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IBM Blows Past Q4 Revenue, Earnings Projections

IBM today announced fourth-quarter 2009 and year-end numbers that exceeded analyst projections, capping off a year of recovery for the IT systems and services giant. The company also reported positive signs that it felt were indicative of a recovery in the business market, which has lagged behind consumer products in recovering from the economic downturn.

IBM (NYSE: IBM) reported a profit of $4.81 billion, or $3.59 a share, for the quarter ended December 31, 2009. That was an 9.7 percent increase from $4.43 billion, or $3.27 a share, reported a year earlier. Total revenue for the fourth quarter was $27.2 billion, an increase of just one percent over the fourth quarter of 2008.

Analysts surveyed by Thomson Reuters had projected Q4 earnings of $3.47 on sales of $26.9 billion.

For the full year, IBM reported a profit of $13.4 billion, or $10.01 per share, on revenue of $95.8 billion. That compared with earnings of $12.3 billion, or $8.89 per share, on revenue of $103.6 billion in 2008. That's an 8.9 percent net income growth on a 7.5 percent decline in revenue.

IBM achieved this growth due to its own internal strategy of shifting to higher margin businesses and improved internal efficiencies. "In May 2007, we established a road map with an EPS objective of ten to eleven dollars by 2010. In 2009, with a challenging economic situation, we got there one year early. We expect at least $11 EPS for [2010] with consistent EPS growth throughout the year," said Mark Loughridge, senior vice president and chief financial officer of IBM on an earnings call today with analysts.

Gross margin grew to 48.3 percent from 47.9 percent last year, led by improved margins in services and systems and technology. The services business grew nine percent in Q4 year-over-year and IBM landed 22 contracts greater than $100 million.

However, it was the smaller contracts that gave Loughridge the most optimism.

"One of the trends we saw in the fourth quarter that was quite encouraging was the performance of smaller deals. We see them coming back, especially at the end of the quarter. What was interesting about it is was it was across our major business units and major markets and growth markets," Loughridge told the analysts on the call.

From a geographic perspective, revenue from the Americas' decreased by three percent over the same quarter in 2008, Europe/Middle East/Africa rose two percent, and Asia-Pacific revenues increased six percent.

Strong showing by services business

Total Global Services revenues increased two percent while Global Technology Services rose four 4 percent. All told, IBM signed $18.8 billion in services contracts for the quarter. Software was $6.6 billion, an increase of two percent year over year. The Systems and Technology group, the hardware division, totaled $5.2 billion for the quarter, down four percent from 2008.

IBM ended 2009 with $14.0 billion of cash on hand and generated free cash flow of $15.1 billion, up more than $800 million year-over-year. The company returned $10.3 billion to shareholders through $2.9 billion in dividends and $7.4 billion of share repurchases.

From the recession of 2002 to 2008, Loughridge noted that IBM has added $12 billion to its pre-tax profit base, margin is up two-fold, tax profit is up four-fold and the company has had $80 billion in cash flow. Its improved profitability is attributable to moving its business to high margin markets and dumped commodities.

In 2009, IBM invested $6 billion in research and was awarded 4,900 patents; more, Loughridge noted, than Microsoft, HP, Apple, Google and Accenture combined.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.