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IBM's Profit May Rise as Shifting Jobs to India Reduces Costs ReceivedSPF: Neutral

IBM's Profit May Rise as Shifting Jobs to India Reduces Costs

July 18 (Bloomberg) -- International Business Machines Corp., the world's biggest computer-services provider, may say second-quarter earnings rose after the company reduced expenses by shifting workers to India from Europe.

Net income probably gained 11 percent to $2.03 billion, or $1.29 a share, from $1.83 billion, or $1.12, a year earlier, according to UBS AG analyst Benjamin Reitzes. Sales fell 1.7 percent to $21.9 billion after IBM sold its personal-computer unit, Reitzes said.

Chief Executive Officer Sam Palmisano cut 14,500 jobs in the past 14 months, mainly in Europe. One in eight IBM employees is now in India, where salaries are about 12 percent of those in the West. That helped the company's operating profit margin widen to 13 percent from 11.6 percent, Reitzes estimates.

``IBM appears to have everything in place in the India transformation,'' said Michael Holland, who oversees $4 billion, including IBM shares, at Holland & Co. in New York. ``The results so far have been promising.''

The lower cost of employees may have increased IBM's per- share earnings by about 14 cents, according to Toni Sacconaghi, an analyst at Sanford C. Bernstein in New York. He has an ``outperform'' rating on the stock. IBM had about 329,000 employees at the beginning of the year, little changed from 12 months earlier, as the expansion in India offset reductions elsewhere.

Without PCs

IBM reports after U.S. stock markets close today. IBM spokesman John Bukovinsky declined to comment on the earnings.

Shares of Armonk, New York-based IBM, down 10 percent this year, rose 13 cents to $73.70 yesterday in New York Stock Exchange composite trading. Nineteen analysts rate the stock ``buy,'' six say hold and two have a ``sell'' rating, according to Bloomberg data.

IBM's 4 3-4 percent note maturing November 2012 slipped 0.5 cent on the dollar to 95.29 cents yesterday, according to Trace, the bond price reporting system of the NASD. The yield rose to 5.64 percent.

IBM's profit has exceeded analysts' average estimates for four straight quarters, Bloomberg data show. Analysts project profit of $2.04 billion, or $1.29 a share, the average of 18 estimates in a Thomson Financial survey. They predict sales of $21.9 billion. Thomson didn't say what may be excluded from the profit projections.

Chief Financial Officer Mark Loughridge, speaking on a conference call on April 18, said analysts' estimates for the rest of 2006 looked reasonable.

Excluding PC revenue, second-quarter sales were little changed, according to New York-based Reitzes, ranked the No. 3 computer hardware analyst by Insbreastutional Investor magazine.

IBM may say revenue from services held steady at $12 billion, while the job cuts boosted profitability, said Reitzes, who rates the stock ``neutral.''

Computer Sales

Sales of computers, IBM's second-largest business, may fall 7 percent to $5.2 billion, Reitzes said in a July 10 note. The decline reflects the sale of the PC business to Lenovo Group Ltd. last year and more compebreastion for server- and storage-computer sales from Hewlett-Packard Co. under CEO Mark Hurd, who took over in April 2005.

IBM's Profit May Rise as Shifting Jobs to India Reduces Costs 1791
Robert Kolker Neither statement is very likely true. If you'll The stats provided indicate that, as some suspected...

Hewlett-Packard is ``being more price intensive and, in a conservative spending environment, that benefits H-P at the expense of IBM,'' said Michael Cohen, an analyst at San Diego- based Pacific American Securities, who rates IBM ``accumulate'' and doesn't own it.

IBM's Profit May Rise as Shifting Jobs to India Reduces Costs 1790
David Fabian The Great Outsourcing Bubble will burst in due course. I think that in less than five years...

Software sales probably rose 1 percent, Reitzes said. To bolster its third-largest unit, IBM this year bought companies including BuildForge Inc., whose products help customers design programs, and systems-monitoring company CIMS Lab Inc.

IBM's Profit May Rise as Shifting Jobs to India Reduces Costs 1795
Kamal R. Prasad Because location still matters in employment. I'm quoting actual figures around today...

Palmisano, 54, received a 2005 salary of $1.68 million, a bonus of $5.18 million, long-term pay of $4.24 million and other income of $309,000 last year, IBM said in a March 9 regulatory filing. He also received $9.26 million in stock options, based on Bloomberg calculations.

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IBM's Profit May Rise as Shifting Jobs to India Reduces Costs 1790

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