IBM beats forecast with 3Q earnings

SAN FRANCISCO -- IBM posted strong third-quarter earnings, its third-consecutive impressive quarter, due to its services business. Earnings rose to $2.4 billion, or $1.68 a share, from $2.2 billion, or $1.45 a share, a year ago. Revenue improved 7%, to $24.1 billion — in line with analysts' expectations.

Although IBM rarely posts dramatic, Google-like results, "They have really continued to deliver through what's been a pretty tough time for the tech market," says analyst Charles King at Pund-IT. "It's a testimony to the company's products."

Investors use both companies' results to gauge the strength of worldwide tech spending. IBM is a good indicator of corporate spending on technology, because most of its customers are big businesses. Intel is a barometer of computer sales because its chips are found in about 80% of PCs.

IBM has quietly been streamlining by shedding unprofitable or troubled businesses. The computer-services giant sold its hard-disk drive division to Hitachi in 2002, its PC division to Lenovo in 2005 and its printer services division to Ricoh this year. "The company has made it very clear that they're not in the commodity product space," King says.

It's unclear how much more IBM can grow. Since it already dominates large corporate IT contracts, CEO Sam Palmisano has made small business a priority. "I think that took some people by surprise, since IBM is not really known as a small-business vendor, King says. "But they could really get a toe into this market."