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A man walks past the IBM logo at a technology conference
IBM said it was planning to make a major business announcement on Monday. Photograph: John Macdougall/AFP/Getty Images
IBM said it was planning to make a major business announcement on Monday. Photograph: John Macdougall/AFP/Getty Images

IBM shares fall as third-quarter revenues drop 4% on last year

This article is more than 9 years old
Tech firm giant’s chief Ginni Rometty describes performance as disappointing as GlobalFoundries is paid £930m to take chip firm

An unexpectedly sharp downturn in revenues at computing giant IBM has sent its shares tumbling and dealt another blow to investor Warren Buffett.

IBM, nicknamed “big blue” for its once ubiquitous logo, earned $22.4bn (£13.8bn) during its third quarter – a 4% fall on the previous year and almost $1bn lower than market expectations.

IBM shares fell by more than 7% in pre-market trading, initially costing Buffett $1bn on his stake. As the second largest stock on the Dow Jones index, IBM was expected to depress the New York market all day.

“We are disappointed in our performance,” said Ginni Rometty, IBM’s chairman and chief executive. “We saw a marked slowdown in September in client-buying behaviour, and our results also point to the unprecedented pace of change in our industry.”

Buffett’s firm Berkshire Hathaway is the biggest shareholder in IBM with a 7% stake, having bought shares in the world’s biggest technology services firm in 2011. It comes after he admitted his investment in Tesco supermarkets was a “huge mistake” and began selling the stake.

As expected, IBM also announced it would pay the Abu Dhabi-owned firm GlobalFoundries $1.5bn (£930m) to take its unprofitable chip design and manufacturing business off its hands.

IBM will pay GlobalFoundries the sum over three years and will receive $200m in assets in return, making the net value of the deal $1.3bn.

New York-based IBM made pioneering strides in semiconductor technology, but its microelectronics division has struggled in recent years as each new generation of microchips requires costly upgrades to plants and equipment.

High costs have forced many players out of the market, meaning IBM found few buyers when it first tried to sell its unprofitable chip-making business last year.

IBM had initially hoped to sell the loss-making business for $2bn, according to the Wall Street Journal. Analysts expressed surprise that IBM was paying GlobalFoundries rather than the other way round, but suggested it may reflect the cost of adapting IBM factories to make specialised chips.

The parent company of GlobalFoundries, which manufactures chips to order for other companies, is a technology investment fund wholly owned by the government of Abu Dhabi.

GlobalFoundries has headquarters in California’s Silicon Valley, as well as offices and plants in New York and Austin.

The firm is said to be more interested in acquiring IBM’s engineers and intellectual property than the factories.

It said it would take over IBM’s manufacturing operations in East Fishkill, New York and Essex Junction, Vermont, and offer jobs to substantially all IBM employees affected by the deal. IBM was also hurt by falling revenues in emerging markets, with earnings in Brazil, Russia, India and China down 7%.

The slowdown in earnings was bad news for Buffett, who shunned the tech sector for most of his 50-year career, but began buying IBM stock in 2011, after praising the firm’s management for rescuing it from the brink of bankruptcy 20 years before. .

IBM’s microchip division accounts for less than 2% of its revenues, but was losing the company around $1.5bn a year. Big tech companies are attempting to refashion themselves for the age of cloud computing, where data and programmes are stored on the internet rather than a computer hard drive.

Rometty highlighted cloud computing and mobile technology as priorities for IBM and promised to accelerate the development of its business in those areas.

The company completed its $2.1 billion sale of the x86 server business to Chinese rival Lenovo Group earlier this month.

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