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We see IBM as ‘dead money,’ UBS analyst says

Thursday, 17 Oct 2013 | 2:31 PM ET
IBM downgraded to neutral
After a very disappointing earnings report from IBM, Steve Milunovich of UBS downgraded its shares and said the company is "dead money over the next six months."

IBM, which missed revenue estimates in its third-quarter earnings report, faces ongoing weakness in its business from emerging markets, UBS analyst Steve Milunovich said Thursday.

"The company seems to be having some execution problems, and we think that their growth markets, emerging markets, are going to continue to be weak for the next few quarters," he said. "So, we see it as dead money for, say, the next six months."

Milunovich downgraded IBM stock to neutral and lowered its price target to $186 per share from $235.

(Read more: IBM shares skid after revenue miss)

On CNBC's "Fast Money," the analyst said his upgrade of the stock in April was "for long-term reasons," adding that he "didn't think the short-term would be this bad."

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Corporate information technology spending appeared to be a drag on IBM's results.

"Enterprise spending really isn't bouncing back, and the company's struggling quite a bit," Milunovich said. "Interestingly, they had been doing quite well in emerging markets like China, and it just really fell apart this last quarter. It's not going to change very quickly, so as a result, I'd step to the sidelines and look to return later."

(Read more: 3 top tech stocks not 'yesteryear' names: Pro)

Milunovich noted that China had been a growth market for IBM until recently.

"There's some speculation that maybe China's not buying America to the degree that it was in the past," he said. "That seems like a little bit of a stretch."

Milunovich, who held a long position in IBM, said he expected IBM's Chinese earnings to begin to turn around in the second quarter of 2014.

By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.

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