IBM profits hit by $320m pensions settlement

Technology industry bellwether IBM has reported a healthy rise in net income in the third quarter, but its overall results were hampered by a $320m legal settlement related to its employee pension plan.

The company also increased its full-year forecast of earnings per share by three cents to $4.99 and took a cautiously optimistic tone about future spending on technology by corporations.

"This pattern of moderate expansion continues," Mark Loughridge, IBM's CFO, said in a conference call on Monday. He added that corporate spending is growing at about four or five per cent per year - consistent with the second quarter of 2004 and the best since 2000.

For the third quarter ended 30 September IBM said that earnings were $1.8bn, or $1.06 per share, after the pension-related charge is taken into account. That compares with $1.79bn for the same period last year - a rise of one per cent. Without the charge, third-quarter income would have been $2bn, an increase of 12 per cent.

Analysts surveyed by First Call had expected IBM to report earnings of $1.14 per share. Without the one-time charge, the company would have reported earnings of $1.17 per share.

In September, IBM said that it had agreed to pay $320m to settle portions of a lawsuit in which workers claimed the company had discriminated against older employees when it made changes to its pension plan in the 1990s. As part of that settlement, Big Blue's potential liability for outstanding related claims was limited to $1.4bn.

Overall revenue in Europe was flat compared in constant currency with the same quarter last year, Loughridge said. In contrast, revenue from sales in the Asia-Pacific region grew six per cent and in the Americas, climbed by seven per cent.

IBM's Global Services consulting arm, which represents nearly half of the company's business, had revenue growth of five per cent. Bookings for services engagements during the last quarter were about $10.5bn, or $9.8bn in constant currency - about flat year-over-year, Loughridge said.

He contended, however, that IBM's investment in emerging services - notably, in its business process outsourcing (BPO) initiative - will offset any short-term weakness in its services earnings. IBM is trying to expand its business services to other forms of outsourcing, such as human resources and accounting.

"We are very confident in our [services] business, not only in the fourth quarter, but in 2005," Loughridge said.

The hardware division showed a nine per cent increase in revenue, with zSeries mainframes and xSeries x86-based servers racking up the fastest growth in sales. In addition, IBM's Personal Systems division was profitable for the second straight quarter.

Big Blue's software business, which declined in the second quarter, returned to growth with a one per cent rise in revenue, when adjusted for currency. IBM's WebSphere, Tivoli and DB2 business lines posted double-digit returns, while revenue at its Lotus division slid six per cent, and sales of operating systems dropped two per cent.

At the close of regular trading, IBM shares were up $1.07 to $85.92.

Martin LaMonica writes for CNET News.com