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IBM proves exception to the rule with better profit margins

IBM Corp has proved a rare animal in the recession.

Like everyone else, its sales have been hurt. Profit margins, though, have only gotten better and better, and on Thursday IBM ramped up its full-year earnings forecast.

It was a rare sign of confidence for a major corporation these days, but says more about IBM's execution than overall corporate technology spending. Big companies are still largely in lockdown mode.

Accenture Ltd, an IBM competitor in consulting and outsourcing, says there are fewer opportunities in higher-end services. Dell Inc this week said it still is finding it hard to sell PCs to corporations, which are holding on to machines longer than normal. Even chip maker Intel Corp, which this week reported stronger-than-expected earnings and guidance, said large companies haven't loosened their purse strings yet.

Even though IBM's sales are slipping, its second-quarter results demonstrate the technology company's belief that it can continue wringing out more profit from its services and software divisions. IBM has been relentless in cutting costs by automating tasks and shifting labor to cheaper locales, while protecting prices.

IBM's profit in the latest quarter, which ended on June 30, blew past Wall Street's projections. It rose 12 percent to US$3.1 billion, or US$2.32 per share. Analysts were expecting US$2.02 per share.

Meanwhile, sales dropped 13 percent to US$23.25 billion, below the US$23.59 billion predicted by analysts polled by Thomson Reuters. Sales would have been down 7 percent without currency fluctuations.

The 2009 profit forecast jumped to at least US$9.70 per share, from US$9.20 per share, a target that IBM set in January. IBM earned US$8.89 per share last year.

IBM regularly buys back its stock -- which is one way to improve earnings per share, because it reduces the company's share count. That step alone boosted IBM's earnings per share by 42 cents last year.

But IBM's chief financial officer, Mark Loughridge, said in an interview that the company won't need to accelerate buybacks to meet the newly raised forecast.



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