Did IBM Weather the Tough Economy?
International Business Machines (NYSE:IBM) posted bottom and top line results for the fourth quarter that were better than analysts expected, showing that the blue-chip company had the ability to weather sluggish technology spending.
For the three-month period, IBM reported earnings of $5.8 billion, or $5.13 per share, on revenue of $29.3 billion. While revenue fell 1 percent from the year-ago quarter, the drop was predicted to be steeper. Analysts polled by Thomson Reuters had forecast earnings of $5.25 per share on revenue of $29.08 billion.
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In the third quarter, IBM posted a 5 percent year-over-year decline, and that same trend was expected to continue as economies in Europe and the United States remain slow. But full-year results came in higher than the previous year’s financials; net income increased 5 percent to $16.6 billion and operating net income grew 8 percent to $17.6 billion.
The technology services company beat both earnings and revenue estimates thanks in part to growth in emerging markets, with revenue in Brazil, India, Russia, and China increasing by 7 percent in 2012.
“We achieved record profit, earnings per share and free cash flow in 2012, Chairman and Chief Executive Officer Ginni Rometty said in the earnings press release. “Our performance in the fourth quarter and for the full year was driven by our strategic growth initiatives – growth markets, analytics, cloud computing, Smarter Planet solutions – which support our continued shift to higher-value businesses.”
Despite the slower growth in revenues, IBM has been able to increase its free cash flows, which in turn has enabled the company to invest back into its highly profitable, high margin businesses like Big Data analytics and cloud services. Based on what the company’s fourth-quarter earnings statement revealed, this strategy has paid off. As Remetty stated, these two units contributed significantly to IBM’s strong results.
IBM’s earnings were watched especially closely by analysts and investors because the company’s results offer an early prognosis for the technology sector as a whole. IBM’s earnings report showed signs that the technology spending environment improved during the last quarter, reported Reuters. “It is better than what people had feared,” ISI Group analyst Brian Marshall told the publication. “Virtually every segment did a little bit better than people expected. It supports the fact that things are getting better out there at least from a tech industry standpoint.”
Shares of the company were up slightly more than 7 percent in after hours, trading around $204 at 5:30 p.m. Eastern Standard Time.
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