May 19, 2024

I.B.M. Exceeds Earnings Estimates and Raises Its Profit Forecast

The giant supplier of corporate technology delivered first-quarter results on Tuesday that fit the pattern — with a bit extra as profit and revenue exceeded Wall Street’s expectations.

I.B.M. also raised its forecast for operating profit for the year, to “at least $13.15” a share. The earlier guidance was for “at least $13” a share.

In a statement, Samuel J. Palmisano, I.B.M.’s chief executive, said the company saw “excellent momentum” in areas it had pegged for higher growth, including business intelligence software and emerging markets abroad.

I.B.M. reported that net income rose 10 percent in the quarter to $2.9 billion. Its earnings rose more, by 17 percent, to $2.31 a share, reflecting fewer shares outstanding as a result of the company’s stock repurchase program. And its operating earnings, the figure tracked most closely by Wall Street analysts, rose 21 percent to $2.41 a share.

The earnings performance easily surpassed the average estimate by analysts of $2.30 a share, as compiled by FactSet Research.

The company reported revenue of $24.6 billion, an increase of 5 percent, after adjusting for currency gains. The sales figure was above Wall Street’s average estimate of $24 billion. In the year-earlier quarter, I.B.M. had revenue of $22.9 billion.

I.B.M. had strong results in most of its businesses, including hardware, as a new generation of mainframes sold strongly. Revenue from the big computers was up 41 percent from a year ago.

The one question mark, analysts said, was lower than expected new contract signings in the company’s big services business, a possible indication of weakness ahead.

“It was a classic I.B.M. quarter, showing the company’s ability to produce solid earnings,” said A. M. Sacconaghi, an analyst for Sanford C. Bernstein Company. “The only concern is the soft services signings.”

I.B.M.’s quarterly performance, analysts said, was another nod to the success of a strategy begun long ago. That strategy emphasizes profits ahead of revenue growth, aggressively pursuing high-growth markets overseas, and offering customers a tightly integrated bundle of hardware, software and services. And I.B.M. has an unwavering focus on the corporate and government markets.

For more than a decade, I.B.M. has delivered gains in earnings per share of more than 10 percent, while revenue has increased about 3 percent a year.

Cost cutting and share buybacks are part of the answer, analysts say, but so is the steady move into higher-margin businesses and new markets. These include applying research and computing to help governments tackle challenges like traffic management, water conservation and energy use. Last week, for example, I.B.M. announced a deal with the California Department of Transportation to build systems for predicting and managing traffic.

Technology markets are known for rapid, unpredictable turns. Yet I.B.M. issues five-year plans and pretty much sticks to them. The current plan, running to 2015, singles out a few market niches for high growth.

One sector earmarked for growth is cloud computing, the technology industry’s buzz term for tapping into computing resources and information in big data centers remotely over the Internet from anywhere, as if the services were in a cloud. I.B.M forecasts that its cloud business will reach $7 billion by 2015.

Another market singled out for rapid expansion is the business of helping companies mine data for useful information such as using Web traffic and social-network postings to guide marketing, sales, manufacturing and purchasing decisions.

The software for mining vast data troves is called business intelligence or analytics software. In the last five years, I.B.M. has spent $14 billion acquiring 25 specialist companies in analytics. The company’s analytics unit now employs 8,000 consultants and 200 mathematicians.

“The biggest change facing corporations is the explosion of data,” said David Grossman, an analyst at Stifel Nicolaus. “The best business is in helping customers analyze and manage all that data, and I.B.M. is making a big push there.”

In a conference call, Mark Loughridge, the chief financial officer, described Watson, I.B.M.’s Jeopardy-playing supercomputer, as a triumph of the company’s skills in analytics. In February, Watson beat two human Jeopardy champions. “We didn’t invest just to play Jeopardy,” he said. “We invested to provide leadership applications for our clients.”

I.B.M. said its analytics business grew 20 percent in the quarter. The 2015 goal for that business is $16 billion.

I.B.M. has a large business in Japan, about 11 percent of its total revenue, or more than $10 billion a year. Yet despite the exposure to Japan, I.B.M. had little impact in the first quarter from the tsunami and earthquake on March 11. Three-quarters of I.B.M.’s business in Japan is in services, which are typically sold under contracts lasting a year or more. “Services tend to be more stable in turbulent times,” Mr. Loughridge said.

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