Analysts polled by Thomson Reuters had on average predicted earnings of $3.03 per share and $28.15 billion in revenue.
Net income for the fourth quarter was $4.4 billion, a 12 percent increase over 2007. For the full year, IBM posted company records for revenue, with $103.6 billion; pre-tax profit, with $16.7 billion; and earnings per share at $8.93.
The company said it expected earnings per share of at least $9.20 in 2009. Chief Financial Officer Mark Loughridge said he expects the first half of next year to be more difficult than the second. Revenue growth will be relatively flat in the first quarter but then expand, he added.
IBM said the strong dollar contributed to its drop in fourth-quarter 2008 revenue. When adjusted for currency fluctuations, revenue would have fallen 1 percent, the company said.
Software revenue grew 3 percent, but Global Technology Services and Global Business Services fell 4 percent and 5 percent, respectively, an indication that customers are pulling back somewhat on IT projects. However, IBM also reported service engagements worth $17.2 billion, including some 24 deals with a price tag higher than $100 million.
IBM's Systems and Technology division took a significant hit, dropping 20 percent to $5.4 billion, a sign that customers are holding off on hardware purchases. System z mainframe sales fell 6 percent, while System p product revenue grew by 8 percent year-over-year. System Storage revenue dropped 20 percent and revenue from Retail Store Solutions shrank by 28 percent.
Fourth-quarter revenue was weakest in Europe, the Middle East and Africa, where it fell 12 percent. Revenue from the Americas fell 2 percent and Asia-Pacific dropped 1 percent.
IBM said it achieved its results by focusing on improving profit margins and investing in growth markets, although it also benefited from a lower tax rate. Its tax rate was 23.8 percent for the quarter, compared to 28 percent in the same period last year.
The company's press release included no announcement about major layoffs, which have been the subject of rampant rumors in recent weeks.
“Right now we're in wait-and-see mode,” said Lee Conrad, national coordinator of the Alliance at IBM/CWA Local 1701, a union that is trying to organize workers at IBM, in an interview prior to the earnings release. “We do know people have been told to look for other jobs.”
The union is calling on IBM to take certain measures to avoid layoffs, such as suspending its stock buyback program, eliminating executive positions and cutting executive pay. It also wants IBM to be transparent about where any job cuts are taking place and whether they are being moved offshore.
If it does cut jobs, IBM would be only the latest of its peers in the tech industry to do so as the worldwide economic crisis continues. Forrester Research recently predicted that global IT spending would drop slightly overall this year, but then rebound in
