IBM profits as companies spend more

Strong outsourcing revenue reflected growing confidence among corporate clients

US computing firm IBM has reported strong fourth quarter profits after companies spent more on outsourcing contracts and mainframes.

The company's $29bn (£18bn) revenues - up 7% - and $5.26bn net income - up 9% - both beat market expectations.

Its new System Z line helped push revenues from mainframe computers up 69% from a year ago.

The value of new outsourcing contracts signed in the quarter rose 24% - a sign of growing corporate client confidence.

Corporate clients

IBM's servicing business - including outsourcing - had been in decline over the first three-quarters of the year, as companies were nervous to commit themselves to multi-year contracts during what was an uncertain and faltering economic recovery.

Another positive sign for the business line was the growing backlog of unfinished work, which rose to $142bn in the quarter, up $5bn from a year earlier, according to the company's statement.

Servicing has become an important source of income for the US IT company over the past decade, as it has sought to diversify away from hardware manufacturing.

As well as providing a direct source of income, by putting IBM in charge of managing companies' IT systems service contracts also enable the company to channel more hardware and software business to itself.

Other business areas also did well, with, for example, underlying software revenues up 11%.

Revenue growth was solid across all regions, although developing markets led the way as expected, with sales in China up 25%, and those in Russia up 46%.

The results, which were announced after the close of trading in New York, translated into an earnings-per-share of $4.24, up from $3.65 a year earlier, and easily beating market expectations of $4.08.

The company's share price rose 2.7% in after-hours trading in the US, following the announcement.