IBM Fourth Quarter Profits Up, Sales Down

Tech bellwether IBM reported mixed results for the fourth quarter, a period that many economists believe ushered in a full-blown recession.

For the quarter, IBM said sales fell 6.4% year over year to $27 billion, while earnings per share rose 17% to $3.28 and net income jumped 12% to $4.43 billion. The earnings beat Wall Street expectations. Analysts surveyed by Thomson Reuters were, on average, expecting Big Blue to post fourth-quarter EPS of $3.03.

For the full year 2008, IBM said revenue increased 4.9% compared with the previous year to $103.6 billion and that EPS rose 24.4% to $8.93. Net income for the year climbed 18.4% to $12.3 billion, IBM said.

"A strong fourth quarter capped an outstanding year," IBM chairman and CEO Sam Palmisano said in a statement. "Our strategic transformation -- migrating to the more profitable segments of the industry, investing in growth regions of the world, and driving productivity through global integration -- is continuing to pay dividends."

In recent years, IBM has exited some low-margin hardware lines, such as printers and PCs, in favor of high-margin software and services products. At the same time, the company has shifted a significant percentage of its workforce to low-cost countries such as India and Brazil.

Still, the economic slowdown is taking its toll on IBM's top line. Only the company's software group managed to increase sales in the fourth quarter. The unit's revenue increased 2.6% to $6.4 billion. The key IT and business services groups saw sales fall by 3.7% and 4.5%, respectively.

Not that demand is drying up entirely. IBM said it signed 24 services contracts worth more than $100 million each during the quarter.

Hardest hit was IBM's server group. Overall, the group's quarterly revenue fell 20%, with sales of Intel-based servers plunging 32%.

For the fiscal year 2009, IBM said it expects to post earnings per share of at least $9.20, ahead of analysts' expectations of $8.75 for the year.

IBM shares fell 3.46% in Tuesday trading to close at $81.98 as President Barack Obama's inauguration failed to rally the markets. The Dow Jones industrial average declined 4% to 7,949, while the tech-heavy Nasdaq was off 5.78% to 1,440.86.