IBM recovery delayed despite rising profits

IBM reported a 13% increase in net profit for the March quarter, but was held back from a full pre-recession recovery by a decrease in service contract signings.
 
The company said it earned $2.6 billion (€1.9 billion) in profit during the quarter. Revenue grew 5% to $22.9 billion – IBM's first quarterly revenue growth since early 2008 - but was flat while adjusting for currency fluctuations.
 
Despite the strong earnings, the value of IBM's new service contract signings – which typically account for more than half of IBM's revenue – fell 2% to $12.3 billion.
 
IBM said the value of its new application management contracts fell the most – 23%, or $700 million – with the transactional and outsourcing service segments also declining.
 
But it added it expects its services business to swing back to revenue growth this quarter.
 
A Forrester Research analyst told Forbes that IBM is still “firing on only two out of three cylinders,” with the services division serving as a bottleneck to IBM's growth.
 
He added that the services market typically trails a quarter behind the software market in terms of market trends, meaning the division is likely to recover in the next quarter.
 
But an analyst from another firm, MBO Capital, said he didn't expect a recovery of the services market until at least the September quarter.
 
IBM shares on the NYSE declined 3.06% to $129.17 in after-hours trading yesterday.

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