IBM Q3 revenue rises, but signs of downturn loom

16.10.2008
IBM on Thursday reported third-quarter revenue of US$25.3 billion, up 5 percent from the year before, but also said hardware sales and new service contract signings had slowed.

Net income grew by 20 percent to $2.8 billion, with earnings per share increasing 22 percent to $2.05. Analysts polled by Thomson Reuters had on average predicted earnings of $2.03 per share, with about $25.9 billion in revenue.

IBM's sales were hurt by a slowdown in its Systems and Technology business, which had $4.4 billion for the quarter, down 10 percent. System z mainframe sales were a bright spot within the division, however, rising 25 percent.

While Global Technology Services revenue rose 8 percent to $9.9 billion, and Global Business Services sales increased 7 percent to $4.9 billion, new service contract signings -- a predictor of future revenue -- fell 4 percent to $12.7 billion. However, short-term signings grew 13 percent to $6.1 billion.

Pre-tax profit for the Global Services segments jumped 23 percent, said Mark Loughridge, IBM's chief financial officer, during a conference call. "This was the highest level of services pre-tax margin in six years. It's especially important, given that we did it in the seasonally challenging third quarter," he said.

IBM does not want to risk that strong margin performance just to sign more deals, Loughridge said.