IBM raises outlook, posts lower revenue

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NEW YORK (Reuters) -- IBM reported a 13 percent slide in revenue as corporate spending fell, but cost cuts and a shift to more profitable businesses helped it trump earnings expectations, and the company raised its profit outlook for the full year.

International Business Machines Corp (IBM, Fortune 500) said it now expects 2009 earnings of at least $9.70 per share, up from its previous outlook of $9.20, helping its shares rise as much as 3 percent in after-hours trading Thursday.

Mike Holland, chairman of investment firm Holland & Co, had been expecting strong numbers but said he was stunned by how positive they turned out.

"Big Blue blockbuster," he said. "The full-year guidance for $9.70 was incredible. I have never seen anything like that in the years I have been following IBM. In an unpleasant economic and financial world, these are incredible results."

Analysts said the higher outlook took the disappointment out of lower-than-expected second-quarter revenue, which fell to $23.3 billion from $26.8 billion a year earlier.

Analysts' average forecast had been for $23.5 billion, according to Reuters Estimates.

Net profit for the quarter rose to $3.1 billion from $2.8 billion in the year-ago quarter. Profit per share rose to $2.32 from $1.97, much higher than the average Wall Street forecast of $2.01 per share, according to Reuters Estimates.

IBM has fared better than many other technology companies amid the economic downturn, helped by its growing focus on profitable software and services like outsourcing and technology support, rather than increasingly commoditized hardware.

Its gross profit margin rose to 45.5 percent from 43.2 percent a year earlier.

Chief Executive Samuel Palmisano said the results underscored how the company's transformation was working.

"We are well ahead of pace for our 2010 roadmap of $10 to $11 per share," he said in a statement.

The upbeat results added to the market's optimism following leading chipmaker Intel Corp's stronger-than-expected earnings and outlook announcement this week.

Intel had said that while it was feeling the effects of a recession and slowdown in IT spending, the industry was returning to seasonal business patterns.

"This, combined with Intel's results, is pushing me to be more optimistic," said Kim Caughey, senior analyst at Fort Pitt Capital Group.

"Seeing they made it on the bottom line, and were pretty darned close on the top line, it gives me confidence looking at technology in general," she said.

IBM rose to $112.23 in extended trading, after closing up $3.42, or 3.2 percent, at $110.64 on the New York Stock Exchange.