In the last three months of 2006, IBM earned $3.54 billion, or $2.31 a share, on revenue of $26.3 billion. The numbers were boosted 6 cents a share by a lower tax rate and 5 cents a share by gains related to discontinued operations.
Even without those bumps, the company beat the average forecast of analysts surveyed by Thomson Financial. Wall Street was expecting a profit of $2.19 a share on revenue of $25.7 billion.
"We had a very strong finish to the year," chief financial officer Mark Loughridge said in a conference call with analysts.
Still, investors were not impressed. Shares of IBM lost $4.25, or more than 4 percent, at one point in extended-session trading. Before the results were announced, the stock lost 57 cents to close at $99.45 on the New York Stock Exchange.
The figures all surpassed last year's results, when profit was $3.19 billion, or $1.99 a share, and revenue was $24.4 billion. However, profit in that comparison quarter was dragged down about $200 million after taxes, or 12 cents a share, by a onetime accounting charge and costs incurred in freezing the pension plan.
In one sense, this quarter's performance echoed much of the way 2006 played out at IBM. The Armonk, N.Y., company struggled to find overall sales growth but rode cost cuts and software acquisitions to a higher profit.
However, by another closely followed measure, services signings, IBM's fourth quarter might have marked a turning point. The company signed $17.8 billion in services contracts, a hefty leap from the $10.5 billion in the prior quarter and the $11.5 billion a year earlier.
That could further galvanize investors who have already sent IBM's stock on a tear the last six months. Despite yesterday's decline, shares have still hovered near their 52-week high.
Revenue from those services contracts - including a huge deal recently signed with the German government - will be booked over the course of several years. In the fourth quarter itself, IBM's services division posted revenue of $12.8 billion, up 6 percent from the year earlier. Without currency fluctuations, however, the rise would have been 3 percent.
The next-largest division, the hardware-focused systems and technology group, posted a 3 percent revenue rise, to $7.1 billion, but would have been flat at constant currency.
Meanwhile, software, IBM's most profitable unit, had a revenue gain of $5.6 billion, an increase of 14 percent - although it would have been 11 percent without fluctuations in the dollar. Loughridge called it software's best growth in five years.
For all of 2006, IBM earned $9.49 billion, or $6.11 a share, on revenue of $91.4 billion. That marked a 20 percent increase in net profit from 2005, when IBM earned $7.93 billion, or $4.87 a share, on revenue of $91.1 billion. The increase in earnings per share was even higher than the net-profit figure because IBM spent $8 billion buying back its stock in 2006, reducing the number of shares on the market.
