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SAN FRANCISCO - IBM, the world's largest technology services company, reported 11 per cent profit growth but its shares fell 5 per cent as the results failed to beat the targets of some investors who had driven the stock up recently.
International Business Machines' quarterly revenue was boosted by a string of software-company acquisitions, while it also reported on Thursday US$17.8 billion in services contract signings, a key indicator of future business.
Fourth-quarter net income advanced to US$3.54 billion, or US$2.31 per share, from US$3.19 billion, or US$1.99 per share, a year earlier. Revenue climbed to US$26.3 billion from US$24.4 billion.
Earnings before special items were US$2.26 per share, topping the Wall Street consensus forecast of US$2.19, according to Reuters Estimates.
But IBM shares fell 3.8 per cent to US$95.70 after the results, from their New York Stock Exchange close of US$99.45.
"It looks like a great quarter - but that was priced in," said Jerome Heppelmann, chief investment officer of Liberty Ridge Capital, which does not own IBM shares. Although earnings topped published Wall Street targets, he said they only met the "whisper numbers" of less official expectations.
IBM stock had risen 37 per cent since hitting a year low last July, and 14 per cent since the previous earnings report.
The stock, up about 21 per cent in the last 12 months prior to the results, was trading at 15 times expected 2007 earnings per share, compared to a multiple of 17 for Hewlett-Packard , which competes with IBM in computer hardware, and 20 for services rival Accenture.
"The only area that was disappointing on first glance was the hardware area," said Marc Heilweil, manager of Spectrum Advisory Services' Marathon Value Portfolio, whose biggest holding is IBM.
Hardware revenue rose to US$7.2 billion from US$6.9 billion, while the business's gross profit margin slipped to 41 per cent from 42 per cent.
Armonk, New York-based IBM has been expanding in software, its most profitable business, and last year bought 11 software providers including internet Security Systems Inc. and FileNet Corp.
Technology services signings recovered after slumping earlier in 2006, as IBM won deals from the German military and Vodafone Group.
"We feel good about the momentum as we enter 2007," IBM Chief Financial Officer Mark Loughridge told investors on a conference call following IBM's year-end financial report.
Chief Executive Samuel Palmisano last year announced a total of 14 acquisitions worth about US$4.9 billion. They partly reflected an IBM push to automate services offerings, a traditionally lower-margin business, with more-profitable software.
Revenue from its software business, which typically accounts for about a fifth of total sales, rose 15 per cent to US$5.65 billion from US$4.9 billion. The segment's gross profit margin was 86.5 per cent compared with 86.3 per cent a year earlier.
Revenue from technology services, IBM's largest unit, rose to US$12.8 billion from US$12 billion. The business signed services contracts worth US$17.8 billion in the fourth quarter, the highest in four years and up 55 per cent from US$11.5 billion a year earlier.
- REUTERS
