IBM produces good news for weary tech sector

Positive earnings reports from Big Blue, Google, and AMD lift stock prices and provide hope that things won't be as bad for the technology industry as some feared.

Updated 4 p.m. PDT with more details and CFO and analyst comments.

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IBM, Google, and AMD posted positive earnings reports on Thursday, lifting their stock prices in after hours and providing hope that things won't be as bad for the tech sector as some feared.

IBM reported a 20 percent rise in third-quarter earnings on strong software and services sales, and said it expects to meet its 2008 outlook despite the economic downturn that has companies curbing spending.

At the same time, Google beat analyst expectations with third-quarter earnings per share of $4.92 on revenue of $4.04 billion, and AMD posted a significantly smaller net loss than expected at 11 cents.

The news pushed IBM's share price up 2.4 percent in after-hours trade to $93.71, while AMD's price jumped 10.4 percent to $4.55 and Google's rose 10.2 percent to $389.15.

"All these companies are global companies and most of them are driving growth from overseas markets, and not everybody is as sick as Wall Street," said Bob Djurdjevic, president of Annex Research.

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In particular, IBM's mainframe revenues growing 25 percent is a very positive sign given the fact that banks and financial companies are major customers, he said.

"That alone is an indicator for how overstated and exaggerated the pessimism on Wall Street is," Djurdjevic said.

For the third quarter, which ended Sept. 30, IBM posted earnings of $2.8 billion, or $2.05 per share, on revenue of $25.3 billion, which was up 5 percent from a year ago. The numbers were in line with the preannounced results released by the company last week. The company has nearly $10 billion in cash.

While revenue for global technology services rose 8 percent and software rose 12 percent, hardware revenue fell 10 percent. Signed services contracts totaled $12.7 billion, down 4 percent, while short-term signings rose 13 percent to $6.1 billion.

The fact that new contracts declined slightly during a quarter that tends to be down is actually "an achievement" given the economic conditions and the Olympics taking place during the period, Djurdjevic said.

"This is a tough environment but we were ready for it," IBM Chief Financial Officer Mark Loughridge said in a conference call.

Loughridge cited IBM's ongoing actions to cut spending and margin performance as reasons for executives being optimistic about meeting its full-year 2008 earnings outlook of $8.75 per share.

Asked what would have to happen in order for IBM to miss its expectations, Loughridge said: "We would have to have major markets fall off much more substantially and...we would have to see a dramatic slowdown in our emerging countries, but we don't see that."

IBM's revenue outside the U.S., where the company generates 75 percent of its business, rose 10 percent, he said.

In a statement, IBM Chief Executive Sam Palmisano wrote: "Our results demonstrate that the combination of a steady base of recurring revenue and profits, a range of products and services that deliver value to clients worldwide, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times. These strengths along with our strategy to manage for productivity in major markets and to invest for growth in emerging countries have enabled IBM to thrive despite an economic environment that no one could have predicted."

 

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