IBM plunges after ditching 2015 earnings forecast

NEW YORK• International Business Machines Corp. plunged the most in more than four years after abandoning an earnings forecast for 2015, as the company struggles to transform fast enough to handle the shift to cloud computing.

IBM said it will provide an update on its projections in January, ditching a fiveyear plan to boost profit. The shares tumbled as much as 8.4%, dragging down the Dow Jones Industrial Average. Warren Buffett, IBM’s biggest shareholder, had as much as US$1-billion of his investment wiped out.

While chief executive officer Ginni Rometty had been banking on a strong second half of the year, IBM instead faced weaker-than-expected software sales and lower productivity in services in the third quarter. With technology customers moving from owning hardware to storing data in the cloud, IBM is now cutting more jobs, reducing its forecast for free cash flow and offloading an unprofitable chip unit to Globalfoundries Inc.

“Obviously, we were disappointed in this quarter,” Ms. Rometty said on a conference call Monday, adding that the company is facing “unprecedented change” in the industry.

“We have more to do and we need to do it faster.”

IBM is backing away from a pledge — instituted by former CEO Sam Palmisano and sustained by Ms. Rometty when she succeeded him in 2012 — to reach adjusted profit of US$20 a share by 2015.

“IBM needs to find success and growth in the cloud through organic and acquisitive means,” said Daniel Ives, an analyst at FBR Capital Markets.

“Otherwise, there could be some darker days ahead for the tech giant and its investors.”

The Armonk, N.Y.-based company now expects 2014 operating earnings per share to fall 2%-to-4% from US$16.64 in 2013. That reflects changes for the chipmaking unit, which is now classified as a discontinued operation.

IBM is taking a third-quarter pretax charge of US$4.7billion for the business. The company had been projecting 2014 adjusted earnings of at least US$18 a share.

Earlier Monday, the company announced an agreement to pay Globalfoundries US$1.5-billion to take over the chip-manufacturing division.