IBM Income Up, Focusing On High Margin Business - InformationWeek

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IT Leadership // IT Strategy

IBM Income Up, Focusing On High Margin Business

The improved earnings follow a multi-year focus shift to software and global services.

IBM on Thursday reported that net income rose 14% in the third quarter as the company continued its focus on more profitable businesses.

IBM reported a net income of $3.2 billion, or $2.40 a share, in the quarter, compared to $2.8 billion, or $2.04 a share, in the same period a year ago. Revenue fell 7% year-on-year to $23.6 billion. Adjusted for currency, revenue fell 5%.

IBM beat Wall Street analyst estimates, which pegged earnings for the quarter at $2.38 and revenue of $23.4 billion, according to a poll by Thomson Reuters.

IBM attributed the increased profits to the company's focus on higher-margin products and services. IBM has been shifting its focus over the years to software and its global services business. The company's gross profit margin in the third quarter rose to 45.1% from 43.3% a year ago.

"Our long-term strategic shift to higher-value businesses again enabled us to deliver outstanding margin, earnings and cash flow growth in the third quarter," Samuel J. Palmisano, IBM chairman, president and chief executive, said in a statement.

IBM raised its full-year earnings forecast to $9.85 a share from its previous prediction of $9.70. The company said it expected 2009 pre-tax income for both its software and services segments to grow at double-digit rates and reach about $8 billion.

IBM was the second major tech vendor this week to beat analyst estimates. Intel reported a drop in profits and revenue, but the results were substantially less than what was expected by Wall Street.

Intel's results backed findings from analyst firms Gartner and IDC, which reported Wednesday that global PC shipments in the third quarter grew 0.5% and 2% year-on-year, respectively. It was the first year-on-year quarterly increase this year.

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