Warren Buffet Losses $900M On IBM Market Surprise

What’s in the future for IBM? International Business Machines is one of the foremost US businesses.  International Business Machines abbreviated IBM and nicknamed “Big Blue”, is a global technology and IT consulting corporation based in New York. The company is one of the few information technology companies with a continuous history dating back to the 19th century. The roots of IBM date back to the 1880s, decades before the development of electronic computers.

Yesterday, as earning seasons hit is quarterly fervor IBM surprised markets with two unexpected announcement.  IBM disappointed traders reporting weak revenue growth again and a big charge to shed its costly chip making division as the tech giant tries to steer its business toward cloud computing and social-mobile services. Shares fell more than 7 percent as investors sold off sharply and the stock dragged the Dow 30 into the red.

In the past IBM has had to reposition itself to face changing market conditions many times always successfully. Remaking itself is something IBM has done many times through its long history. Starting more than a century ago in punch-card tabulators and time clocks, it grew to encompass the giant mainframe computers and Selectric typewriters of the 1960s and launched its revolutionary personal computer in the 1980s.

IBM is trying to adapt to industry-wide changes and has been restructuring to focus on its software products. The disposal of the unprofitable chip making business is the latest step by the company to sharpen this focus. IBM said the sale would enable it to “focus on fundamental semiconductor and material science research, development capabilities and commitment to delivering future semiconductor technologies”. GlobalFoundries said it would offer jobs to all IBM employees affected. IBM will spread the $1.5bn payment to GlobalFoundries over the next three years. Under the terms of the deal, GlobalFoundries will get intellectual property and technologies related to the chip business.

IBM fell to a three-year low 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 five-year plan to boost profit. The shares tumbled 7.1 percent, dragging down the Dow Jones Industrial Average. Warren Buffett, IBM’s biggest shareholder, had $900 million of his investment wiped out. Buffett spent $10.9 billion amassing a stake in IBM in 2011 for about $170 a share and has since added more. The investment was a departure for the billionaire, who has long said that he avoided buying technology stocks for Berkshire Hathaway Inc. because it was hard for him to understand their business plans and forecast their prospects. In April, he told CNBC that he stood by his pick and wasn’t surprised by IBM’s revenue decline in the first quarter. He didn’t respond to a message left with an assistant today seeking comment on IBM’s latest results.

The company now expects 2014 operating earnings per share to fall 2 percent to 4 percent from $16.64 in 2013. That reflects changes for the chip making unit, which is now classified as a discontinued operation. IBM is taking a third-quarter pretax charge of $4.7 billion for the business. The company had been projecting 2014 adjusted earnings of at least $18 a share.