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IBM reaffirms bright profit picture

Sam Palmisano has to wear shades

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IBM is making the rounds of institutional investors in the next few weeks to make the case why its stock is undervalued, and has posted a supplemental 8K filing with the Securities and Exchange Commission this morning reaffirming its revenue and profit guidance for 2009 and 2010.

You can read the presentation that Big Blue's top brass will be giving here. By design, it doesn't tell you anything that El Reg has not already gone into detail about here way back in February. IBM's chief financial officer was then telling Wall Street it could bring at least $9.20 per share to the bottom line in 2009, and that it could hit between $10 and $11 in earnings per share in 2010.

When IBM posted its second quarter financials in July, while sales declined by 13.3 per cent to $23.25bn, net earnings were still up 12.2 per cent to $3.1bn. Given its cost controls and discipline on doing deals that bring in profits, IBM at the time raised its guidance, saying that it could hit $9.70 per share earnings in 2009.

EPS is a bogus metric, but IBM is obsessed with it, presumably because a lot of bonuses within the company are tied to it. Real earnings growth is what matters, especially when you are talking about a company like IBM, whose share buyback programs are akin to a crack habit. Investors like to see revenue growth when they see profits because then they believe, rightly or wrongly, that the profits are not just a one-time belt-tightening that will come back and bite a company later on.

Anyway, with its filing to the SEC today, IBM is reiterating its guidance for $9.70 EPS for 2009, which is the newsy bit. The company is even doing the math for Wall Street, showing that in the first half of 2009, the company has posted $45bn in sales, down 12 per cent, but has raised gross profits by 2.1 points to 44.5 per cent. It has also ratcheted up net income by 6 per cent to $5.4bn, and has achieved $4.02 in EPS, up 11 percent. That leaves $5.68 in EPS to go for the second half.

Wall Street basically yawned, with IBM's shares wiggling around $118 a pop on the news. It is hard to get excited by revenue declines and financial engineering on Wall Street these days, I guess. ®

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