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IBM third-quarter EPS beats Street, revenue misses

A worker prepares a stand of IBM for the upcoming CeBIT fair inside a hall in Hanover February 27, 2009. REUTERS/Hannibal Hanschke/Files

REUTERS - IBM (NYS:IBM), the world's largest technology services company, reported third-quarter earnings that beat Wall Street estimates, but it missed revenue expectations due to a decline in its hardware business and in emerging markets.

International Business Machines Corp said on Wednesday its quarterly net income rose 6 percent to $4.0 billion, or $3.99 a share on a non-GAAP basis from $3.62 a year earlier, above estimates of $3.96 a share, according to Thomson Reuters I/B/E/S.

Revenue dropped 4 percent to $23.7 billion below Wall Street analysts' expectations of $24.74 billion mainly due to a decline in its hardware division, excluding its System z mainframe servers, and in emerging markets.

The revenue drop was worse than investors expected, RBC Capital analyst Amit Daryanani said.

Edward Jones analyst Josh Olson agreed, saying it was a disappointing quarter from a revenue standpoint.

"I think that the hardware business is going to be something they need to work through and growth markets are down much more than expected," he said.

IBM Chief Executive Virginia Rometty said in a statement the company "continued to expand operating margins and increased earnings per share, but fell short on revenue" and vowed to work to improve those parts of the hardware division and in emerging markets that were lagging.

Half the decline in emerging markets was in China, the company said.

Olson added that the services backlog was healthy, but "we are not seeing the conversion of that backlog into meaningful revenue."

The company reiterated its full year outlook of non-GAAP EPS of at least $16.25.

IBM shares fell 6 percent in after-hours trade to $175.56.

(Reporting by Nicola Leske; Editing by Leslie Gevirtz)