IBM reports a 'great' Q3

IBM Corp. reported strong financial results, helped by growth in its software business and some improvements in both its hardware and services operations.

Free IT resource Hear how top CIOs turn change into a competitive advantage. Sponsored by HP Free IT resource Try Sun servers, workstations and storage products free for 60-days. Sponsored by Sun Microsystems

In IBM's third quarter, which ended Sept. 30, the company reported Tuesday that net income rose 46.5 percent over the year-ago quarter to US$2.2 billion on revenue up 5.1 percent to $22.6 billion. Earnings per share (EPS) were $0.94.

Excluding a one-time charge of $525 million related to the 2005 repatriation of foreign earnings, IBM's EPS grew 15 percent over the quarter a year ago to $1.44.

A consensus estimate of Thomson Financial analysts had predicted that IBM would report revenue of $22.1 billion on an EPS of $1.35.

"We had a great quarter," said Mark Loughridge, IBM's senior vice president and chief financial officer, during a conference call with analysts to discuss the results.

IBM's software business posted strong growth and was the company's largest profit contributor at $4.4 billion, an increase of 9 percent, he said. There were also good results in many of IBM's hardware brands, with sales of the company's System z mainframes "exceptional," Loughridge added. Services revenue grew 3 percent to $12 billion, an improvement over previous quarters.

On a regional basis, Asia-Pacific improved significantly over previous quarters, with revenue growth up 6 percent.

In the second quarter, IBM's software business, especially its middleware offerings, performed strongly boosting net income and revenue. Software, microelectronics and IBM's System z mainframes were the most profitable business segments offsetting losses in the vendor's server operations due in part of supply chain issues and in services where short-term orders were weaker than had been expected.

IBM was active on the acquisition trail during the third quarter. The company announced plans to purchase FileNet, MRO Software and Internet Security Systems (ISS) for a combined outlay of $3.6 billion and bought Webify Solutions. IBM closed the three purchases earlier this month.