IBM Profit Beats Expectations

SAN FRANCISCO – IBM (IBM), the world's biggest computer services company, said Tuesday that quarterly profit rose, helped by its consulting business and sales of large computers to businesses.

Net income climbed to $3.19 billion, or $1.99 per share, in the fourth quarter from a restated $2.83 billion, or $1.67 per share, a year earlier, International Business Machines Corp. said.

IBM reported fourth-quarter earnings before exceptional items of $2.11 per share, surpassing analysts' average forecast of $1.94 per share as compiled by Reuters Estimates. Shares gained 28 cents, or 0.3 percent, to $83.45 in after-hours trade on Inet.

IBM, led by Chief Executive Samuel Palmisano, was helped by the first full quarter's sales of its updated mainframe computers used by companies to process large volumes of data. Revenue from computer services, which account for more than 50 percent of IBM's revenue, also boosted results.

Sales of IBM processors for Microsoft Corp.'s (MSFT) Xbox 360 gaming console also contributed to earnings, the company said.

IBM also benefited from rising global demand for server computers used by businesses, where IBM is the market leader. IBM stock trades at 14.9 times 2006 estimated earnings, compared with a multiple of 17.2 for Hewlett-Packard Co. (HPQ), the world's No. 2 personal computer maker, and 20.3 for Dell Inc. (DELL), the largest personal computer manufacturer.

IBM was helped in the fourth quarter by increased demand for server computers used by businesses, a market that grew 8.1 percent to $12.5 billion worldwide in the third quarter, market researcher IDC reported in November. IBM is the top server vendor by revenue, with a 32.3 percent market share in the third quarter, IDC said.

IBM's services unit was boosted as businesses awarded a record number of outsourcing contracts last year, according to the outsourcing advisory firm TPI Inc.

Of 24 analysts who rate the stock, 19 have "buy" or "outperform" rankings, four have "holds" and one has a "sell."