IBM ended 2005 with strong earnings, but essentially flat sales, as it reported net income for the year of $US8 billion on revenue of $US91.1 billion.

IBM exited the PC manufacturing business in early 2005 by selling its operations to China's Lenovo Group. The change reverberated through IBM's financial results throughout the year, as it reported declining revenue compared to periods in the prior year, which included the PC business. Excluding PC revenue, IBM's 2005 revenue rose 3 per cent.

IBM's revenue in the fourth quarter, ended December 31, was $US24.4 billion, about $US1 billion shy of the consensus estimate of analysts polled by Thomson First Call. That total represents a 1 per cent decline from 2004's fourth-quarter revenue, excluding PC revenue.

IBM's income for the quarter was $US3.2 billion, up 13 per cent from 2004's fourth-quarter income. Per-share earnings were $US2.01, including a $US0.10 per share hit from a one-time charge related to IBM's pension plan changes. Thomson First Call had a consensus per-share earnings estimate of $US1.94.

IBM is compensating for a tough spending environment by tightening its operations, casting off underperforming businesses like its PC unit and targeting high-margin opportunities. Its vaunted Global Services business posted a 5 per cent sales decline in the fourth quarter and eked out 3 per cent growth for the year, reporting total revenue of $US47.4 billion, but increased its profitability by boosting its gross margins.

Gross profit margin improvement in the quarter of more than five points showed the benefits of the company's focus on more profitable, high-value segments of IT, coupled with emphasis on productivity and integration, IBM chief executive officer, Sam Palmisano, said. The company's business model was more balanced and profitable than it was just a few years ago, he said.