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IBM Investors Have Roving Eyes

Stocks in this article: IBM

IBM's stock has risen 45% this year, as investors have warmed to the company's growing reputation as a recession-buster. One of the big success stories of the economic slowdown, IBM continued its margin growth in the third quarter, despite year-over-year revenue declines in most of its business units. Software led the way during the third quarter with a gross profit margin of 85.7% and the company pushed its overall margin up by almost two percentage points to 45.1%.

"Software was the key profit driver for IBM during its expansion over the past six years, and continues to drive profit growth even during the recession," wrote Allan Krans, a senior analyst at TBR, in a note released Friday. "Although IBM was outpaced in growth by more aggressive competitors such as Microsoft (MSFT) and VMware (VMW) during positive economic conditions, IBM Software is maintaining much more consistent performance during the recession."

Microsoft, in contrast, has been hit with falling sales, and VMware has seen a significant slowdown in its recent explosive growth.

Hot on the heels of Intel's (INTC) third-quarter results, IBM's numbers have also been cited as further evidence of a tech recovery.

"Overall, sequential improvement in hardware and services and flattish software sales provide another indication that demand is beginning to improve," wrote Goldman Sachs' Bailey. " But for Hardware, IBM's limited revenue and earnings upside reinforces our shift from companies with earnings resiliency to those with more robust top-line growth and operating leverage."

Revenue from IBM's Systems and Technology group fell 12% year over year, but was flat compared to the prior quarter. IBM CFO Mark Loughridge nonetheless struck a bullish tone during a conference call to discuss the results Thursday.

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