IBM ditches 2015 operating EPS target, shares slump 7 percent

(Reuters) - International Business Machines Corp said it no longer expected to achieve its 2015 operating earnings TARGET (TGT.NY)of at least $20 per share after weak client spending resulted in an unexpected fall in quarterly earnings and revenue.

IBM's shares fell more than 9 percent in premarket trading.

The world's largest technology services company, which said it would announce a new target in January, reported a 4 percent drop in revenue as clients held back on spending in September.

"IBM needs to find success and growth in the cloud through organic and acquisitive means in our opinion, otherwise there could be some darker days ahead for the tech giant (and its investors)," FBR Capital Markets analyst Daniel Ives wrote in an email.

Chief Executive Ginni Rometty expressed disappointment international Business Machines Corp IBM.N reported a marked slowdown in business in September and abandoned its 2015 operating earnings target on Monday, as weak client spending and a slumping software sector weighed down quarterly revenue.

IBM shares fell nearly 7 percent.

?We are disappointed in our performance," said Ginni Rometty, IBM chairman, president and chief executive officer. "We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry."

IBM, the world's largest technology services company, is struggling to keep up with shifts in the industry as hardware becomes increasingly commoditized. The company, once best known for mainframe computers, has been pivoting to higher-margin businesses like security software and cloud services but growth in those areas has failed to offset weakness elsewhere.

"Some of these fundamental shifts in the industry are happening faster than we planned," Rometty said on a call with analysts. "We are continuing to remix to higher value."

IBM will divest low-performing businesses that will contribute almost $7 billion in revenue this year and plans to continue getting out of those sectors, Rometty said.

Revenue from the company's cloud service unit, which allows businesses to access software and data remotely, grew more than 50 percent in the quarter, while mobile revenue doubled.

Still, they were not enough to offset weakness in servers and routers, as well as some software business lines.

An appreciating U.S. currency, which lowers the value of foreign revenue as reported in dollars, also weighed on earnings and will have a significant impact on profits in the fourth quarter and in 2015, Chief Financial Officer Martin Schroeter said.

The company is also preparing to take a $300 million restructuring charge for "workforce restructuring" but did not specify how many employees would be affected.

IBM, which said it would announce a new operating earning per share target for 2015 in January, reported a 4 percent drop in third-quarter revenues as clients held back on spending in September.

"IBM needs to find success and growth in the cloud through organic and acquisitive means in our opinion, otherwise there could be some darker days ahead for the tech giant (and its investors)," FBR Capital Markets analyst Daniel Ives said.

Revenue fell to $22.4 billion in the quarter from $23.34 billion a year earlier. Analysts expected $23.37 billion, according to Thomson Reuters I/B/E/S.

Net profit from continuing operations dropped to $3.46 billion, or $3.46 per share, from $4.14 billion, or $3.77 per share in the same quarter last year.

On an adjusted basis, the company earned $3.68 per share, missing the average analyst estimate of $4.31 per share.

IBM also said Monday it will hive off its loss-making semiconductor unit to contract chipmaker Globalfoundries Inc.

IBM will pay Silicon Valley-based Globalfoundries $1.5 billion in cash over the next three years to take the chip operations off its hands, and took a pre-tax charge of $4.7 billion in the quarter related to the deal.

IBM shares fell $12.25 to $169.80 on the New York Stock Exchange. the results.

"We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry," she said in a statement.

IBM's revenue fell to $22.4 billion in the third quarter ended Sept. 30 from $23.34 billion a year earlier. Analysts had expected $23.37 billion, according to Thomson Reuters I/B/E/S.

Net profit from continuing operations fell to $3.46 billion, or $3.46 per share, from $4.14 billion, or $3.77 per share in the same quarter last year.

On an adjusted basis, the company earned $3.68 per share, missing the average analyst estimate of $4.31 per share.

IBM, which has been restructuring to focus on high-end products like Cloud, mobile security and Big Data, also said on Monday that it would hive off its loss-making semiconductor unit to contract-chipmaker Globalfoundries Inc.

IBM will pay Silicon Valley-based Globalfoundries $1.5 billion in cash over the next three years to take the chip operations off its hands, and it took a pre-tax charge of $4.7 billion in the quarter related to the deal.

IBM shares were trading at $169.70 before the bell, after closing at $182.07 on the New York Stock Exchange on Friday.

(Reporting by Marina Lopes in New York and Anya George Tharakan in Bangalore; Editing by Don Sebastian, Ted Kerr and Jeffrey Benkoe)