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Analysts Say IBM On Wrong Side Of Trends


International Business Machines Corp. (NYSE: IBM) missed third-quarter expectations and said results point to "unprecedented change" in its industry.

Change in the industry IBM once dominated probably isn't news, but Barclays' Ben A. Reitzes said Tuesday the company's statement may be an acknowledgement that "it's on the wrong side of many secular trends."

IBM unveiled a so-called a "road map" four years ago, calling for 2015 operating earnings of $20 per share. But Reitzes said it looks like IBM has thrown its road map out the window, and he maintained a Neutral rating and $160 target.

The company expects 2014 earnings of $16.54 per share, down from $16.64 a year earlier.

IBM's current stretch of declining earnings is only the third in its history, notes Morgan Stanley's Katy L. Huberty.

The first period was in the early 1990s when personal computers replaced mainframes and minis, and the second came during the early 2000s' dot-com collapse.

Huberty said "it may be several years" before a turnaround in IBM's share price materializes. In the early 1990s, the company shifted from mainframes to services and IBM's share price recovered once services hit 15 percent of total revenue.

Cloud revenue, IBM's most obvious potential path to a turnaround, is expected to hit just 6 percent of total revenue next year, Huberty said.

But Cantor Fitzgerald's Brian J. White maintained a Buy rating on IBM along with a $220 target. White said, however, that a September slowdown hurt third quarter results while strong dollar will continue to add pressure.

IBM closed Tuesday at $163.23, down nearly 3.5 percent.

Latest Ratings for IBM

Apr 2021Credit SuisseMaintainsOutperform
Apr 2021BMO CapitalMaintainsMarket Perform
Apr 2021Morgan StanleyMaintainsEqual-Weight

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