IBM's 2013 outlook raises hopes for more tech spending

Wed Jan 23, 2013 4:49am IST

An IBM Central Processor Unit (CPU) is seen on a Hard Disk Drive (HDD) controller in Kiev, March 5, 2012. REUTERS/Gleb Garanich

An IBM Central Processor Unit (CPU) is seen on a Hard Disk Drive (HDD) controller in Kiev, March 5, 2012.

Credit: Reuters/Gleb Garanich

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REUTERS - IBM, the world's largest technology services company, promised better than expected full-year growth after its fourth-quarter results beat estimates, a sign that fears of corporate delays in technology spending may have been overblown.

Companies had been widely expected to hold back on IT purchases in December in part because of worries about the so-called U.S. fiscal cliff. Automatic tax hikes and spending cuts would have been triggered had Congress not arrived at a deal to avert the cliff, and could have pushed the weak U.S. economy into recession.

International Business Machines Corp said on Tuesday that it plans to achieve earnings of at least $16.70 a share for the full year, above analysts' consensus forecast of $16.57.

Its quarterly net income rose 10 percent to $6.1 billion, or $5.39 a share from $4.71 a year earlier. Revenue dropped 1 percent to $29.3 billion.

Analysts had expected the Armonk, New York-based company to report net income of $5.95 billion, or $5.25 a share, on revenue of $29.05 billion, according to Thomson Reuters I/B/E/S.

Revenue in Brazil, India, Russia and China increased by 7 percent in 2012, or 12 percent adjusted for currency fluctuations. It grew 11 percent in the fourth quarter.

Some analysts said IBM's results were a sign that tech spending was improving.

"It is better than what people had feared," said Brian Marshall, an analyst at ISI Group.

"Virtually every segment did a little bit better than people expected. It supports the fact that things are getting better out there at least from a tech industry standpoint."

Andrew Bartels, an analyst with research firm Forrester Research, said "we were expecting a lot of companies were sitting on their wallets until it became clear what was going to become of the fiscal cliff."

"Given the fact it's Q4 with a cloud of the fiscal cliff, it's a positive indication that tech software will be doing better in the next couple of months," he added.

But Sterne Agee analyst Shaw Wu said the success appeared to be more specific to IBM than the industry in general.

"The results show that the IBM advantage and business model - vertical integration of hardware and software - is difficult to replicate," he said.

IBM has shifted its focus to higher-margin software and services from tech products over the past decade.

"IBM has been doing this the longest and customers are very accustomed to it. They have a much stronger offering and brand name."

IBM shares rose more than 4 percent to $204.36 after closing at $196.08 on the New York Stock Exchange.

(Additional reporting by Jennifer Saba in New York and Alistair Barr in San Francisco; Editing by Richard Chang)

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