IBM Beats Wall Street Expectations With Stellar Report, Strong Guidance

In another sign that the sector is leading the charge for the U.S. economic recovery, technology bellwether IBM (IBM) posted strong earnings results Tuesday, handily beating analyst expectations. Big Blue reported earnings per share of $3.59, beating the $3.47 per share Wall Street analysts had been expecting.The company also offered a strong earnings outlook for 2010, calling for full-year earnings to come in at $11.00 per share, beating Street estimates of $10.88.

IBM's strong showing is the first major sign that companies are picking up their technology spending, particularly in the hardware space -- spending which dried up during the recession. "In hardware, year-over-year growth has increased in every quarter since we bottomed out in the second quarter" of 2009, Mark Lockridge, IBM's CFO, told a post-report conference call.

Signs Of Life

Last Tuesday, research firm Forrester, a tech research company, predicted that 2010 will see a big increase in tech spending by companies and governments. Then, on Thursday, Intel's robust showing indicated that consumer spending on technology is beginning to pick up. Today, IBM's numbers confirm that businesses are starting to spend again as well, an essential component of any economic recovery.

"We feel very good about our performance this year," Lockridge said. "And I've got to say it's pretty remarkable given the economic environment." He pointed to substantial market share gains in key areas, including hardware, software, and, most notably, business services, on which the company has place a major bet for its future.

The strong results reinforce Big Blue's preeminent role atop the U.S. technology industry, which is roaring to life. Last week, Intel posted similarly strong numbers. On Thursday, Google is poised to impress the Street.

'Just A Machine'

"IBM is just a machine. Throughout the downturn, they have provided consistent results and this is no different," Andy Miedler, an analyst with Edward Jones, told Reuters. IBM shares rose $1.79 percent on Tuesday as investors bet on a strong showing. They weren't disappointed, but IBM was trading down in after-market trading, as investors sold on the news to capture gains. Still, most of Wall Street is bullish on IBM.

Lockridge touted the company's seventh consecutive year of double-digit earnings-per-share growth. For 2009, the company broke records for earnings per share, net income, and free cash flow, with a whopping $15.1 billion on hand. IBM has beaten expectations for the last nine quarters in a row. The company expects that trend to continue in 2010, he said.

"We are confident about 2010 and our ability to achieve the high end of our long-term roadmap," IBM chairman, president and chief executive Samuel Palmisano in a statement.

Strategic Shift Paying Off

IBM is clearly reaping dividends from a nearly decade-long strategic pivot from hardware to business services. In December 2004, IBM sold its personal computer business to Lenovo for $1.75 billion as part of a big bet on enterprise services and consulting; though it remains a big player in business hardware. It was a radical departure for a company so closely associated with the birth of the modern personal computer.

"The changes to the company have allowed us to deliver strong performance since 2002, and even during the last two years," Lockridge said. "But even more, the transformation has positioned us to come out over stronger for 2010. We are shifting to higher value businesses better positioned to meet new clients needs."

Five year after the Lenovo deal, IBM looks prescient, as the entire IT industry clambers to enter the business services market and move into cloud computing, a model in which data is stored on remote servers and accessible vie the web. Moving forward, Lockridge said the company would expand its focus on cloud computing, as well as its business analytics operation, which provdes data to companies.

Solid BRIC Growth

The company also plans to emphasize its Smarter Planet initiative -- which the company has been incessantly promoting in television commericals. That initiative aims to help companies and municipalities streamline their operations and become more efficient.

Lockridge said the IBM's performance in the BRIC countries -- Brazil, Russia, India and China -- grew 7% in 2009, with its business in China growing 10%. For the 17th consecutive year, IBM was No. 1 in US patents filed, with more applications than its next several competitors combined.

During the fourth quarter of 2009, IBM reported diluted earnings of $3.59 per share, compared with $3.27 per share in the fourth quarter of 2008, an increase of 10%. Net income came in at $4.8 billion compared with $4.4 billion in the fourth quarter of 2008, an increase of 9%. Total revenues for the fourth quarter of 2009 of $27.2 billion increased 1% (down 5%, adjusting for currency) from the fourth quarter of 2008.
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