IBM Nudges Profit Higher

Updated from 4:33 p.m. EDT

First-quarter profit edged higher at IBM(IBM) as revenue growth of nearly 7% came in above analysts' estimates.

The IT hardware and services giant said Tuesday that net income rose to $1.84 billion, or $1.21 a share, from $1.71 billion, or $1.08 a share, a year earlier.

Revenue rose 7% (4% adjusting for currency) to $22 billion.

A Thomson First Call survey of analysts was expecting the company to earn $1.21 a share on revenue of $21.9 billion.

Gross margin rose to 40.2% from 39.1% a year earlier, but was slightly below First Call's estimate of 40.5%.

Shares of IBM were recently down 97 cents, or 1%, to $96.15 in after-hours trading.

The company's first-quarter revenue in the Americas was $9.1 billion, an increase of 1% from the 2006 period. Revenue from Europe/Middle East/Africa was $7.6 billion, up 13%. Asia-Pacific revenue increased 10% to $4.5 billion.

Growth slowed and revenue was almost flat in the Americas because of a slowdown in sales to large enterprises, said Mark Loughridge, IBM's senior vice president and chief financial officer. Performance in the distribution sector was strong, but sales to industrial, financial and communication companies lagged.

"This quarter, our very strong performance in Asia with improvements in Europe offset weakness in the U.S.," said Loughridge. "But we expect growth in Americas to improve in the second quarter."

About 65% of IBM's revenue is generated outside the United States. About 65% of its employees are outside the country.

Revenue from global business services increased 9% to $4.2 billion, and segment revenue from global technology services increased 7% to $8.3 billion.

Investing in higher value businesses while divesting itself of commoditizing business also contributed to higher gross margins, said Loughridge. IBM's gross margin increased more than five points from 2002 to 2006.

IBM signed services contracts totaling $11.1 billion, down 2% year over year, and ended the first quarter with an estimated services backlog of $115 billion.

Revenue from the systems and technology segment totaled $4.5 billion for the quarter, up 2%.

The company's software segment grew to $4.3 billion, an increase of 9% compared with the first quarter of 2006. Revenue from IBM's middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.2 billion, up 10% vs. a year earlier.

Operating systems revenue of $522 million was flat compared with the prior-year quarter.

IBM said it expects to see earnings-per-share growth of 10% to 12% in 2007.

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