IBM wows Wall St with 12 per cent profit jump

IBM blew away second-quarter profit projections and jacked up its full-year earnings forecast today, a rare sign of confidence from a major corporation in the recession.

Even though IBM's sales are slipping, the results demonstrate the technology company's belief that it can continue wringing out more profit from its services and software divisions. IBM has been relentless in cutting costs by automating tasks and shifting labor to cheaper locales, while protecting prices.

The 2009 profit forecast went to at least $9.70 (£5.94) per share, from $9.20 (£5.64) per share, a target that IBM set in January.

"Big Blue appears recession-proof," Annex Research analyst Bob Djurdjevic wrote in an email.

IBM said profit in the latest quarter, which ended June 30, rose 12 per cent to $3.1 billion (£1.9 billion), or $2.32 (£1.42) per share. Analysts expected $2.02 (£1.23) per share.

Meanwhile, sales dropped 13 per cent to $23.25 billion (£14.5 billion), lower than the $23.59 billion (£14.25 billion) predicted by analysts polled by Thomson Reuters. Sales would have been down 7 per cent without currency fluctuations.

"We are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers," IBM's chairman and chief executive, Sam Palmisano, said in a statement.

Shares of Armonk, New York-based IBM rose $1.55 (95p), 1.4 per cent, to $112.19 (£68.77) in extended trading after the earnings report. The stock had closed regular trading at $110.64 (£67.81), up 3.2 per cent on the day.

IBM's results don't mean overall corporate technology spending has rebounded.

Consulting and outsourcing rival Accenture Ltd. says there are fewer opportunities in higher-end services. Dell this week said it still is finding it hard to sell PCs to corporations, which are holding on to machines longer than normal. Even chip maker Intel, which this week reported stronger-than-expected earnings and guidance, said large companies haven't loosened their pursestrings yet.

IBM's report showed that its services and software divisions were the stars, while hardware lagged. Pre-tax income rose 23 per cent in services and 24 per cent in software. IBM says those divisions can prosper in down times because they help make customers more efficient.

IBM's gross profit margin widended to 45.5 per cent of revenue, from 43.2 per cent in the same period last year. That reflects the profit on each dollar of revenue once the cost of making a company's products is stripped out.