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IBM Shares Fall as Service Weakness Scares Investors

Tuesday, 20 Jul 2010 10:10 AM


Shares of tech bellwether IBM Corp. slipped 5 percent in premarket trading Tuesday, with weakness in the company's services business spooking investors.

IBM released second-quarter earnings late Monday that topped Wall Street projections. It also lifted its earnings forecast for the rest of the year. But investors were looking for stronger signals that business spending on information technology has rebounded.

"Instead, (IBM's) growth rate inched up from zero last quarter to just 2 percent despite a much easier year-over-year comparison," Kaufman Bros. analyst Karl Keirstead told clients in a note. He maintained a "Hold" rating on the stock.

IBM's revenue grew only 2 percent to $23.7 billion, short of analysts' average forecast for $24.2 billion in revenue, according to a Thomson Reuters poll. Contributing to the shortfall was a 12 percent decline in the value of services contracts signed during the quarter, to $12.3 billion.

"Services signings were somewhat weak," Robert W. Baird & Co. analyst Jayson Noland said in a client note.

IBM shares fell $6.43 to $123.36 in premarket trading.

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