IBM beats the Street, gives rosy forecast

NEW YORK (CNNMoney.com) -- IBM posted a fourth-quarter profit Tuesday that beat Wall Street expectations. The tech giant also pointed to an improved outlook for 2010.

The Armonk, N.Y.-based company reported a profit of $4.81 billion, or $3.59 per share, which was 9% higher than what IBM reported last year.

Analysts polled by Thompson Reuters expected $3.47 per share.

Sales rose a modest 1% to $27.2 billion, slightly ahead of forecasts.

Sales in the company's services sector and software sector each increased 2%, while revenue in its hardware business fell 4%.

IBM expects to improve its revenue performance in 2010.

"There were a number of large deals that did not close during the fourth quarter and have contributed to a very strong first quarter opening pipeline," said Mark Loughride, IBM senior vice president and chief financial officer, during a conference call. "And consequently, we expect software to grow revenue double digits in the first quarter."

He added that the company's software business has almost tripled since 2000.

IBM said it expects earnings per share of at least $11 for the full year. In its last forecast, the company said it was "well ahead" of pace to earn between $10 and $11 per share in 2010.

"We are confident about 2010 and our ability to achieve the high end of our long-term roadmap," IBM chairman, president and chief executive Samuel Palmisano said in a prepared statement.

While cost-cutting measures boosted 2009 earnings, Loughride said 2010's numbers will be lifted by higher revenue.

Investors were unimpressed. Shares of IBM (IBM, Fortune 500) fell 2% in after-hours trading, after climbing 1.8% in the regular session.

"IBM had very solid results. But investors were hoping for an even better guidance," said Peter Misek, analyst at Canaccord Adams.

He added that IBM's estimate of $11 in earnings per share is "very conservative," and that the company is likely to see the figure closer to $11.50 or beyond if the economy continues to gain strength.

For the full year, IBM reported a profit of $13.4 billion, or $10.01 per share, on revenue of $95.8 billion. That compared with earnings of $12.3 billion, or $8.89 per share, on revenue of $103.6 billion in 2008.