IBM Corp. released third-quarter results ahead of schedule yesterday that beat Wall Street's estimates, sending the company's stock, a component of the Dow Jones industrial average, up 6 percent in after-hours trading.
The Armonk, New York-based company also reaffirmed its full-year earnings guidance, a strong sign that IBM's core businesses are holding up well despite the deteriorating US economy.
IBM's shares have tumbled 31 percent since July on concerns that IBM's exposure to the crippled financial services industry, which accounts for 30 percent of the company's sales, would hurt results.
The stock had been performing well for most of the year despite the ailing US economy, rising 25 percent and hitting a 52-week high of US$130.93 on July 24 before the shares started sliding.
IBM rarely reveals its quarterly results early but has done it twice so far this year. The last time was in January, when IBM reported sparkling profit for the fourth quarter -- typically its most prosperous period -- that was well above what Wall Street was expecting.
In both cases, IBM's stock price was falling and it wanted to reassure investors about the company's financial health in tough economic times.
IBM said after the market closed yesterday that it earned US$2.05 per share in the July-September period, four cents higher than the average estimate of analysts polled by Thomson Reuters. Net income for the period was US$2.8 billion, an increase of 20 percent over the same period last year.
Sales increased 5 percent to US$25.3 billion but fell short of Wall Street's expectations. Excluding the effects of currency fluctuations, IBM's sales increased 2 percent.
Analysts were expecting sales of US$26.5 billion, but analysts had started lowering their estimates before yesterday's announcement. They cited the deteriorating economy and a strengthening US dollar as reasons for cutting their forecasts.
A strengthening dollar makes deals done in other currencies worth less when IBM accounts for the sales, which is done in dollars.
IBM maintained its forecast of at least US$8.75 per share in profit in 2008, a 22 percent improvement over last year.
The results are reassuring in that they suggest that the biggest tech companies are still inking sales deals despite tightened spending, analysts said.
"It's relief, that's why the stock's rallying," said Peter Misek, an analyst with Canaccord Adams, adding that the technology sector as a whole could get a boost today because of the positive signs from IBM. "It seemed like a global freeze happened in late September and extended, so it's nice to see the biggest companies are still dealing with the biggest of their suppliers ... the markets are still moving along, demand is still there."