IBM Posts Jump in Profit as Sales Rise

IBM Corp. said Thursday that increased sales of big machines like mainframes and demand for computing services helped the company’s first-quarter profit grow 16%.

The world’s largest computer maker earned $1.6 billion, or 93 cents a share, up from $1.4 billion, or 79 cents, a year earlier. Revenue, boosted by a weak dollar, which makes IBM’s products cheaper overseas, was $22.2 billion, an 11% increase from $20.1 billion a year earlier.

But without the weak dollar, sales would have risen only 3%, Chief Financial Officer John Joyce told financial analysts during a conference call.

New contracts for computer services, a key indicator of future IBM sales, totaled $11.2 billion but lacked any major new deals. That caused IBM stock to sink in after-hours trading to $91.08. Shares in the Armonk, N.Y.-based company rose 27 cents to $93.97 in regular trading on the New York Stock Exchange before the results were released.

“Clearly services is huge for IBM, and it was light,” said Rob Schafer, an analyst with META Group.

Analysts’ estimates for full-year revenue and earnings per share “remain reasonable,” Joyce said. The consensus of analysts polled by Thomson First Call is that sales will reach $95.6 billion and earnings per share will hit $4.93.

IBM Global Services, which accounts for half of total revenue, grew 9% from a year earlier. The hardware group, which includes IBM’s server computer business, posted a 16% increase in sales to $6.7 billion as corporations, universities and government agencies upgraded their computer networks.

“Customers’ existing infrastructures are the oldest they’ve been in nearly 20 years,” Joyce said. “Customers have worked off the excess capacity of the late ‘90s, and are buying again.”

Joyce also touted the strength of IBM’s on-demand computing, which allows smaller companies to buy computer services as needed from a central system without requiring the purchase of costly

mainframes.

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Reuters was used in compiling this report.