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International Business Machines vanquished the ghosts of a disappointing first quarter by comfortably exceeding Wall Street revenue and earnings estimates for the three months to June.

Second quarter revenues at the world's largest technology company were $22.3bn, down slightly from last year. Excluding the personal computer business, sold at the end of April to Lenovo, China's largest PC maker, revenues were up 6 per cent.

Earnings per share were $1.14, against $1.01. Excluding one-off items, earnings were $1.12. Analysts had been expecting adjusted earnings of about $1.03.

“IBM returned to form in this quarter,” said Sam Palmisano, chairman and chief executive.

In April, IBM sent a shudder through financial markets when it announced first quarter earnings substantially below expectations. While Mr Palmisano said management mis-steps were largely to blame, analysts feared that the group's problems might run deeper.

Headline results for the second quarter were clouded by one-off items including $1.1bn gain from the sale of the PC business, equivalent to 45 cents a share. A further $775m gain, or 29 cents share, came from a legal settlement with Microsoft announced at the end of June.

These were offset by a $1.7bn charge equivalent to 72 cents a share to cover previously announced job cuts. Mark Loughridge, chief financial officer, said IBM now expects to cut 14,800 jobs, higher than its previous 10,000-13,000 estimate. About 70 per cent of the cuts will fall in Europe.

The rationalisation is expected to yield savings of $500m in the second half of this year, rising to $1.3bn in 2006. Lower costs should help IBM remain competitive in IT services and outsourcing.

IBM Global Services, the group's largest division, signed new deals valued at $14.6bn, soothing fears that the business was starting to lose momentum. First quarter signings were only $10bn.

The division's backlog of services contracts, a measure of the amount of work in the pipeline, was $113bn at the end of June, up $3bn from the previous quarter.

Excluding the PC business, IBM's hardware division increased sales by by 5 per cent to $5bn. Revenues from mainframe computers, a market dominated by IBM, declined by 24 per cent. A new generation of mainframes will be unveiled next week.

Revenues from software were $3.8bn, an increase of 10 per cent.

IBM shares rose $3.36 to $85.17, a gain of 4 per cent, following the announcement, which came after the close in New York.

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