IBM Earnings: Return of IT Spending Helps Profits Top Estimates

IBM first-quarter earnings
IBM first-quarter earnings

A moderate resurgence in corporate info-tech spending helped boost IBM's (IBM) first-quarter earnings slightly over last year, beating analyst estimates. Big Blue reported $22.9 billion in revenues and profits of $2.6 billion, or $1.97 a share. That's up a bit from $22.75 billion in revenue and profits of $2.3 billion, or $1.70 a share, in the same period last year.

Louis Miscioscia, an analyst with Collins Stewart, says he's seen a modest increase in technology spending since the beginning of the year. Most of that strength has been by consumers and small to midsize businesses, which make up only a small portion of IBM's customer base. That sector showed double-digit increases for the quarter.

"But that's starting to trickle over to IBM's main customers -- the large corporations," Miscioscia says. "This is going to get better for them throughout the year."

Stimulus Boost?

Contrasting IBM with competitors HP (HPQ) and Dell (DELL), Miscioscia says IBM should stand out due to its shift in focus to high-end software and services, which should do well from stimulus spending and business transformations.

Analysts surveyed by Thomson Reuters had forecast revenue of $22.75 billion and earnings of $1.93 a share. IBM also increased its guidance for all of 2010 by 20 cents per share, to $11.20.

Samuel J. Palmisano, IBM chairman, president and CEO, expressed that positive outlook for the rest of the year: "Looking ahead, we are confident in our ability to grow revenue, and given our mix of higher-value business and productivity we will expand margins, grow profit, cash and EPS, and increase returns to shareholders."

IBM signed services contracts totaling $12.3 billion, down about 2%, including 13 worth more than $100 million. The company has $14 billion cash on hand.

IBM's stock on Monday increased about 1%, or $1.60 a share, to close at $132, one of the few bright spots in the decimated technology sector. However, in after-hours trading investors were showing their dissatisfaction that Big Blue didn't go bigger in its earnings. The stock got pushed back to around $129.50, down 2%.