IBM shrugs off weakness in US

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Profits at International Business Machines, the world’s second-biggest IT group, met Wall Street expectations for the first quarter in spite of rising costs and a relatively weak performance in the US.

Shares of Big Blue rose 2.6 per cent in after-hours trading as an improved performance at the company’s services business and a weaker dollar led sales to beat expectations.

Earnings were $1.21 a share, in line with Wall Street estimates and up 12 per cent from $1.08 a share the year before. Revenues were $22.03bn, up 7 per cent from $20.66bn last time, adjusting for currency movements. Most analysts had been expecting earnings of $1.21 a share on sales of $21.9bn.

IBM said it expected full-year earnings to rise 11 per cent, in the middle of an earlier forecast of 10-12 per cent earnings growth.

Analysts on the company’s quarterly conference call on Tuesday struggled to get to grips with the company’s weak performance in the US, where revenues grew just 1 per cent year on year to $9.1bn.

IBM said the US weakness had been driven by a fall-off in IT spending by big corporate customers in March. It said it expected the situation to improve in the second quarter. “I am confident that as we go into the second quarter we will see...some improvement in the United States,” said Mark Loughridge, chief financial officer.

Mr Loughridge hailed a strong performance in Asia, where revenues rose 10 per cent to $4.5bn, excluding currency movements.

Samuel Palmisano, IBM’s chief executive, said the quarter’s results demonstrated the advantages of IBM’s business model, which has been moving away from rapidly commoditising hardware towards higher-margin products and services.

“We again grew gross profit margins and earnings and continued to generate significant cash from operations,” he said. “This gives us considerable financial capability to strengthen our position in the profitable growth segments and create further value for our investors.”

Sales received a boost from the weaker dollar, as currency movements contributed 3 per cent to the company’s top line growth in the quarter.

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