IBM hit as new service contracts dry up

City A.M. Reporter
BM won fewer technology services deals than expected in the third quarter, sending its shares 3.7 per cent lower, although it announced stronger profits and raised its full-year outlook

A decline in services and outsourcing contracts signed in the quarter, a key indicator of future revenue growth, prompted some investors to take profits after the shares hit a historic high of $143.04 earlier in the day.

Many analysts, however, said International Business Machines Corp was still a solid investment in the long term.

"It's like an eight-cylinder engine. Even if one is weak the others continue very strongly. And they're still going have a strong fourth quarter," said Collins Stewart analyst Louis Miscioscia.

IBM's quarterly net profit rose to $3.6bn (£2.27bn), or $2.82 a share, compared with $3.2bn, or $2.40 a share, a year earlier.

It also raised its full-year earnings outlook to "at least $11.40 per share" for the full year, up from its previous forecast of "at least $11.25."

IBM's services contract signings fell seven per cent to $11bn in the quarter and outsourcing signings fell 15 percent to less than $6 billion. But IBM also said it won a major services deal with ABN AMRO on October 8, shortly after the quarter closed, a point Miscioscia and other analysts noted.

"If you give them the benefit of the doubt, if that October 8 thing happened nine days before, you could say no one would've looked at the numbers funny. But even if you don't include that, everything else was still strong," Miscioscia said.