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IBM confident on profit, looks to emerging markets

International Business Machines Corp, the biggest technology services company, said it expects to meet long-term profit forecasts despite economic turmoil, partly due to continued growth in emerging markets.

The company also said it had good access to funds, a strong liquidity position, and $10 billion in cash - unchanged from June - on top of its $10 billion revolving credit facility.

IBM, the world's biggest maker of mainframe computers and No. 2 software producer, made the comments on Thursday while releasing quarterly results that confirmed preliminary figures released last week.

IBM shares rose 2.4% in after-market trade.

The company posted a higher-than-expected third-quarter profit and reaffirmed its full-year outlook despite weaker quarterly revenue due to a stronger dollar.

Chief Financial Mark Loughridge said on Thursday that IBM is not among the group of large corporations suffering from liquidity problems. He added that the business outlook remains strong.

“We think we have shown real momentum,” he said of the results for the third quarter ended September 30. “We are confident as we go into the fourth quarter and 2009.”

IBM did not issue a profit forecast for next year, but it reiterated its outlook for 2008. Loughridge said the company remains on track to meet its goal of boosting profit to between $10 and $11 a share by 2010, despite the weakening economy.

He said on a conference call that IBM has about $4.5 billion in 1-to-3 month commercial paper that it could easily pay off if market conditions ever required it to do so.

“We've had absolutely no problems at all with access to the market,” he said.

IBM's steady performance has helped its stock hold up better than many tech shares that have been battered during the global financial crisis. IBM shares have lost 18% so far this year, versus a 37% drop in the Nasdaq Composite Index .IXIC.

Revenue from IBM's services business, its largest segment, climbed 8% to $14.8 billion. Revenue at its software division, its most profitable, rose 12% to $5.2 billion. Hardware sales fell 10% to $4.4 billion.

Loughridge said that the software division has a healthy pipeline of business prospects that should enable it to keep business growing even given the current weak economy.

Sales to companies in the financial services sector, IBM's largest group of customers, rose 7% to $7 billion. Within that group its revenue in the United States fell 1%.

Its government business rose 9% to $4 billion, while sales to small and mid-sized businesses rose 5% to $4.7 billion.

The Armonk, New York company said that third-quarter net income rose to $2.8 billion, or $2.05 per share, from $2.4 billion, or $1.68 per share, a year earlier. Revenue rose 5% to $25.3 billion.

IBM shares were quoted at $93.75 in extended trade. They had climbed $3.23 to $91.52 on the New York Stock Exchange before the results were released. (Reuters)