Software growth helps IBM boost fourth quarter earnings

Wednesday 23 January 2013 13.00
IBM sees increased earnings for the 40th quarter in a row
IBM sees increased earnings for the 40th quarter in a row

Growing software businesses such as Internet-based computing and data analytics helped IBM boost earnings per share for the 40th consecutive quarter.

IBM's stock price increased more than 4% in after hours trading following the announcement.

The results seemed to ease investor worries about the uncertain global economy dampening corporate and government spending on technology.

The results beat Wall Street's expectations, as is often the case with IBM. The company employs over 3,000 people in Ireland.

The technology bellwether's guidance for 2013 was also stronger than expected. It has helped that the company has been focusing on growing its software business, which has higher profit margins, over hardware.

In fact, software was the only business segment that saw a revenue increase during the quarter.

IBM is seen as a good gauge of technology demand because it sells to major companies and governments around the world. But it is not completely immune from economic fluctuations and its revenue missed Wall Street's expectations in the third quarter, something IBM attributed largely to the economic turmoil in Europe and elsewhere.

IBM said last night that it earned $5.83 billion, or $5.13 per share, in the three months from October to December. That is up 6% from $5.49 billion, or $4.62 per share, the same time last year.

The results included special items related to acquisitions and to IBM's pension plan. Excluding those items, earnings were $5.39 per share in the latest quarter, above Wall Street's estimates of $5.25 per share.

Revenue slid less than 1% to $29.3 billion from $29.49 billion. It would have been flat were it not for currency fluctuations, which translated to fewer dollars IBM made on overseas sales. Analysts had expected revenue of $29.12 billion.

Revenue from software was $7.9 billion, an increase of 3% from the fourth quarter of 2011. Revenue from hardware fell 1% to $5.8 billion and revenue from technology services fell 2% to $10.3 billion. Revenue from other businesses declined as well.

For the full year, IBM earned $16.6 billion, or $14.37 per share, up 5% from $15.86 billion, or $13.06 per share, in 2011. Adjusted earnings were $15.25 per share last year, above analysts' estimates of $15.14.

Revenue declined 2% to $104.5 billion from $106.9 billion. Analysts had expected slightly lower revenue of $104.4 billion.

For 2013, IBM said it expects earnings of at least $15.53 per share. The company said it is "well on track" toward its long-term outlook for adjusted earnings of at least $20 per share in 2015.

By 2015, it also expects software to account for more than half its total profit. In 2012, software accounted for 45% of IBM's profit, up from 43.5% a year earlier.