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IBM profits beat estimates

Fueled by revenue growth in its server group and improvement in its PC unit, Big Blue posts better-than-expected third-quarter profits.

Fueled by revenue growth in its server group and improvement in its PC unit, IBM yesterday posted better-than-expected third-quarter profits.

IBM generated profits of $1.5 billion or 1.56 a share for the quarter, compared with $1.4 billion or 1.35 a share reported for the like quarter a year ago. Analysts had expected Big Blue to report earnings of 1.53 for the quarter, according to First Call.

The company's revenues, meanwhile, IBM at a glance rose to $20.1 billion, up 8 percent from a year ago. Based on constant currency, the global company would have reported an 11 percent increase in revenues.

Shares of IBM moved higher on the earnings news in early morning trading, rising 1.9 percent to 140.5. IBM's shares again touched a new 52-week high yesterday at 142.4375, but then gave up those gains to end the day at 137.8750, down 1.50 over Tuesday's close. The company's stock has been on a steep upward climb since October 6, when it closed at 123 a share.

"We saw improved growth rates in many key hardware segments, led by the System 390s and our PCs," IBM chief financial officer Douglas Maine said in a conference call. "And services continued its extraordinary growth, with $10 billion in new customer signings."

In August, IBM ramped up production of its newly revised System 390 G5 mainframes. Those products were expected to carry fat profit margins, analysts said at the time.

IBM's revenues during the quarter fell 16 percent in Asia and dropped 6 percent in Latin America. North America and Europe, however, offset some of those declines with growth of 15 percent and 16 percent, respectively.

Hardware sales during the quarter rose 4 percent compared with a year ago, to $8.7 billion. Sales of the RS/6000, AS/400, and the new System 390 G5 mainframe series increased, helping to drive revenues.

Although PC sales for the quarter were flat, the unit nevertheless turned a profit.

Revenues from services rose 23 percent during the quarter to $5.8 billion. Big Blue signed roughly $10 billion in new services contracts during the three-month period, including its $3 billion deal with Cable & Wireless Communications to help manage the company's computer network and billing operation.

IBM, which increasingly has focused on its software business, generated a total of $3.2 billion, up 5 percent for the quarter. The company's database, AS/400, and management software products also posted strong revenue gains.