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IBM earnings miss points to poor quarter in hardware sector: analysts

The IBM logo is seen outside the company's offices in Petah Tikva, near Tel Aviv October 24, 2011. REUTERS/Nir Elias
The IBM logo is seen outside the company's offices in Petah Tikva, near Tel Aviv October 24, 2011. REUTERS/Nir Elias

(Reuters) - Atleast five brokerages cut their price targets on IBM Corp shares and warned its weak earnings suggested results would also be disappointing at other hardware technology companies such as EMC Corp, Dell Inc and HP Co.

IBM's shares fell 8 percent to a three-month low of $190.56 on the New York Stock Exchange on Friday.

IBM posted on Thursday a rare quarterly earnings miss as a sliding yen hurt earnings from Japan and it failed to close a number of major deals, especially in Europe and the United States.

The company had disappointing results in certain hardware segments, such as high-end Unix and storage, Stifel Nicolaus & Co analyst David Grossman wrote in a note. He cut his price target on the stock by a dollar to $240.

However, hardware, with the exception of the mainframe business, is not core to the growth of the company, Grossman said. The services business, which accounted for 60 percent of the company's revenue, is improving, he added.

RBC analyst Amit Daryanani cut his price target on the stock to $200 from $215, but said given IBM's healthy services backlog, large annuity revenue streams such as services contracts and software licenses, which make up more than 60 percent of the company's profitability, IBM should generate "solid EPS momentum" in FY13.

"The IBM miss is a decidedly negative read through for the entire IT hardware segment and we are incrementally more cautious on the sector; particularly those with a March quarter end," Deutsche Bank analyst Chris Whitmore wrote in a note.

He cut his price target on the stock to $225 from $240.

JP Morgan analyst Mark Moskovitz named Net App Inc, Lexmark International Inc, Xerox Corp, Brocade Communications Systems Inc, Emulex Corp, QLogic Corp, Seagate Technology PLC and Western Digital Corp as the other hardware names at risk.

EMC and Xerox are scheduled to report results next week, while Dell and HP will report in May.

BMO Capital Markets analyst Keith Bachman said IBM will have to step up its software acquisitions to improve revenue performance and EPS growth.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Supriya Kurane)

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