Going into IBM Corp's fourth-quarter earnings report, a key concern was whether the technology company could eke out higher revenue after a year and a half of declines. IBM has been pumping out higher profits for most of that time, but some analysts have worried it might be running out of moves to keep up its pace.
IBM answered those fears on Tuesday with slightly better revenue than last year, a stunning amount of new services contract signings, and a better profit forecast for 2010.
The numbers suggest the beginnings of a broad recovery in corporations' technology spending, a trend illuminated by the latest numbers from chip maker Intel Corp., which is seeing brisker orders for the processors used in corporations' computer servers. However, idiosyncrasies in IBM's business mean that its results don't always track with the direction of the overall economy, or even the technology industry in general.
So while IBM's latest numbers offer some clues about the health of corporations' technology budgets in the last three months of 2009, they wind up saying more about IBM's ability to wring more out of its most profitable divisions even in tough times. IBM, which is based in Armonk, New York, has leaned on its ability to cut its own costs and to sell its technology services as a way for other companies to save money. The stock has risen more than 50 percent in the past year.
Nevertheless, investors apparently expected even more in the latest quarter and the stock slipped $2.68, or 2 percent, to $132 in extended trading. IBM shares had risen 1.8 percent to close at $134.14 before the earnings report.
"I think IBM is really doing great. Having said that, it's difficult to get excited at this valuation of it, we're talking a single-digit revenue growth company," said Brian Marshall, an analyst with Broadpoint.AmTech. "When I look at the environment improving, there's going to be a lot more leverage at other companies."
IBM reported after the market closed on Tuesday that it earned $4.8 billion, or $3.59 per share, which was better than the $3.47 per share that analysts surveyed by Thomson Reuters were expecting. It represented a 9 percent increase over last year, when IBM's net income was $4.4 billion, or $3.27 per share.
Revenue increased just under 1 percent to $27.2 billion, though at constant values for the dollar it would have dropped 5 percent. Analysts were expecting flat revenue of $27.0 billion. Services and software revenue were higher, while hardware fell, though not as much as in previous quarters.
IBM also said it signed $18.8 billion in new services contracts in the quarter, up 9 percent from a year earlier. Revenue from those contracts mostly will be booked in the coming years.
For all of 2009, IBM's net income rose 9 percent to $13.4 billion while revenue fell 8 percent to $95.8 billion.
IBM's higher guidance of at least $11 per share in profit in 2010 wasn't entirely a surprise. The company had been telegraphing to investors for months that it was going to sail past its previous forecast of $10 to $11 per share in profit.