IBM's 24% profit jump cheers market

The Baltimore Sun

The fallout from the banking industry's woes and a slowing American economy are certainly not hurting IBM yet.

The giant technology company gave Wall Street a pleasant surprise yesterday by announcing quarterly earnings that were far higher - up 24 percent - than most analysts had forecast.

The news sent International Business Machines Corp. up 5.4 percent, or $5.26, to $102.93 yesterday. The IBM announcement also lifted the broader market.

The strong fourth-quarter performance by IBM, analysts say, is mainly a sign that some leading global corporations may be able to sidestep the impact of a sputtering U.S. economy because they depend on the American market far less today than in the past.

The largest American corporations now get more than half of their revenues from overseas markets. That is true of large technology companies like Intel Corp., Hewlett-Packard Co. and others. And IBM, a longtime multinational, is a leader in the current globalization trend to tap overseas market and talent.

Today, two-thirds of IBM's sales and its workers are outside the United States.

"IBM has the most aggressive internationalization strategy of any of the major information technology companies," said Frank Gens, chief analyst of IDC, a research firm. "IBM isn't a bellwether of the U.S. economy."

In the United States, technology spending in 2008 will increase by only 3 or 4 percent, down from 6.5 percent last year, IDC estimates. Investment in computer hardware, software and services is expected to taper off in response to a weaker economy. And the financial sector, a big spender on technology, will likely be particularly soft because of losses from the housing credit crunch.

In a brief statement, IBM's chief executive, Samuel J. Palmisano, said the company's results were driven by "the broad scope of IBM's global business - led by strong operational performance in Asia, Europe and emerging countries." There was no mention of the American market.

IBM released its financial results three days ahead of its previously scheduled date. In recent days, IBM executives recognized that the fourth-quarter results coming in from its worldwide operations would be well above Wall Street's consensus estimates.

"Given the economic climate, where there has been a lot of speculation about market conditions and the performance of technology companies, we wanted to get this information to investors quickly," said Edward Barbini, an IBM spokesman. The conference call with analysts, when IBM executives will explain the company's performance in detail, will wait until Thursday afternoon.

In its preliminary announcement, IBM said its quarterly profit increased 24 percent to $2.80 a share, while revenue rose 10 percent to $28.9 billion. The company's profit was 20 cents a share above the consensus of analysts, as compiled by Thomson Financial. IBM's revenue was more than $1 billion higher than the consensus.

Currency gains lifted IBM's results, accounting for more than half of its 10 percent rise in fourth-quarter revenue. Yet with so much of IBM's business abroad, analysts try to model the currency impact into their forecasts.

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