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IBM shares hit 5-year low after disappointing results

[BENGALURU] Shares of International Business Machines Corp hit a five-year low on Tuesday, a day after the company's lacklustre 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 per cent to US$140.51. The last time the stock declined more than 5 per cent was after the company's disappointing second-quarter results in July.

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 US$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 quarters 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.

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

Up to Monday's close, IBM's shares had fallen about 7 per cent this year.