International Business Machines Corp. reported solid third-quarter results as growth in its long-troubled services business overcame declines in hardware.
But sales to its biggest customer segment, the financial services industry, fell as banks were buffeted by subprime mortgage credit problems.
Mark Loughridge, IBM's chief financial officer, said in a conference call Tuesday that its results were in line with its long-term growth goals, and that his company expects its full-year earnings to meet the average analyst estimates of about $6.97 a share, according to Thomson Financial.
However, Mr. Loughridge also said that IBM was disappointed by its hardware and software results, which largely reflected a falloff in sales of mainframes, bought mostly by big banks, and deferrals of big software orders, which he also tied to the financial services industry shortfall.
Income from continuing operations rose 6.3% from the same quarter last year, to $2.4 billion, and revenue rose 6.6%, to $24.1 billion. As a result of a huge stock buyback in May that reduced shares outstanding by 8%, earnings per share rose 16%, to $1.68, which topped the average of analyst estimates by a penny, according to Thomson Financial.
The results prompted analysts to wonder whether the subprime lending mess is spreading beyond housing markets and affecting a broader swath of the economy.
"It was surprising how much of an impact" the financial-sector shortfall had on IBM, said Bob Djurdjevic, the president of Annex Research Inc. of Scottsdale, Ariz. "The question is whether it's a blip or longer term."
The technology services business relies on long-term contracts and may not be affected by banker spending cuts for several more quarters, he said.
