- Associated Press - Monday, July 19, 2010

SAN FRANCISCO (AP) - Uncertainty about the stability of world markets is clouding encouraging signs about the health of the technology sector.

Shares of IBM Corp. fell nearly 4 percent Monday after the computer company beat earnings expectations in the second quarter and raised its guidance for the year.

IBM disclosed a reduction in the value of services contracts, and revenue fell short. And for a company that consistently raises Wall Street’s expectations, IBM’s boost to its 2010 net income forecast wasn’t enough.

IBM reported Monday that its net income jumped 9 percent to $3.39 billion, or $2.65 per share, in the April-June quarter. That topped analyst projections for $2.58 per share. A year ago, IBM earned $3.10 billion, or $2.34 per share.

Revenue in the latest period rose 2 percent to $23.7 billion, from $23.3 billion. That was below the $24.2 billion that analysts expected.

IBM said currency changes hurt revenue by $500 million in the quarter, something the company said analysts didn’t include in estimates.

The turmoil over Europe’s debt crisis has hurt IBM because of weakness in the euro relative to the dollar. Because IBM does most of its business outside the U.S., deals done in other currencies are now worth less when they’re converted to greenbacks.

The company also reported a 12 percent decline in the value of services contracts signed during the quarter, to $12.3 billion.

IBM blamed the signings shortfall on an unusually high number of contract extensions it signed last year as customers renegotiated their deals in the recession. IBM’s chief financial officer, Mark Loughridge, said that trend is mostly “in the rearview mirror.”

Still, investors have been worried about the ability of the governments of Greece, Portugal and Spain to repay perilously high debts. Sluggishness in the U.S. economy’s improvement has helped stir fears of a “double-dip” recession.

Such worries have dampened Wall Street’s reaction to the results from other technology heavyweights as well.

Last week, Intel Corp. shares barely budged after it delivered its strongest quarter in the company’s four-decade history, helped by surging demand for microprocessors for computer servers. Intel does all its deals in dollars, so it wasn’t hurt by the currency changes the way IBM was.

Google Inc.’s results leaped on momentum in Internet search advertising, and the company’s hiring has accelerated. Google’s stock has fallen, in part because of concerns about the weaker euro’s effect on Google and the costs connected with hiring new workers.

IBM’s new guidance for 2010 calls for net income of at least $11.25 per share, an increase of a nickel per share over the previous estimate. That reflects IBM’s confidence that it can wring more profit from its workhorse services and software divisions and from the rollout of a new mainframe. Still, it was short of the $11.27 per share that analysts were expecting.

The second quarter was the 30th straight quarter in which IBM has posted higher earnings per share than the year before.

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