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IBM misses sales forecast

Slowing demand for services and a falling euro hurt the company's second-quarter results. Profit climbs to $3.39 billion from $3.1 billion a year earlier.

July 19, 2010|Bloomberg News

IBM Corp. said Monday that second-quarter sales missed analysts' estimates as demand for services slowed and the falling euro weighed on revenue.

Revenue rose 2% to $23.7 billion, the Armonk, N.Y., company said. Analysts on average estimated $24.2 billion in revenue, according to a Bloomberg survey.

Services signings declined 12% to $12.3 billion, suggesting corporate customers were still delaying projects. It's the second straight quarterly decline in contracts for services, which makes up more than half of IBM's total revenue.

Currency fluctuations reduced sales by $500 million, IBM said. The company gets almost a third of its revenue from Europe, whose currency fell 9.4% against the dollar last quarter, making IBM's software and services more expensive to customers there. Although the effect from foreign-exchange rates was anticipated, not all analysts took it into account with their estimates, Deutsche Bank analyst Chris Whitmore said.

"It's going to be a head wind," said Whitmore, who works out of San Francisco.

IBM shares closed at $129.79, up $1.76, before falling as much as $5.01 in after-hours trading after the earnings news .

Net income climbed to $3.39 billion, or $2.61 a share, compared with $3.1 billion, or $2.32, a year earlier. Analysts estimated earnings of $2.58 a share.

IBM raised its full-year profit forecast to at least $11.25 a share, missing analysts' average estimate of $11.28. The company had previously projected at least $11.20.

Chief Executive Sam Palmisano expects IBM to almost double operating earnings to $20 a share by 2015, as he continues to focus on more profitable software and services businesses. The software segment, the company's most profitable, will make up about half the total profit in five years, Palmisano has said.

Palmisano plans to make about $20 billion in acquisitions in the timeframe. IBM is investing in markets such as analytics software, which helps companies predict trends, and cloud computing, which lets them store and access information on shared servers. The company is also developing services to monitor highways, electrical grids and other infrastructures to help them run more efficiently.

Increased sales of those technologies, along with growth markets such as Brazil and China, will add $20 billion to revenue by 2015, IBM has said.

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