IBM on earnings: We're disappointed with performance

Terri Cullen
IBM Q3 misses, shares get crushed

IBM on Monday posted earnings that fell well short of analysts' expectations, with the company saying it is "disappointed" with its performance.

The tech giant reported earnings excluding items of $3.68 a share on revenue of $22.40 billion.

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IBM had been expected to post earnings excluding items of $4.31 a share on revenue of $23.37 billion.

"We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry," Ginni Rometty, IBM chairman, president and CEO said in a statement. "While we did not produce the results we expected to achieve, we again performed well in our strategic growth areascloud, data and analytics, security, social and mobilewhere we continue to shift our business. We will accelerate this transformation."

The company also said it is no longer able to keep 2014 operating earnings per share forecast.

The news comes after the company announced plans to pay contract-chipmaker Globalfoundaries $1.5 billion to offload its loss-making chip business. As part of the deal, it will take a $4.7 billion pretax charge.

Read MoreIBM to pay $1.5B to offload loss-making chip arm

IBM shares were more than 7 percent lower in premarket trading following the announcement. (Get the latest quote here.)

"They need to narrow their focus, get their A-game on, and any distractions from a core business perspective, such as this deal, need to be put in the rear-view mirror," FBR Capital Markets analyst Daniel Ives told Reuters.

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"From an IBM and investor perspective, it takes one troubled area out of the core franchise."

IBM has been reducing its presence in the hardware industry. The company completed its $2.1 billion sale of the x86 server business to Lenovo Group earlier this month.

In 2005, Lenovo acquired IBM's consumer PC laptop business for $1.25 billion.

The business being sold focuses on chip design and manufacturing and is housed in the company's systems and technology unit, which accounted for about 11 percent of total sales in the third quarter.

Silicon Valley-based Globalfoundries said it would take over IBM's manufacturing operations in East Fishkill, New York and Essex Junction, Vermont, and offer jobs to substantially all IBM employees affected by the deal.

Globalfoundries Chief Executive Sanjay Jha said the company would invest $10 billion between 2014 and 2015 to develop 10 nanometer, 14 nanometer and radio-frequency technologies.

"As (IBM's) assets become part of Globalfoundries, they will benefit from the scale," Jha, the former CEO of Motorola Mobility, told Reuters.

Globalfoundries is owned by the Mubadala Development, the Abu Dhabi government's investment fund.

The deal is expected close in 2015.

Reuters contributed to this report.