IBM Skips Past 4Q Estimates

IBM on Thursday delivered stellar fourth-quarter earnings, posting a profit of $3.96 billion, or $2.80 a share, on sales of $28.9 billion.

Analysts were expecting IBM to earn only $2.60 a share on sales of $27.8 billion.

IBM CFO Mark Loughridge credited the company’s global services and software units for much of the upside surprise. In the quarter, Big Blue’s services business surged 17 percent from the year-ago quarter to $14.9 billion. Software sales, buoyed by strong demand for applications used in service-oriented architectures (SOA),   checked in at $6.3 billion, up 12 percent from the fourth quarter of 2007.

Middleware sales rose 15 percent from the year-ago quarter while its WebSphere applications grew 19 percent for the full year.

“We’re seeing tremendous growth in our global applications management business,” Loughridge said during a conference call with analysts. “Revenue was up in all sectors and geographies. We had exceptional performance in our services and software businesses. We expanded our growth margins and are very well positioned heading into 2008.”

Hardware sales slipped 4 percent in the quarter (which included the divestiture of its printing division) to $6.8 billion. IBM’s services business locked up $15.4 billion worth of new contracts in the quarter—many of which Loughridge said were signed at the last minute—which was down about 13 percent from the year-ago quarter.

However, IBM’s services unit exited the year with a backlog of more than $118 billion in services contracts.

That IBM managed to deliver such tremendous results in the fourth quarter while other top-tier technology and financial services firms have disappointed is, according to Loughridge, a testament to the company’s strong foothold in emerging markets. He said IBM will continue “aggressively investing” in high-growth markets while taking a more “measured approach” to established markets including the U.S.

“We have an uncertain economic environment that we’re working through along with the rest of the business world,” he said. “But we have a strong tailwind behind us heading into 2008. We have a strong geographical mix including a good 50 countries where we had double-digit growth for the quarter. That’s a real advantage for us.”

For the full fiscal year, IBM pocketed $10.4 billion, or $7.18 a share, on sales of $98.8 billion, up from a profit of $9.5 billion, or $6.11 a share, on sales of $91.4 billion in 2006.

Last quarter, IBM tiptoed past the consensus estimate, earning $2.36 billion, or $1.68 a share, despite lackluster hardware sales, particularly in its mainframe and server business units.

Loughridge told analysts that despite murky economic conditions in the U.S., the company remains on track for fiscal 2008 earnings of between $8.20 and $8.30 a share and remains committed to its goal of delivering earnings-per-share of between $10 and $11 a share by 2010.

“We enter 2008 with an outstanding operating and financial position,” he said.

IBM shares rallied up $2.80 a share, or 3 percent, to $103.92 in after-hours trading after closing off 53 cents to $101.10 ahead of the earnings report.

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