April 17 (Bloomberg) -- International Business Machines Corp., the world's biggest computer-services company, said first- quarter profit increased 8 percent because of new contracts and software acquisitions.

Net income rose to $1.84 billion, or $1.21 a share, from $1.71 billion, or $1.08, a year earlier, Armonk, New York-based IBM said today in a statement. Sales in the period ended March 31 gained 6.6 percent to $22 billion.

Chief Executive Officer Sam Palmisano boosted profit by acquiring more than 10 software companies last year. Clients such as Circuit City Stores Inc. signed services contracts totaling $11.1 billion, short of some analysts' estimates. While U.S. sales slowed in the period, Chief Financial Officer Mark Loughridge said he expects prospects to improve this quarter.

``The services contracts were weaker than expected as most people were expecting some growth,'' said Michael Cohen, research director at San Diego-based Pacific American Securities who rates the stock ``accumulate'' and doesn't own it. Still, ``this was a solid performance.''

Shares of IBM fell 81 cents, or 0.8 percent, to $96.30 in late trading. They gained 94 cents to $97.12 in New York Stock Exchange composite trading and are little changed this year.

The company's U.S. business experienced ``weakness'' as sales to larger corporations ebbed, Loughridge said today on a conference call. Higher demand in Europe and Asia cushioned the slowdown and U.S. business prospects will improve this quarter, he said.

IBM still expects full-year earnings to grow 10 percent to 12 percent, in line with the company's long-term objective, Loughridge said.

`Cherry Pick'

First-quarter revenue topped the average $21.9 billion estimate of 14 analysts and profit was in line with the average of 16 estimates, according to Bloomberg polls. Earnings have met or exceeded analysts' predictions for eight straight quarters.

Services signings were weaker than the $11.5 billion to $12 billion expected by analysts including UBS AG's Benjamin Reitzes, and Robert Semple at Credit Suisse.

Even amid price competition from rivals including Hewlett- Packard Co. and Accenture Ltd., IBM has managed to ``cherry pick'' the most profitable deals, said Eric Ross, an analyst at ThinkEquity Partners in New York. In the year-earlier quarter, IBM signed contracts worth $11.4 billion to help maintain clients' computer systems.

The company last month won a $775 million, seven-year contract from Circuit City to run its data centers, service desk operations and other functions. The same month IBM won an order valued at as much as $800 million to manage services including billing and computer networks for 10 years for Idea Cellular Ltd., India's sixth-largest wireless operator.

Sales by Unit

Revenue at the global services division advanced 8 percent to $12.4 billion in the quarter, beating the $12 billion estimate of UBS's Reitzes, the second-ranked computer analyst by Institutional Investor magazine.

Sales at the software unit, which accounts for most of IBM's profit, rose 8.8 percent to $4.25 billion, missing Reitzes's $4.6 billion estimate.

Systems and technology sales, including server computers, IBM's second-largest business, increased 2.3 percent to $4.52 billion. Reitzes had estimated sales of $5 billion.

IBM in January sold its commercial printing unit to Japan's Ricoh Co. for $725 million, the latest hardware disposal as Palmisano focuses on more profitable businesses such as software. IBM sold its personal computer unit to Lenovo Group Ltd., China's largest computer maker, in May 2005.

IBM in August agreed to pay $1.6 billion for Costa Mesa, California-based FileNet Corp., gaining programs that let workers share documents across corporate networks and the Internet. IBM the same month agreed to buy Atlanta-based Internet Security Systems Inc. for about $1.3 billion to gain software that companies use to protect their systems from attacks by hackers and viruses.

Loughridge on Jan. 18 said the company will continue making strategic purchases this year.

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: April 17, 2007 18:12 EDT