International Business Machines (NYSE:IBM) reported disappointed earnings Monday morning dragging the company’s stock price 7% lower. The highlighted quarter in the graph above shows just how bad this earnings report was. Contributing analysts on Estimize were looking for earnings of $4.34 per share, but IBM only managed to earn $3.68. Profits were largely stifled by weakness in the hardware division and a charge to sell off its semiconductor business.
This was IBM’s worst report relative to analyst expectations in recent memory and comes alongside a decision to offload the company’s chip business to GlobalFoundries. The bad news is that IBM isn’t selling its semiconductor manufacturing business for a profit. IBM was losing money on chip production and has agreed to pay GlobalFoundries $1.5 billion to take its toxic wing off its hands.
The bright side is that by dumping its losing business, IBM gives itself flexibility to put capital to work in segments with more potential. IBM will forfeit some of its patents to GlobalFoundries as part of the deal, but will continue to invest in semiconductor research. CEO Virginia Rometty commented that IBM will increasingly focus on businesses with higher expected growth including the cloud, data, analytics, mobile, and security.
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