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Tech surges as IBM's strong profit surprises

The firm credits much of its 24% earnings rise to strength overseas.

January 15, 2008|From Reuters

IBM reported a better-than-expected 24% rise in preliminary quarterly earnings Monday on strong sales in overseas markets, driving its shares up 5% and spurring a tech rally.

The surprise report ahead of IBM Corp.'s scheduled earnings release Thursday eased some concerns about how much the slowing U.S. economy had hurt the world's largest technology services company.

"We think IBM saw fundamental upside from most of its operating segments, though much of the December quarter upside was driven by the strength of its international end-markets," Goldman Sachs analysts told investors.

Although the strength of U.S. corporate demand remains uncertain, IBM's news spurred gains in other tech shares, such as Intel Corp., which is expected to report results today. Its shares rose nearly 5%.

IBM said fourth-quarter earnings from continuing operations rose to $2.80 a share from $2.26 a year ago, beating the average Wall Street forecast of $2.60 a share, according to Reuters Estimates.

Revenue rose 10% to $28.9 billion, also beating the average analyst estimate of $27.8 billion.

IBM gave no outlook beyond a quote from Chief Executive Samuel J. Palmisano that it was "on track to achieve our long-term earnings-per-share road map objective in 2010."

The company, based in Armonk, N.Y., had forecast earnings per share would grow to about $11 in 2010 from $6.06 in 2006.

The report pushed IBM shares as high as $105.59 during regular trading. The stock closed at $102.93, up 5.4%.

Analysts remain concerned about the strength of technology demand from U.S. companies. Jyske Bank analyst Robert Jakobsen said some companies may have inflated spending to protect 2008 budgets in case of a slowdown.

Peter Misek, an analyst at Canaccord Adams, said the fact that IBM referred only to overseas markets meant the United States was probably weak, but it was a good sign for other internationally focused companies.

"Our view is this is very positive for the likes of Intel and Microsoft and any other large multinational that gets a large proportion of its revenue overseas," he said.

IBM said full-year diluted earnings per share rose 18% to $7.18, including 5 cents a share related to the sale of the printing systems division in the second quarter. Full-year revenue rose 8% to $98.8 billion, including 4 points of currency benefit.

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