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IBM Plays Tough Defense

Updated from 12:27 p.m. EDT

IBM (IBM - Get Report) set a bullish tone during its annual investor day on Wednesday, suggesting that the company's stock is well-positioned to weather the economic slowdown.

Despite a tough spending climate, IBM backed its full-year profit forecast during the New York event. Boosted by cost cuts and strong profit margins in services and software, the tech giant reiterated its projection of $9.20 a share.

In a rare public appearance, IBM CEO Sam Palmisano also explained that the firm is betting big on consulting services to drive its revenue growth, a shrewd move at a time when users are cutting their hardware spend.

By searching out recurring revenue streams such as software and services, the firm is making the right moves in a tough economy, according to at least one analyst.

"IBM remains one of the top defensive stocks in tech," wrote Goldman Sachs analyst David Bailey, in a note released Wednesday. "The analyst meeting highlights the company's ability to absorb incremental macro weakness and still drive earnings at or above our $9.25 estimate for 2009."

The Armonk, N.Y.-based firm, which competes with the likes of Hewlett-Packard (HPQ - Get Report) and Microsoft (MSFT - Get Report), has been on a mission to bolster its services business in recent years, even extending beyond IT into areas such as environmental monitoring.

"Severely constrained IT spending underscores the benefits of IBM's revenue and profit mix versus other more transactional hardware companies," wrote Bailey. Recurring revenue contributes 50% of IBM's total revenue and more than 60% of the firm's pre-tax profit, he added.
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IBM $144.17 -0.76%


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