Strong IBM Results Can't Rally Wall Street

A last-minute plunge of stocks sunk the Dow Jones Industrial average more than 7 percent to its lowest level in more than five years. The Dow closed at 8,579.19. The Nasdaq Index didn't fare much better, falling 5.5 percent to 1614.12.

The outlook was a complete turnaround from this morning when both indices were up after Armonk, N.Y.-based IBM said last night that its third-quarter 2008 earnings would be higher than expected.

IBM pre-announced that its earnings would be $2.05 per share from continuing operations, an increase of 22 percent and 4 cents per share higher than analysts' consensus expectations. Perhaps most important to Wall Street, IBM said it continues to expect full-year 2008 earnings per share of at least $8.75, or year-to-year growth of 22 percent.

The initial reaction on the Street was positive. IBM helped rally the market in early morning trading. IBM shares were trading as high as $95.31, up $4.76 or just more than 5 percent, and the overall market followed suit. But by the end of the day, IBM shares fell slightly to $89, down $1.55 compared to Wednesday's close.

Still, solution providers hoped that IBM's performance would allay some fears about the technology sector being in trouble.

Joe Mertens, president of Sirius Computer Solutions, a San Antonio-based IBM solution provider, was happy to hear that IBM's results mirror his business, which is also doing well.

"Certainly, when 90 percent of your business comes from one manufacturer, you want to see that manufacturer do well," Mertens said. "Our third quarter was very strong. We saw a volume increase, especially in the IBM storage area. Our first half was slower than we originally anticipated, but the third quarter lit it on fire. We hope the fourth quarter will continue that trend. But it's hard to say with everything going on in the financial market."

IBM's net income for the quarter was $2.8 billion, an increase of 20 percent. Revenue increased 5 percent, including 3 points of currency benefit, to $25.3 billion, compared with the third quarter of 2008, according to the company. Analysts were expecting $26.53 billion in sales, but that number was expected to be lower by the time IBM puts out its full earnings report on Oct. 16.

"Our results demonstrate that the combination of a steady base of recurring revenue and profits, investments for growth in emerging markets, a range of products and services that deliver value to clients, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times," said Sam Palmisano, IBM chairman, president and CEO, in a statement. "We remain confident in our full-year outlook."