IBM Defies Tech Sector's Slowdown

That's great news for the scientists at Los Alamos National Laboratory, and IBM is surely pleased with the bragging rights. We'd be more impressed if the thing could actually pick some winner technology stocks. It's been a tough and frustrating year for tech investors — unless, of course, they've held IBM.

So little has gone right in 2008, yet Big Blue has stood tall. With less than a month left in its second quarter it doesn't take a supercomputer to know that it's still a good defensive play.

Financial firms are big spenders on IT but they've been writing off billions of dollars in bad assets and shedding workers by the thousands. Combine that with wider cutbacks or delays in IT spending because of the economic downturn, and anxiety over the fortunes of IBM, the world's biggest IT company, is just prudent thinking.

Yet shares are up 14% year to date. That's not too shabby considering that the tech-heavy Nasdaq Composite Index is still off a good 10%. Even more impressive is that IBM, as stolid and boring a tech company as you can think of, is killing three of last year's Four Tech Horseman. Apple (AAPL), Amazon.com (AMZN) and Google (GOOG) are off anywhere from 9% to 21% in 2008. BlackBerry maker Research in Motion (RIMM) has gained about 16%.

IBM's not sexy, but it has critical advantages that have stood it well and should continue to do so. For one, Big Blue derives more than 60% of its revenue from overseas. That helps insulate it from domestic weakness and lets it benefit from the deteriorating dollar.

At the same time, having lots of international revenue isn't in and of itself sufficient. If it were, megacap tech stocks like Texas Instruments (TXN), Intel (INTC) and Hewlett-Packard (HPQ) wouldn't all be down so substantially this year. Where IBM stands out is in the composition of its global business.

As American Technology Research analyst Shaw Wu noted Monday, IBM isn't just reliant on the traditional emerging markets of Brazil, Russia, India and China. Beyond those biggies there are more than 50 countries where IT spending is growing at more than 10%, and IBM is solidly positioned in many of them. "About 17% of IBM's business is in these 'hyper-growth' emerging markets, including South Africa, Malaysia, Poland, Ecuador, Singapore, Peru, Romania, Czech Republic, the Middle East, Vietnam, Australia, etc.," Wu wrote.

IBM is also more than just IT services and consulting. It's a one-stop shop that includes hardware and software — the whole so-called "solutions" schmear. That's appealing to potential customers and allows IBM to sell additional stuff to existing ones.

Finally, IBM shares look like a good deal. They're trading at just 13 times forward earnings, putting them at a discount to both their own five-year average and peers. It's also reassuring that Street estimates are historically too conservative: IBM's beaten them for more than eight quarters in a row.

IBM will report second-quarter earnings in about a month and it's unlikely to disappoint. At a time when so much tech has been so bitterly disappointing, it's a welcome relief to know that Big Blue has been true blue.

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