IBM

(IBM) - Get Report

reported earnings on Wednesday that exceeded Wall Street's expectations by 6 cents, though revenue dropped 1%, as the largest maker of computer hardware in the world posted a drop in hardware sales.

IBM closed Wednesday trading at 103 9/16, up 1/4 or 0.24%. They were up 4 7/16,or 4%, to 108 in after-market trading, according to

Island ECN

.

For the second quarter ended June 30, net income rose to $1.9 billion, or $1.06 a diluted share, from $1.7 billion, or 91 cents a share a year earlier. The year-earlier results excluded one-time items.

IBM had been expected to post earnings of $1 a share, according to the consensus estimate of analysts polled by

First Call/Thomson Financial

.

Revenue slipped 1% to $21.7 billion from $21.9 billion a year ago. Hardware sales were down 5% to $9.2 billion, as revenue from personal computers declined, partly as a result of a parts shortages and revenue from storage declined, largely because of problems in the hard disk drive product line, the company said.

The services segment, which has come under scrutiny following warnings from companies like

Perot Systems

(PER) - Get Report

and

Electronic Data Systems

(EDS)

, posted revenue growth of 2% to $8.2 billion. The unit is up against difficult year-over-year comparisons since it sold its network services division to

AT&T

(T) - Get Report

last year.

Software revenue improved 2% to $3.2 billion, with Web management and database software products growing especially robustly.

"Essentially, we've had three quarters of slow revenue growth, driven by a combination of the Y2K slowdown and a series of actions we've taken to improve our business portfolio," said Louis Gerstner, chairman and chief executive of IBM, in a statement.

Analysts are looking for a

resurgence in the second half. Gerstner was upbeat, saying, "Our outlook going forward is quite different from the one we faced in the last three quarters, and we continue to be very encouraged about the second half of this year."

The stock has fallen more than 20% in the last year and is about 15% down from its high in June.