NEW YORK (CNN/Money) - International Business Machines Corp. said Thursday that fourth-quarter profits fell 27 percent but sales rose as the No. 1 computer maker weathered a slump in spending on computers, servers and storage systems by selling more service contracts.

Looking ahead, the company's chief financial officer said IBM's profits should meet Wall Street forecasts by growing about 10 percent this year.

For the December quarter, IBM said income from continuing operations, which includes acquisition costs, slipped to $1.9 billion, or $1.11 per share. That's down 27 percent from $2.6 billion, or $1.46 per share, earned in the year-ago period.

Excluding charges related to the purchase of PriceWaterhousecoopers Consulting, earnings came in at $1.34 a share, topping Wall Street forecasts by 4 cents a share.

And overall sales rose 7 percent to $23.7 billion in the latest quarter on strength in IBM's computer services division.

"Given the environment, we are pleased with these results," CFO John Joyce said during a conference call.

Analysts may also be pleased. Armonk, N.Y.-based IBM was expected to earn $1.30 a share from operations on $23 billion in revenue, according to First Call, which tracks Wall Street estimates.

"So far it looks good," Arnie Berman, technology analyst at SoundView Technology Group, told CNNfn's Money and Markets. "It looks as though IBM is the company that has the right solutions set for some time now."

Joyce did not give specific profit targets for 2003 but said IBM is comfortable with forecasts for 10 percent earnings growth this year.

"There is great confidence that the tech sector has steadied, now the question seems to be how strong the recovery will be," Joyce said.

Corporate spending on new technology, which boomed during the late 1990s, has slowed in recent years as companies try to save money during the economic downturn.

To that end, IBM has been focusing on its consulting services unit, which is more predictable than selling hardware and software and has become its biggest division.

IBM said it signed more than $18 billion in services contracts in the fourth quarter, up 17 percent. The gains were helped by a seven-year, $5 billion information technology deal with J.P. Morgan Chase. Elsewhere, IBM got out of the hard-drive business last year by selling that unit it Hitachi.

In other sectors, hardware revenues from continuing operations increased 1 percent to $8.1 billion in the fourth quarter. Software revenues were flat at $3.8 billion.

"In one of the most challenging years in business, we delivered a solid quarter and finished the year strong," IBM CEO Samuel Palmisano, who took over from Lou Gerstner last year, said in a statement. "We continued to gain share in our core businesses and managed our company very well in a tough environment.

IBM's fourth-quarter operating income included a 23 cent per share charge associated with its acquisition of PricewaterhouseCoopers Consulting. Continuing operations exclude the hard disk drive business that IBM sold to Hitachi.

For total operations, net income for the fourth quarter fell to $1 billion, or 59 cents a share, from $2.3 billion, or $1.33 per diluted share, in the year-earlier quarter.

Shares of IBM (IBM: Research, Estimates) fell $2.37, or 3 percent, to $83.68 in after-hours trading. The results were released after the closing bell.

While the last three years have been tough, it has been a good three months for IBM and the tech sector. Shares of IBM have rallied more than 54 percent since the stock market bottomed on Oct. 9. But the shares are still 38 percent below their peak above $137, hit in 1999.

For all of 2002, income from continuing operations fell to $5.3 billion, or $3.07 per diluted common share, from $8.1 billion, or $4.59 per diluted share, in 2001.

Sales last year fell 2 percent to $81.2 billion.