Higher profits on slumping sales may sound like a contradiction in terms, but not at Armonk-based IBM Corp.
Cost savings across the business - much of it from disappearing jobs - helped IBM to report an 18 percent gain in earnings per share of stock to $2.40 in the third quarter.
Overall revenues were down by $1.7 billion to $23.6 billion, a drop of 6.9 percent that spread across-the-board in all five of IBM's segments.
But profit margins expanded nonetheless, with the gross margin growing 1.8 percentage points to 45.1 percent and the net margin growing 2.4 points to 13.6 percent. Margins have grown in 20 of the last 21 quarters, IBM said.
Net income for the quarter was $3.2 billion, up 14 percent.
That strategy of savings is not done yet, Chief Financial Officer Mark Loughridge said in a conference call with brokerage analysts that was Webcast.
IBM raised its own expectations for the full year to $9.85, up from at least $9.70.
IBM's job cutting appears ready to continue. Loughridge said IBM is on track to take out $1 billion from shared services and back-office work globally across the business. No specifics were given as to when and where.
Loughridge said he expects IBM will realize $3.5 billion in cost and expense savings "from actions we've taken."
"We've got a lot of opportunity to reduce structure and make our business more efficient," he said.
He mentioned "rebalancing our work force," which is lingo for IBM's way of firing with one hand and hiring with the other, often in different locations, and more often than not overseas.
IBM is the largest private employer in the mid-Hudson, but a shrinking one because of hundreds of job eliminations early this year.
More such cuts are expected broadly, said Lee Conrad, national organizer for Alliance@IBM, a workers' group.
"We expect the cuts to continue throughout the year," Conrad said. "IBM's been cutting just about every quarter. We know the offshoring of jobs is ongoing, so we expect more IBMers in the U.S. to be unemployed."
In the conference call, some analysts sought to get a view of the broad economy through IBM's eyes.
Tony Sacconaghi of Sanford Bernstein said, "Do you really believe that corporate technology spending is improving at all, because it's not really evident," noting IBM was providing "what appears to be really tepid EPS (earnings per share) guidance" for the fourth quarter.
Loughridge said, "I think the results we're seeing are more indicative of the strength of IBM's offerings."
He declined to comment on tech spending but said they're broadly seeing some stabilization in the economy and credit markets are better than a year ago.
Analyst and consultant Robert Djurdevic of Annex Research in Maui, Hawaii, said in a note to clients that the numbers are better than meet the eye.
"The second and third quarters of 2008 were unseasonably strong for IBM. So the latest report is actually better than it appears at face value," he said. "With the worst of the prior year comparisons now behind IBM, we expect the fourth quarter revenues actually to grow."
IBM's shares were down on the day. The market closed before the report came out, with IBM settling at $127.98, down 37 cents. But in after-hours trading, shares fell $4.69, or 3.7 percent.
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