IBM impresses market with earnings boost

Preliminary profits at IBM are set to beat market expectations, giving a much needed boost to a tech sector concerned about the impact of the credit crunch.

The news not only lifted IBM’s share price by six per cent, but also helped bolster shares in other high-profile technology companies including Microsoft, Dell and HP that have suffered amid fears of reduced IT spending by cash-strapped businesses and consumers.

IBM announced late last night that its third-quarter net income had jumped 20 per cent to $2.8 billion (£1.55 billion) as revenue rose five per cent to $25.3 billion (£14.05 billion).

Earnings per share from continuing operations rose to $2.05 on revenue of $26.5 billion, compared to $1.68 a year earlier and against market expectations of $2.01 per share.

"In this environment, the combination of meeting current expectations but also reaffirming their outlook is an incredible performance," said Mike Holland, chairman of investment company Holland & Co.

IBM chief executive Samuel Palmisano said in a statement that the company was confident about its 2008 outlook, citing a steady base of recurring revenue and profits, and investments for growth in emerging markets.

Although a quarter of revenue comes from the hard-pressed financial services sector, IBM generates about half its income from its global services division and software contracts in the form of recurring annual and quarterly payments from customers. It also generated two thirds of its income from outside the US. It is also thriving in the server market.

"It is very nice to see some positive news, not just for IBM but for - to a degree - the tech space overall, given the downdraft we have seen in recent weeks," said Chuck Jones, technology analyst for Atlantic Trust Private Wealth Management.

IBM is due to publish its formal quarterly results on 16 October. The preliminary announcement is seen as an attempt to deter short-selling of its stock when the US ban is lifted later today.

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