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UPDATE 1-IBM shares hit 5-year low after disappointing results
October 20, 2015 / 4:12 PM / 2 years ago

UPDATE 1-IBM shares hit 5-year low after disappointing results

(Adds IBM CEO comments, share price)

Oct 20 (Reuters) - Shares of International Business Machines Corp hit a five-year low on Tuesday, a day after the company's lackluster results and forecast showed that it would be a while before its focus on lucrative cloud computing business makes up for revenue lost to divestitures.

At least nine brokerages lowered their price target on IBM's stock after the company posted a bigger-than-expected drop in third-quarter revenue and cut its full-year profit forecast.

IBM shares fell as much as 5.8 percent to $140.51. The last time the stock declined more than 5 percent in a session was in July after the company's disappointing second-quarter results.

At least six of 19 analysts covering the stock have a price target that is less than the stock's low of the day. Analysts median price target is $150, according to Thomson Reuters data.

"While IBM is another quarter along in its transition and seeing good growth in several strategic areas, it is not yet sufficient enough to offset the pressures in the legacy businesses," Wells Fargo Securities analysts noted, adding that growth could be at least a few quarter away.

It was the 14th quarter in a row that IBM has posted a reduction in revenue, as it gets rid of low-margin businesses such as cash registers, low-end servers and semiconductors to focus on high-growth areas such as security software and data analytics, besides cloud-based services.

IBM Chief Executive Virginia Rometty shrugged off the weak results, stressing that the company's shift to a new business model would take time to execute.

"We run the banks of the world, the airlines. I make no apologies for that - those are important businesses, and we run them well," Rometty said at a conference hosted by the Wall Street Journal in Laguna Beach, California on Tuesday.

Analysts expect that IBM will post an increase in quarterly revenue only in the third quarter of next fiscal year, according to Thomson Reuters I/B/E/S.

"We believe that IBM faces a long transition driven by pressure in legacy business units/products that are greater than the impact of strategic imperatives. Moreover, this quarter we saw meaningful weakness in software margins," BMO Capital Markets analyst Keith Bachman wrote in a note.

Rometty declined to say when the turnaround would complete.

IBM's shares were down 5.5 percent at $140.95 in midday trading. Up to Monday's close, IBM's shares had fallen about 7 percent this year. (Reporting by Lehar Maan in Bengaluru and Julia Love in California; Editing by Savio D'Souza)

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