SAN FRANCISCO – IBM, the world’s largest technology services company, said on Thursday that quarterly profit rose, helped by a string of software-company acquisitions and big services contracts.
Fourth-quarter net income advanced to $3.54 billion, or $2.31 per share, from $3.19 billion, or $1.99 per share, a year earlier. Revenue climbed to $26.3 billion from $24.4 billion.
IBM reported earnings before special items of $2.26 per share, topping the Wall Street consensus forecast of $2.19, according to Reuters Estimates.
IBM shares fell 3.7 percent to $95.7 after the results, from their New York Stock Exchange close of $99.45.
“It was a good quarter,” said Marc Heilweil, who manages Spectrum Advisory Services’ Marathon Value Portfolio, whose biggest holding is IBM. “We are getting a little bit of a sell on news. The only area that was disappointing on first glance was the hardware area.”
International Business Machines Corp., based in Armonk, New York, has been expanding in software, its most profitable business, and last year bought 11 software providers including Internet Security Systems Inc. and FileNet Corp.
Technology services signings recovered after slumping earlier in 2006, as IBM won deals from the German military and Vodafone Group Plc
IBM Chief Executive Samuel Palmisano last year announced 14 acquisitions totaling about $4.9 billion, including the 11 software companies. The purchases partly reflect an IBM push to automate its services offerings, a traditionally lower-margin business, with more-profitable software.
Revenue from IBM’s software business, which typically accounts for about 20 percent of total sales, rose 15 percent to $5.65 billion from $4.9 billion. The segment’s gross profit margin was 86.5 percent compared with 86.3 percent a year earlier.
Hardware revenue rose to $7.2 billion from $6.9 billion. The business’s gross profit margin slipped to 41 percent from 42 percent.
Revenue from technology services, IBM’s largest unit, rose to $12.8 billion from $12 billion. The business signed services contracts worth $17.8 billion in the fourth quarter, the highest in four years and up 55 percent from $11.5 billion a year earlier.
IBM shares, up 21 percent in the last 12 months, trade at about 15 times expected 2007 earnings per share, compared with a multiple of 17 for Hewlett-Packard Co., which competes with IBM in computer hardware, and 20 for Accenture Ltd., a services rival.