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IBM defies recession as profits rise

IBM has continued to defy the recession by posting a double-digit rise in profits largely on the back of software and services.

The third-quarter...

IBM has continued to defy the recession by posting a double-digit rise in profits largely on the back of software and services.

The third-quarter ended 30 September saw IBM increase net profits to $3.2bn, up 13.6% on the same period in 2008.

Sales went up 1% sequentially to $23.6bn but dipped 7% on a yearly comparison, though for Q4 the company expects revenues to go up on an annualised basis.

IBM CFO Mark Loughridge said the results were the result of "shifting to higher value areas" over the past few years, but he also noted that the economy was settling down.

"What we see more broadly is some stabilisation in the economic environment and one of the indicators of that stabilisation is that credit markets have improved on a year-to-year basis," he said in a teleconference with analysts.

The bottom line was bolstered by an 11% rise in pre-tax profits for the combined services operation to $2.13bn and a 21% rise in pre-tax earnings for the software business to $1.85bn.

Cost-cutting measures also helped; IBM expects to hack $3.5bn from an estimated spend base of $90bn and reckons it could get rid of more.

Global Technology Services revenues were down 2% to $9.4bn and down 11% to $4.3bn in Global Business Services. All major families in the software portfolio grew, aside from Lotus, delivering sales of $5.1bn.

Loughridge said he expected software and services each to generate $8bn in profit for the whole of 2009. "That is one of the best indictors of the substantial transformation that we've seen in our business," he said.

Revenues at the Systems and Technology arm fell 11% to $3.9bn and pre-tax profits were $225m. Only System x posted sales growth in the unit, as revenues for System z, Converged System p, storage and retail store solutions declined.

All of this bodes well for the next quarter, said Big Blue, which expects to return to yearly growth in Q4.

"In a stable-to-improving environment, at the current spot rates, IBM expects to return to revenue growth at actual rates in the fourth quarter," said Loughridge.

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