I.B.M.’s Profit Beats Forecast

The I.B.M. formula continues to pay off.

Profits, more than sales growth, have been the big technology company’s focus in recent years. And predictably, I.B.M. delivered a steady performance in the fourth quarter of 2011, reporting profits that easily surpassed Wall Street forecasts. Sales were just below analysts’ estimates, weighed down by a slowdown in mainframe sales, compared with the previous year when new models were introduced.

The company reported that its net income rose 4 percent, to $5.5 billion. But its operating earnings per share rose 11 percent to $4.71 a share. There were far fewer outstanding shares than a year earlier after I.B.M. spent billions to buy back shares in 2011.

The quarterly result was well above the $4.62-a-share average estimate of Wall Street analysts, as compiled by Thomson Reuters.

“The quarter was typical I.B.M.,” said A. M. Sacconaghi, an analyst at Sanford C. Bernstein Company.

I.B.M.’s revenue rose 2 percent to $29.5 billion, but it fell short of analysts’ forecast of $29.7 billion. Analysts expect that the faltering economy in Europe and the stronger dollar will curb reported sales for major technology companies like I.B.M., who derive the majority of their revenue from abroad.

Virginia M. Rometty, I.B.M.’s chief executive, called the quarterly performance a “strong” finish to a year of record earnings per share, revenue and profit.

I.B.M. also expressed its confidence in the current year, saying it anticipated earnings for 2012 of “at least $14.85 a share.” That is above the Wall Street consensus of $14.76 a share, according to FactSet Research.

In after-hours trading, I.B.M. shares rose $4.50 a share, or 2.5 percent, to reach $185.05.

I.B.M. is the largest single supplier of information technology to corporations worldwide, selling more than $100 billion a year in services, software and hardware to businesses and governments. As a result, the company’s results are closely watched as a barometer of corporate spending and confidence. In that respect, analysts say, the company’s performance is reassuring.

Recent reports suggest that corporate technology buyers will restrain spending this year, given the uncertain global economy. A survey of more than 2,300 chief information officers in 45 countries, conducted by the research firm Gartner and released on Wednesday, found that technology budgets would be flat this year and would decline in North America and Europe. But I.B.M., analysts note, has become more resilient to swings in economic cycles than most corporate technology suppliers.

In recent years, I.B.M. has shed more cyclical hardware businesses like personal computer and disk drives, while stepping up its investment in more stable services and software businesses. It has been aggressive in tapping fast-growing markets abroad, while developing new businesses, like analytics software that helps companies sift through data for insights about how to cut costs and help sales.

“I.B.M is uniquely positioned to sell higher-value software and services,” said Ben Reitzes, an analyst at Barclays Capital.

The company got strong performances from businesses its top management had singled out as particularly important to its future. Revenue from fast-growing markets abroad including China, India and Brazil, and dozens of smaller ones, increased 16 percent. These designated growth markets now account for 22 percent of I.B.M. business, Mark Loughridge, the chief financial officer, said in conference call. Its “smarter planet” business — which combines research, specialized skills and sophisticated technology — grew by 47 percent. The initiative, which was started in 2008, has more than 2,000 projects, like creating more efficient systems for utility grids, food distribution, water conservation and health care.

But the hardware business held back growth. In the year-earlier quarter, hardware sales surged because new models of I.B.M. mainframes had recently been introduced. In the fourth quarter of 2011, without a new model, mainframe revenue dropped 31 percent from the previous year.

Software revenue grew 9 percent to $7.6 billion in the quarter, and the big services business added 3 percent to $10.5 billion. The growth in services revenue was restrained by Japan, where I.B.M. has a large services business and the economy is weak.

Still, profit margins in the services business are rising, and new contracts signed — a signal of future revenue — were $20.4 billion, above analysts’ estimates.

“We have a good hand as we enter 2012,” Mr. Loughridge said.

This article has been revised to reflect the following correction:

Correction: January 19, 2012

An earlier headline and summary on this article misstated I.B.M.’s sales trend for the quarter. Revenue was up, not down, by 2 percent.

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