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IBM ignores foundering economy with top notch Q4

2008 looking okay too

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IBM did its best to calm fears of an imploding economy by posting strong fourth quarter results and issuing an optimistic take on the months to come.

The computing giant enjoyed a 10 per cent (4 per cent in constant currency) gain in revenue to $28.9bn. IBM also saw income rise 14 per cent year-on-year to $4bn. Most of IBM's major businesses contributed to the gains, including a much stronger performance out of the services units. In addition, sales in "emerging economies" stood out, according to IBM CFO Mark Loughridge, speaking during a conference call.

"This turned out to be a great quarter," Loughridge said. "In fact, it's the strongest revenue and profit performance in almost a decade."

The IBM results arrive during an extended US financial markets slide. Even nervous investors, however, were pleased enough with IBM's figures to send shares higher more than three per cent in after-hours trading, at the time of this report. (It should be noted that IBM reported preliminary figures for the quarter earlier in the week.)

Turning to individual businesses, IBM's Global Technology Services unit posted a 16 per cent year-over-year rise in revenue to $10bn. Global Business Services rose as well by 17 per cent to $5bn.

"This is the best (services) performance in years," Loughridge said.

IBM's Systems and Technology business, which includes server and storage hardware, dropped off by four per cent to $6.8bn. Unix server and storage sales helped during the period, while mainframe sales came in below hopes, falling 15 per cent. Microelectronics sales also failed to impress.

Loughridge believes that mainframe sales will improve in the next quarter when IBM unveils new hardware. The CFO revealed that the fresh mainframes will be announced and made available in late Feb.

In addition, Loughridge said that new low-end Power6-based servers will arrive by the end of the quarter along with new Unix virtualization software.

Software sales rose 12 per cent to $6.3bn, driven by middleware gains.

IBM's Global Financing group also pumped revenue by eight per cent to $668m.

For the full year, IBM's revenue rose eight per cent to $98.8bn. Meanwhile, income rose 11 per cent to $10.4bn.

When asked about the rather troubling global economic conditions, Loughridge held onto his optimism. IBM expects to see 2008 gains from mainframes, Unix systems, software and services.

In addition, the company sees the current housing and credit crisis as quite different from the dotcom blowout.

"I think the risk and issues you might see will be different from the last downturn," Loughridge said. "The last downturn was really characterized by overcapacity. I don't see that being the issue as we go into 2008."

IBM expects earnings per share growth to hit at least 15 per cent during 2008. ®

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