IBM boosts financial outlook on software demand

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IBM boosts financial outlook on software demand

Software revenue rises; systems and technology business falls.

IBM has raised its full-year financial target by about one percent on strong demand for its software services and growth in emerging markets.

The company this week reported revenue of $US24.7 billion ($A23.7 billion) for Q1 2012 -- flat with the previous year and below analyst expectations for $US24.78 billion ($A23.8 billion).

It raised its full year target from at least $US14.85 ($A14.26) to at least $US15 ($A14.41) adjusted earnings per share on strong software, above analysts' expectations of $US14.94 ($A14.35).

IBM has been shifting its focus from hardware to higher-margin services and software over the past decade.

Chief financial officer Mark Loughridge promised IBM would deliver revenue growth again in the second half of the year, after overcoming some obstacles in the second quarter such as currency headwinds and two challenging projects in Japan.

"I think stabilizing Japan in the second half and seeing the new announcement contribution from our hardware base of business, that's going to be a significant dynamic," Loughridge said on a call with analysts, adding that the challenges in Japan were "a bit of an anomaly".

ISI Group analyst Brian Marshall said IBM was careful to pursue revenue that would also lead to margin growth.

"What they're doing is maximizing their operating margins by making sure they're not taking on revenue opportunities that aren't going to give them high margins," Marshall said.

Software shines

Loughridge said the software business -- IBM's largest segment -- had a strong quarter with revenue of $US5.6 billion ($A5.4 billion), up five percent and that its smallest unit, the systems and technology business, declined as expected, falling seven percent.

In services, IBM said its IT consultancy unit GBS declined two percent mainly due to problems in Japan and little demand in the public sector, while demand for its infrastructure services grew two percent.

Asked about his expectations for Europe, Loughridge said it looked "pretty stable", noting that growth in the United Kingdom and Spain was particularly strong.

Rival outsourcing company Accenture cheered investors last month by beating expectations on strong growth in Europe, especially after competitors such as Infosys and Cognizant had warned of lower IT spending due to the Eurozone debt crisis.

IBM also competes with business software makers Oracle and SAP as well as computing giant Hewlett Packard.

IBM said earnings per share, excluding items, in the first three months of the year were $US2.78 ($A2.67) -- beating average analysts' earnings per share of $US2.65 ($A2.54). Net earnings rose seven percent to $US3.1 billion ($A2.98 billion).

Share closed at $US207.45 ($A199.22), up 2.33 percent for the day, but fell by about the same amount in after-hours trading.

(Additional reporting by Sinead Carew; Editing by Bernard Orr)

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