IBM beats estimates analyst estimates, stock up in after hours

The Armonk, N.Y.-based company also reaffirmed its full-year earnings guidance, a strong sign that IBM's core businesses are holding up well despite the deteriorating U.S. economy.

IBM's shares have tumbled 31 per cent since July on concerns that IBM's exposure to the crippled financial services industry, which accounts for 30 per cent of the company's sales, would hurt results.

The stock had been performing well for most of the year despite the ailing U.S. economy, rising 25 per cent and hitting a 52-week high of US$130.93 on July 24 before the shares started sliding.

IBM rarely reveals its quarterly results early but has done it twice so far this year. The last time was in January, when IBM reported sparkling profit for the fourth quarter - typically its most prosperous period - that was well above what Wall Street was expecting.

In both cases, IBM's stock price was falling and it wanted to reassure investors about the company's financial health in tough economic times.

IBM said after the market closed Wednesday that it earned $2.05 per share in the July-September period, four cents higher than the average estimate of analysts polled by Thomson Reuters. Net income for the period was $2.8 billion, an increase of 20 per cent over the same period last year.

Sales increased five per cent to $25.3 billion but fell short of Wall Street's expectations. Excluding the effects of currency fluctuations, IBM's sales increased two per cent.

Analysts were expecting sales of $26.5 billion, but analysts had started lowering their estimates ahead of the unexpected announcement Wednesday. They cited the deteriorating economy and a strengthening U.S. dollar as reasons for cutting their forecasts.

A strengthening dollar makes deals done in other currencies worth less when IBM accounts for the sales, which is done in dollars.

IBM maintained its forecast of at least $8.75 per share in profit in 2008, a 22 per cent improvement over last year.

The results are reassuring in that they suggest that the biggest tech companies are still inking sales deals despite tightened spending, analysts said.

"It's relief, that's why the stock's rallying," said Peter Misek, an analyst with Canaccord Adams, adding that the technology sector as a whole could get a boost in Thursday because of the positive signs from IBM. "It seemed like a global freeze happened in late September and extended, so it's nice to see the biggest companies are still dealing with the biggest of their suppliers ... the markets are still moving along, demand is still there."

IBM shares gained $5.35, or 5.9 per cent, to $95.90 in after-hours trading, having closed down $5.10, 5.3 per cent, at $90.55 during the regular trading session.