SAN FRANCISCO - IBM's second-quarter profit leaped 22 percent, blowing past Wall Street estimates as the technology company's bread-and-butter services division continued to thrive despite U.S. economic malaise.

IBM raised its profit outlook for 2008, saying it expects to earn at least $8.75 per share for the year, an improvement of 25 cents per share over previous guidance. The company, based in Armonk, N.Y., employs about 11,000 at its campus in Research Triangle Park.

The large jump reflects IBM's optimism that it will continue to benefit from its broad international penetration and highly profitable blend of services, software and hardware.

More than half of IBM's business comes from selling services to companies trying to cut costs or better manage their information technology operations. That business has held up for IBM, despite fears that the U.S. economic downturn has started to pinch corporate spending in other countries.

IBM said Thursday that it earned $2.77 billion, or $1.98 per share, in the three-month period ended June 30. That's 16 cents per share higher than the average estimate of analysts polled by Thomson Financial.

Last year, IBM earned $2.26 billion, or $1.55 per share, for the same period. Sales for the period jumped nearly 13 percent to $26.8 billion, about $900 million more than analysts were expecting. That revenue rise would have been just 6 percent, however, if not for weakness in the dollar. Deals IBM does in other currencies translate into more dollars as the U.S. currency falls.

Investors have been betting that IBM will continue to be a bright spot in an otherwise dreary economic picture. IBM shares are up from under $100 per share in January to more $125 per share Thursday.

The stock rose 58 cents per share, or a fraction of a percentage point, to $126.52 during the regular trading session. Shares gained an additional $2.40, or 1.9 percent, to $128.92 in after-hours trading. Many analysts were expecting IBM to handily beat Wall Street's tepid targets, but the scale of the upside surprise helped juice the stock price.

As expected, some of IBM's strongest growth came from its services divisions in the second quarter. Technology services grew 15 percent to $10.1 billion, and business-consulting revenue rose nearly 18 percent to $5.11 billion.

Getting more contracts

Investors closely monitor how many new service contracts IBM inks during a particular quarter, because it helps to gauge future revenue. That figure jumped 12 percent in the second quarter to $14.7 billion.

The health in services and software, which saw a 17 percent revenue increase, helped overcome growth of just 5 percent in IBM's hardware business, to $5.2 billion. That would have been flat without the soft dollar.

Bloomberg News reported that IBM plans to boost annual profit to as much as $11 a share by 2010, in part by cutting costs in the company's pension plan.

The technology company, which employed more than 386,000 people at the end of 2007, projected savings of $950 million this year.

IBM's plan also calls for increasing stock buybacks and promoting software sales.