Update: IBM Q4 earnings pass $3 billion

CEO Palmisano calls quarter Big Blue's strongest ever

IBM reported fourth-quarter financial results on Tuesday that Chief Executive Officer Sam Palmisano called the company's strongest ever, with earnings passing $3 billion for the first time.

IBM's hardware, software and services groups all grew during the quarter compared to the same period of last year, pushing the company toward a 7 percent revenue increase, to $27.7 billion. Earnings for the quarter were $3.04 billion, up 12 percent. IBM's per-share earnings from continuing operations were $1.81, ahead of the $1.76 consensus forecast of analysts polled by Thomson First Call.

IBM also reported its annual results. Revenue for the year was $96.5 billion, up 8 percent, and earnings were $8.4 billion, up 11 percent.

Global services remained IBM's biggest business, bringing in $12.6 billion in the quarter ended Dec. 31, up 10 percent from the previous year's fourth-quarter total. Analysts had been watching for signs of slowing services growth as IBM faced the loss of several high-profile customers, such as JPMorgan Chase & Co., which cancelled a $5 billion deal in September, following its merger with Bank One Corp. IBM's services backlog of business contracted for but not yet billed remained essentially unchanged from last quarter, at $111 billion.

IBM's backlog stood at $120 billion a year ago, but Chief Financial Officer Mark Loughridge said IBM is unconcerned about the decline because its services group remains on track to meet growth expectations. In a conference call with analysts following IBM's results release, he attributed half the backlog decline to the lost JPMorgan contract. Shorter contract durations are also having an effect, he said.

IBM's hardware business brought in $9.5 billion, a 4 percent increase, while the software group grew its revenue 7 percent, to $4.6 billion.

The struggling PC business IBM agreed last month to sell to China's Lenovo Group Ltd. showed some growth, increasing revenue 2 percent, to $3.5 billion.

"PC revenue, while up, was impacted by the pending sale of our business to Lenovo," Loughridge said. "We experienced some disruption."

Overall, IBM saw the economy turn "from recovery to modest expansion" last quarter, according to Loughridge. The vendor forecasts 4 to 6 percent growth in IT spending next year.

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