[IBM has lately been one of the strongest stocks in the entre market, gaining 31% in the past year and hitting an all-time high last Friday. Following the 3Q11 earnings report, which was released after the close on Monday, the stock sold off about 4% despite the company’s raising 2011 non-GAAP EPS guidance slightly from $13.25 to $13.35. IBM’s own 3Q11 PR is at http://ih.advfn.com/p.php?pid=nmona&article=49568305&symbol=IBM and the 3Q11 CC slides are at http://www.ibm.com/investor/3q11/presentation/3q11.pdf .
Among the major 3Q11 growth drivers were the “Smarter Planet” segment (+50% YoY), cloud services (+100% YoY), and emerging markets (+19% YoY for all business segments combined).
For 2015, IBM forecasts non-GAAP EPS of at least $20 (#msg-58969771); if you think this will be accomplished, the stock would seem to be attractively valued today on a risk-adjusted basis.]
International Business Machines Corp. posted a 7% increase in third-quarter profit and again raised its 2011 outlook, helped by investments in emerging markets.
However, indications that future business may not be as robust sent shares lower after hours, down nearly 4%, or $7.35, to $179.42, after closing at $186.59 in 4 p.m. trading
IBM has benefited from a push toward higher-margin businesses, such as data-analysis services, and away from crowded fields where companies compete mostly on price. While that bet has been paying off, worries have emerged that the weak global economy is having a negative impact on technology spending, particularly by governments.
Those worries were exacerbated Monday by a disappointing number of signed service contracts, an indication of future business, and a sequential decline in the company's backlog[see below], which measures the current value of work under contract. The company said the declines were due to the impact of currency.
IBM on Monday reported new service contracts worth $12.3 billion, up 12% from the previous year, but below $14.3 billion in the second quarter. It was also below analysts' consensus estimate of $12.53 billion, according to Janney Capital Markets.
Meanwhile, IBM's services backlog slipped to $137 billion from $144 billion in the second quarter.
IBM's finance chief, Mark Loughridge, said he expects the consulting side of the services business, known as Global Business Services, to improve in the low- to mid-single digits in the fourth quarter, while the infrastructure services side, known as IBM Technology Services, should be similar to the third quarter.
Software, meanwhile, is expected to post "another strong quarter based on the pipeline that we can see," Mr. Loughridge said.
Also helping the company was its strength in emerging markets, where revenue rose 19% in the third quarter. IBM expects to generate 30% of its revenue by 2015 from markets such as Latin America, India, China and Africa.
Overall, IBM posted a profit of $3.84 billion, or $3.19 a share, up from $3.59 billion, or $2.82 a share, a year earlier[non-GAAP]. Revenue increased 7.8% to $26.16 billion.
"Looking through the numbers, things are more or less in line," ISI Group analyst Brian Marshall said.
The company, as it has done after each quarterly update this year, raised its guidance for full-year operating earnings to at least $13.35 a share from its July view of at least $13.25 a share. Analysts most recently projected an average of $13.32 a share.
In the latest results, IBM's systems-and-technology unit reported a 3.6% increase in revenue. The unit, which includes its hardware business, has been an engine for revenue growth in recent quarters but faces tougher year-over-year comparisons.
IBM also has benefited recently from its investments in emerging markets and growing technology sectors, such as business analytics and cloud computing. In the latest period, revenue from business analytics—which mines data to gain insight—gained 19%.‹
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