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IBM Shares Plummet 8% After Weak Earnings Guidance

IBM shares tanked on Wednesday after the company reaffirmed its profit forecast for 2018 a day earlier, disappointing investors who had hoped for even greater profits.

Shares of enterprise giant fell 7.53% to $148.79.

IBM said that its fiscal year profit would be $13.80 per share, just shy of Wall Street’s expectations of $13.83. The minor disappointment translated into a huge decline in the company’s stock price, erasing over $10 billion in market value over the past day-and-a-half.

In addition to discussing its profit forecast, IBM (IBM) said on Tuesday that sales in the quarter ending March 31 rose 5% year-over-year to $19.1 billion. This was the second straight quarter in which the company’s revenue grew after 22 consecutive quarterly declines.

Like other enterprise tech giants, including Hewlett Packard Enterprise (HPE), IBM has been looking to revive its business in areas it calls its “Strategic Imperative,” which include cloud computing, cybersecurity, and artificial intelligence technologies. IBM hopes that these more cutting-edge technologies will eventually offset declines in older businesses like servers and software licenses, in which companies can buy a software product and use it indefinitely instead of paying reoccurring subscription fees.

Daniel Ives, an analyst with GBH Insights, said in a research note on Tuesday that IBM’s “Strategic Imperatives” segment, grew 15% year-over-year to $9 billion. That matched Wall Street’s estimates, but some investors had hoped for more growth.

“The bulls were hoping for a clean modest beat on this key growth segment which represents the underpinnings of the IBM turnaround story in 2018 and beyond,” Ives wrote.

Ives said that investors are losing patience with the “never ending turnaround story at IBM.” However, his firm’s surveys of business customers showed that they seem to be more interested in its products, and helped contribute to the company’s sales this quarter.

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For IBM, “Clear challenges remain,” Ives wrote, adding that “2018 a major prove me year.”

Bernstein Research analyst Toni Sacconaghi said in a research note that IBM’s first quarter “results were very much in-line with our expectations,” but that it was “modestly disappointing” to some investors who had growing more optimistic in the past two weeks about IBM’s performance. Sacconaghi believed that IBM should have reported better results considering the increasingly healthy IT market and growing sales of expensive, mainframe computers.

Despite IBM’s challenges, CFRA Research analyst David Holt remains a believer in the company. Holt acknowledged IBM’s “mixed results,” but believes the company will still grow sales and improve its profits for the rest of the year.