IBM Joins Tech Doghouse

Software also was the largest contributor to profit, at about 40% of segment pretax profit, he said. WebSphere, Tivoli and Lotus, along with other "key-branded" middleware, continued their stellar performance, growing 25% (21% at constant currency).

IBM global services, which brings in the bulk of revenue, "were strong on all metrics -- total signings were $17.8 billion, short-term signings were very strong at $6.2 billion with pricing up, and backlog erosion was zero, similar to last quarter, and IBM's best showing in 20 quarters," wrote Bernstein's Sacconaghi.

"We believe the strength in signings -- particularly short-term signings and IBM's outlook -- bodes well for services revenue growth in 2007," he added.

Canaccord Adams analyst Peter Misek, who has a hold on shares, also noted that services bookings "were far better than we had anticipated, and combined with a strong pipeline of opportunities entering fiscal year 2007, we believe the global services division could perform well in the latter half of 2007."

His firm does not have a banking relationship with IBM.

Short-term signings can typically lead to longer-term signings and generate other business for IBM in software and hardware.

For the quarter, hardware revenue was somewhat disappointing, PNC's Gorman says, but "not a total surprise."

System I server sales fell 10% year-over-year, or 14% at constant currency.