IBM shares drop 4% after Q3 revenue fails to impress Wall Street

Drop in signed service contracts from Q2 raise investor concerns about slowing business

Despite raising its earnings estimate for fiscal 2011, IBM saw its shares slump nearly 4% after hours Monday as investors eyed potential revenue weakness in Big Blue's third-quarter results.

Shares of IBM (NYSE: IBM) finished the extended trading session down 7.44, or 3.99%, to 179.15 from Monday's closing price of 186.59.

IBM reported after Monday's trading session third-quarter net income of $3.84 billion, or $3.19 a share, up 7% from the $3.59 billion, or $2.82 a share, in profit from last year's Q3.

Big Blue's revenue for the third quarter was $26.2 billion, up 8% from $24.3 billion a year ago. But the company noted that, adjusting for global currency exchange rates, revenue grew just 3%.

This, along with a lower-than-expected total of signed service contracts and a drop in IBM's backlog from the second quarter, apparently prompted the after-hours sell-off.

Analysts had been expecting Q3 net income of $3.22 a share on revenue of $26.3 billion.

New service contracts were worth $12.3 billion, an increase of 12% from the year-ago quarter. However, they were 14% below the $14.3 billion in new service contracts from the second quarter.

The company's services backlog also declined to $137 billion from $144 billion in Q2.

The biggest revenue generator for IBM is its Global Technology Services division, which had $103 billion in Q3 revenue, or 39.5% of total revenue.

Software, which generated $5.8 billion in Q3 revenue, up 12.9% from a year ago, comprised 22.2% of total sales.

IBM increased its earnings outlook for the fiscal year to at least $13.35 a share from its previous guidance of at least $13.25 a share.

Shares of IBM were up 27.1% for the year through Monday's close.

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