Midday Report: IBM's Earnings a Rare Miss, Warning Sign for S&P

Big Blue shares are deep in the red: IBM's (IBM) rare miss with its quarterly earnings has sent its stock tumbling.

In early afternoon trading, the stock was down more than $15 a share, a drop of almost 7.5 percent – and that's weighing on the broader market.

It also carries a warning for already nervous investors about the direction of the broader market. The research group Bespoke notes there's a strong correlation between the movement of IBM's stock immediately after its earnings and the direction of the S&P 500 for the following five weeks.

As for the numbers: IBM's earnings edged slightly lower in the first quarter, while total revenue fell 5 percent. And it's the revenue number that has analysts worried.

This is the first miss for IBM in eight years, which makes the numbers even more shocking.

All of the company's major segments reported that revenue fell in the first quarter. That includes a four percent drop in the services unit, which accounts for more than half of the IBM's total revenue. Its software and hardware divisions also declined.

The company blames a number of factors, including economic unrest overseas, as well as the failure of its sales division to close on several large contracts.

IBM is making some immediate moves to turn things around.

Company officials say they will speed up plans to cut its workforce, and it may sell some businesses.

There are reports that IBM is near a deal to sell its low-end server business to Lenovo. That sale could worth as much as $4.5 billion dollars. Lenovo is the same China-based company that bought IBM's personal computer business back in 2004.

Going forward, IBM says it expects to post improved second quarter results, helped by the closing of those deals that it was unable to complete in the first quarter. The company also says it remains on track to meet its full-year and long-term targets.

The research firm Zacks says a strong order backlog will boost revenue. But IBM remains a company in transition, and it could take some time recover.

–Produced by Drew Trachtenberg

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