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IBM First-Quarter Earnings Up 22 Percent

The residual effects of sweeping cost cuts helped first-quarter earnings at International Business Machines Corp. increase 22 percent and beat analysts' expectations Tuesday despite minor revenue growth.

In the first three months of the year, IBM earned $1.71 billion, $1.08 per share, on revenue of $20.7 billion. Wall Street's consensus estimates were for earnings of $1.05 a share and $20.7 billion in revenue, according to Thomson Financial.

In the same period of 2005, IBM's net income was $1.40 billion, 84 cents per share, with revenue of $22.9 billion. But those results included IBM's personal-computer division, since sold to Lenovo Group Ltd.

Excluding PC sales, the comparable figures from last year were profit of $1.37 billion, 82 cents per share, and revenue of $20.6 billion. While that amounted to virtually no change in revenue year over year, IBM said it would have seen 4 percent growth if not for the effects of currency fluctuations.

The report was released after IBM shares gained $1.67, 2 percent, to close at $83.31 on the New York Stock Exchange. In extended trading, the stock moved lower.

The earnings report comes amid questions over the health of IBM's technology services business, which provides more than half of Big Blue's revenue.

With increased competition from less-expensive providers around the world, IBM's services growth has been sluggish in recent quarters. Profit gains have been achieved largely through expense cuts and shifts in labor from costlier markets such as Europe to places like India.

In the first quarter of 2006, the services division showed a 1 percent drop in revenue, though IBM said it would have been a 3 percent gain without currency fluctuations.

The group landed $11.4 billion in services contracts in the quarter. While that will not be realized as revenue until future periods, the statistic is considered a leading indicator of IBM's services strength.

IBM did not immediately address analysts' full-year forecast of $5.81 in earnings per share and revenue of $90.6 billion.

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