Software, Cost Cuts Improve IBM Net

IBM Corp., the world’s largest technology company, Tuesday reported higher-than-expected quarterly profit and strong growth in its software unit after it eliminated jobs and sold its unprofitable personal computer business, sending its shares sharply higher.

Net income climbed to $2.02 billion, or $1.30 a share, from $1.83 billion, or $1.12, a year earlier. Revenue declined 1.7% to $21.9 billion from $22.3 billion, which included $557 million from the PC business that IBM sold to Lenovo Group in May 2005.

Analysts, on average, had forecast second-quarter earnings before exceptional items of $1.29 a share and revenue of $21.9 billion, according to Reuters. Excluding the divested PC business, revenue rose 1%, IBM said.

The shares rose $2.30, or 3.1%, to $76 in after-hours trade following the earnings announcement. They had closed up 56 cents at $74.26.

Earnings have been rising at Armonk, N.Y.-based IBM after it cut expenses by slashing about 16,000 jobs and focused on smaller-scale, higher-profit services and consulting contracts, a business that accounts for about half of revenue. IBM also has been helped by sales of microchips for Sony Corp.’s PlayStation 3 video game console.

IBM said its software unit produced strong revenue, rising 5% to $4.24 billion.

IBM’s job cuts, announced in May 2005, saved about $500 million last year and are expected to save $1.3 billion in 2006, the company has said. Part of the savings is being invested in other parts of IBM’s business, such as software, the most profitable segment.

On Tuesday, IBM said it had signed $9.6 billion in service contracts in the second quarter, down sharply from $14.6 billion a year earlier and $11.4 billion in the first quarter. Like competitors, the company has been signing smaller, shorter-term contracts as customers scale back outsourcing deals.