will have a positive impact, the company claimed. Loughbridge said during the call that IBM's new BAO offering will have an immediate impact on customers' ability to improve the speed and accuracy of their decision.

Loughbridge added that within existing product lines, the company sees its customers focusing on products that deliver an immediate ROI, and sees far fewer deployments of products that transform the IT environment.

[cob:Special_Report]Hardware (which the company calls "systems") was particularly hard hit, with mainframe (Series z) revenues declining by 19 percent over the same period a year ago even as the processing power it delivered, measured in MIPS (millions of instructions per second), increased by 18 percent. For the company's Series x servers, revenues decreased by 18 percent over the same period a year ago.

Like most profitable companies, IBM is paying down its debt. The company reported total debt of $31 billion, down from $33.9 billion at the start of the year.

The company's stock, which closed at $100.43, was down to $97.75 in after hours trading as of press time, a decline of 2.67 percent.