IBM results surge past forecasts

A surge in sales from its traditional mainframe hardware business helped IBM top financial forecasts for the final months of last year, capping a steady progression that saw it emerge as one of the technology world’s most consistent performers during and after the recent recession.

Signs of a broader pick-up in demand from IT buyers, which IBM said it expected to see continue this year, also cheered investors, who pushed the company’s shares up by nearly 3 per cent in after-market trading.

Mark Loughridge, chief financial officer, said the US technology bellwether had seen the best performance for a decade both in its hardware division and in the level of new business signings in services.

The introduction of a new version of the venerable mainframe, which first went on sale nearly half a century ago, brought a 70 per cent jump in sales from a year before, the company said. A new product cycle for its servers also contributed to the out-performance in computer hardware, which has been put in the shade in recent years by Big Blue’s push into software and services.

Revenues from the systems and technology business, which also includes chips and other hardware, jumped 21 per cent to $6.3bn, helping to push IBM’s overall revenue up 7 per cent to $29bn, ahead of the $28.3bn Wall Street had expected.

Mr Loughridge said IBM had benefited from “more stability in the economic environment,” although he added that its strong performance in many markets, including France, Italy and Spain, was more a reflection of market share gains than an improving economy.

The bounce in sales of hardware and software seen in the final months of last year looks set to continue in the current quarter and should propel IBM to a further 11 per cent advance in earnings per share this year, he added.

An 18 per cent advance in the value of new services contracts signed in the quarter, to $22.1bn, helped ease a lingering concern that has hung over the company in recent quarters. IBM had unnerved investors before by reporting declines in new signings of outsourcing contracts, but said these had bounced back by 24 per cent in the final months and attributed the earlier declines to normal volatility.

The pick-up in signings pointed to a recovery in the sluggish growth rate in the company’s services business, which was set to rebound to the “mid-single digits” in 2011, Mr Loughridge said.

The company’s gross profit margin rose by 0.8 percentage point, to 49 per cent, as it continued its shift into higher-margin products. Overall, IBM reported record net income of $5.3bn, up 9 per cent from a year before. Earnings per share, which also benefited from share repurchases, rose by 16 per cent to $4.18, compared to expectations of $4.08.

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