IBM earnings jump 13%

NEW YORK (CNNMoney.com) -- IBM reported strong earnings Monday and boosted its outlook for the rest of the year, citing a double-digit increase in software sales.

The Armonk, N.Y.-based tech giant said its profit for the first quarter rose to $2.6 billion, up 13% from last year.

The company earned $1.97 per share, beating expectations and jumping 16% from the same quarter last year. Analysts polled by Thomson Reuters were looking for earnings of $1.93 per share.

Sales rose in the first quarter by 5% to $22.9 billion, beating analysts' forecast of $22.75 billion. Revenue was boosted by growth in the company's software sector, which increased 11%.

"We had a very good start to the year," Mark Loughridge, IBM chief financial officer, said in an earnings call. "Our best growth came from software, which is our most profitable and highest value area."

The company's systems and technology sector also improved in the first quarter, rising 5% after dropping 4% in the previous quarter.

"Systems and technology returned to revenue growth this quarter," said Loughridge. "I expect this growth rate to accelerate through 2010."

IBM raised its outlook for the rest of the year, expecting 2010 earnings of at least $11.20 a share, up from $11 per share in its previous forecast.

"I feel good about the guidance and I feel good about the business as we exit the first quarter," Loughridge said.

Despite the company's optimistic outlook and better-than-expected earnings, IBM (IBM, Fortune 500) shares fell more than 2% in after-hours trading.

Moshe Katri, managing director at Cowen and Company, said a "big chunk" of the disappointment among investors was due to weakness in IBM's service bookings, which dropped 2% in the first quarter.

But that's not a reason to give up on the company, said Moshe. Investors who stick with IBM stock will be rewarded in the long run, as increased sales in its services and software sectors continue to spur growth.

"This is a company that has consistently been able to beat expectations," he said. "Assuming the IT spending environment goes back to a somewhat normalized rate, we're going to see [IBM] continue to do pretty well."