IBM profit rises 6% on services, beating forecasts

Strength in services overcame a slide in hardware and helped third-quarter earnings rise 6% at IBM Corp., enough to beat Wall Street expectations Tuesday.

IBM said it earned $2.36 billion, or $1.68 a share, surpassing the profit of $2.22 billion and $1.45 a share that the Armonk, N.Y.-based technology bellwether posted in the same quarter in 2006.

Earnings per share rose at a much steeper rate than net profit because IBM’s aggressive stock buyback plan took 130 million shares out of circulation in the last 12 months.

Revenue rose 7% to $24.1 billion. IBM continued to benefit heavily from weakness in the dollar, which makes deals cheaper for overseas buyers. If not for currency fluctuations, the quarter’s rise in revenue would have been 3%.

Analysts’ consensus forecast was for earnings of $1.67 a share on a shade less than $24.1 billion in revenue, according to Thomson Financial.

IBM shares gained $1.57, or 1.3%, to close at $119.60 before the earnings report was released. In extended trading, the stock fell to $118.

IBM has been following a steady formula, using stock repurchases and expense reductions to achieve hefty gains in earnings per share even with revenue growth in single-digit percentages. In a conference call with analysts, Chief Financial Officer Mark Loughridge noted that earnings per share had risen 16% this year, which put the company “on track” to meet its previous guidance of a 14%-to-15% rise in 2007.

One of the most closely watched indicators for IBM’s business is service contract signings, which represent revenue that will be booked over future quarters. IBM signed $11.8 billion in service contracts in the third quarter, up from $10.5 billion a year earlier. Some analysts had worried that recent problems in credit markets would hurt IBM’s service signings, because financial services are IBM’s largest customer segment.