IBM raised its 2010 profit target and reported a stronger-than-expected 9 percent increase in fourth-quarter earnings, as cost cuts and a shift to more profitable contracts helped it weather a slump in corporate spending.
IBM's share price fell 2 percent after the results, however, making clear that investors wanted even more from a company whose stock had rallied nearly 60 percent in the past year. Moreover, IBM has set a high bar for itself -- the world's leading technology services company has not missed earnings estimates since 2005.
I think there were some pretty big expectations built in, and you really needed to wow it, Stephen Massocca, managing director at Wedbush Morgan, said after the results were issued on Tuesday.
Ted Parrish, co-portfolio manager at Henssler Equity Fund, added: While I think the long-term prospects for the company are good, I think the shares are a bit frothy, not overvalued but I would say the stock isn't going to do as well as it did in 2009.
International Business Machines Corp's results come just days after another technology powerhouse, Intel Corp
And while IBM's results failed to excite investors, they do add to evidence that corporate technology spending is recovering. The also indicate that IBM's efforts to cut costs and accelerate its shift to services and software businesses that offer higher margins are paying dividends.
The company said it now expects profit of at least $11 a share in 2010 compared with its previous target of $10 to $11 per share.
For a graphic on IBM's earnings, please click on http://graphics.thomsonreuters.com/0110/US_IBM0110.gif
IBM is just a machine. Throughout the downturn, they have provided consistent results and this is no different, said Andy Miedler, an analyst with Edward Jones.
IBM's fourth-quarter profit rose 9 percent to $4.8 billion, or $3.59 a share, from $4.4 billion, or $3.27 a share, a year earlier. Analysts on average had expected a profit of $3.47 per share, according to Thomson Reuters I/B/E/S. Total gross profit margin rose to 48.3 percent, up 0.4 points, in the quarter.
Quarterly revenue rose 1 percent to $27.2 billion, surpassing estimates. IBM also forecast more revenue growth in the first quarter.
The unique portfolio of businesses we built, heavily weighted toward software and services, generates high profitability, Chief Financial Officer Mark Loughridge said on a conference call.
Services contracts totaled $18.8 billion in the fourth quarter, an increase of 9 percent, including 22 contracts worth more than $100 million. Service contract signings are an indicator of long-term sales.
There is far more for the global economy to go and there is a significant amount of acceleration that is going on in the global economy, and IBM will be a beneficiary of that, said Peter Misek, an analyst with Canaccord Adams.
Shares of IBM fell 2 percent, after ending regular trading at $134.14, up $2.36, on the New York Stock Exchange.
(Additional reporting by Jim Finkle in Boston; Editing by Paul Thomasch and Richard Chang)