IBM profits rise due to cost-cutting

COMPUTER giant IBM yesterday raised its profit target for 2010 after posting solid results for its 2009 fourth quarter.

Cost-cutting helped the company increase its earnings by nine per cent in the final three months and it made a net profit of $4.8bn (£2.9bn) between October and December, up from $4.4bn a year earlier.

Revenues increased by one per cent to $27.2bn and it now expects 2010 profits to top $11 per share, up from between $10 and $11.

Despite the solid figures, IBM’s share price fell two per cent from $134.14 after the result, making it clear that investors want more from a company whose stock had rallied nearly 60 per cent in the past year.

IBM has set a high bar for itself – the company has not missed earnings estimates since 2005.

While IBM’s results failed to excite investors, they add to evidence that corporate technology spending is recovering. They also indicate that IBM’s efforts to cut costs and accelerate its shift to services and software businesses that offer higher margins are paying dividends.

Chief financial officer Mark Loughridge said: “The unique portfolio of businesses we built, heavily weighted toward software and services, generates high profitability.”

Services contracts, which are an indicator of long-term sales, totalled $18.8bn in the fourth quarter, an increase of nine per cent, including 22 contracts worth more than $100m.