IBM has defied analyst predictions, posting a 20 per cent increase in the third quarter profit over last year, despite poor hardware sales.

Managing to pull in US$12.7 billion in new services contracts was IBM’s saving grace in Q3, which was only down four per cent from the previous year, despite the troubled economic climate.

Short-term contract signings did better than long term ones and were actually up by 13 per cent to US$6.1 billion.

Approximately half of Big Blue’s revenue is sucked in from yearly contract fees paid for IBM’s services in areas like consulting and outsourcing.

But not everything is rosy for the tech giant, as it suffered a 9.5 percent slump in hardware business, especially in servers.

The situation was looking so bleak that the firm was last week forced to release partial financial results from July through September, to stop investors from panicking and frantically selling off their shares, which was hurting the stock value.

Luckily for IBM, the numbers seem to have been good enough to stem the hemorrhaging.

IBM managed to trump analyst predictions with revenue growth of 4.9 percent in Q3, to reach US$25.3 billion. However, the volatile currency market means sales only really increasedby two per cent.

The firm reckons it earned US$2.82 billion, or US$2.05 per share, in the past three months, which is slightly better than last year’s net income of US$2.36 billion, or US$1.68 a share.

Analysts were also out by about two cents a share when it came to profit, with IBM gaining a bit more than was expected.

After releasing the results, IBM shares shot up 65 cents to US$92.17.

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