NEW YORK (CNN/Money) - IBM posted a solid third quarter, but it's the company's prospects for the next quarter that are giving analysts investors some early holiday cheer.

IBM posted earnings per share of $0.94 cents, but excluding a one-time charge for taxes related to the repatriation of foreign earnings, the company posted earnings per share of $1.26 for the quarter -- a 22 percent increase over the company's earnings for the same quarter last year and well ahead of the Street's expectation of $1.13.

But the company's third quarter revenues of $21.5 billion were just shy of Wall Street's $21.7 billion estimates. Revenues are down 8 percent from the same quarter last year but are up 4 percent excluding the company's PC business, which has since been sold to Lenovo, the company said. The Armonk, N.Y.-based computer maker, one of the world's biggest technology companies, reported net income $1.52 billion, down from $1.55 billion in the year-ago quarter.

But IBM senior vice president and chief financial officer Mark Loughridge pointed out that the company is on track to deliver a strong fourth quarter, based on a recent addition to its mainframe computer line and strong prospects for its semiconductor business.

In a conference call, Loughridge said the results "reflect the breadth and flexibility of our business model and put us back on track for the rest of the year."

IBM executives pointed out that the company has posted two consecutive quarters of better than expected earnings, a reflection of restructuring moves it has made this year, including the sale of its PC business and a cost-cutting initiative that included 15,000 job cuts.

The company recorded $11.7 billion in revenue from its Global Services division and $11 billion in new contract signings for the all-important division, which accounts for more than half of IBM's total revenues. The $11 billion figure is about in line with what many analysts had expected; estimates ranged from about $10 to $12 billion.

IBM said it signed nine deals valued at more than $100 million in the quarter, including a $1.7 billion deal with ABN Amro. IBM ended the quarter with a services backlog of $113 billion, an increase of $3 billion from a year ago. The contract signings number reflects the amount of new business IBM was able to attract.

"The earnings were a huge positive surprise, and I think it was an okay quarter," said Peter Misek, senior technology analyst with Toronto-based investment and brokerage firm Canaccord Capital. "I would like to have seen stronger service bookings and more strength on software, but the core brands within software did well. And gross margins were pretty damn good."

Revenues for software, which accounts for about 20 percent of IBM's total revenues, were $3.8 billion, an increase of 5 percent compared with the third quarter of 2004.

Interestingly, IBM reported good numbers in less-followed businesses, such as its semiconductor business, which the company calls its microelectronics division. The company also performed better than expected in its business performance transformation services unit, a consulting unit focusing on helping businesses maximize their technology. Revenues for that segment were $2.9 billion, up 35 percent year over year. Microelectronics revenue increased 14 percent.

"There are a number of pieces of IBM's business that don't get as much credit as they should," said Mark Stahlman, an analyst at Caris & Co, referring to the company's microprocessor and BPTS units. "These are categories that people had expected fairly little from and they are turning out to be quite strong, as is typical for systems companies and is certainly true for IBM."

Hardware revenues decreased sharply, dropping 32 percent to $5.1 billion in the third-quarter 2005 compared to $7.5 billion in the year-ago period, which includes revenue from the divested PC business. But hardware revenues without the PC business increased 7 percent.

The company's total gross profit margin was 40.6 percent in the 2005 third quarter compared with 36.5 percent in the 2004 period.

While the company did not specifically issue guidance, Loughridge pointed to several factors that he said will have a positive impact on the fourth quarter.

For starters, the company is making the chips that will go into Microsoft's Xbox 360, which will be released on Nov. 22 and is expected to be a big seller.

IBM debuted the latest generation of its mainframe computers, the System z9 series, on September 16th, the last two weeks of the quarter. Mainframes are used by large corporations and government institutions to process large applications. Loughridge said early reaction to the new mainframes has been positive, and they are expected to contribute solidly to the fourth quarter.

Said Stahlman, "It was better than I had expected and most importantly they are clearly guiding us up for December, so I think there is a chance for a very strong finish for calendar year '05."

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None of the analysts quoted in this story own shares of IBM, and their firms do not have banking ties to the company.

What's Intel got in store when it reports after the bell on Tuesday? Click here.