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IBM pays $1.5 billion to dump chip division as third quarter earnings miss IBM pays $1.5 billion to dump chip division as third quarter earnings miss
(about 9 hours later)
Shares in IBM plunged in New York trading after the company badly missed third-quarter estimates and confirmed it would take a $4.7 billion charge to get rid of its loss-making chip division. Warren Buffett, known as The  Sage of Omaha for his investment nous, saw $1bn (£610m) wiped off the value of his stake in IBM yesterday after the technology giant posted a hefty 17 per cent fall in third-quarter profits. 
The company will make payments to Globalfoundries, owned by the Abu Dhabi government's investment fund, over three years as it ditches its costly chip division to focus on mobile, cloud computing and big data analytics. The news sent shares in IBM down more than 8 per cent to a low of $166.69 in early trading in New York.
The announcement comes as IBM posted lower-than-expected third quarter earnings, which saw shares plunging 7 per cent in pre-market trade in what chief executive Ginni Rometty described as a "disappointing" quarter. IBM said it no longer expected to achieve its 2015 earnings target after weaker spending by clients resulted in an unexpected drop in quarterly earnings and revenues.
IBM reported profits of $3.68 per share, excluding certain items, missing estimates of $4.31. Revenue also came in below estimates at $22.40 billion from $23.34 billion a year earlier. The IT giant also said it would hive off its loss-making semiconductor business to the contract chip maker Globalfoundries, paying the company about $1.5bn over the next three years to take the business off its hands.
"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," Rometty added. IBM reported a 4 per cent drop in revenues to $22.4bn as clients held back on spending in September. Underlying profits dived to $3.46bn. It said it would announce new earnings targets in January.
The IT giant conceded it no longer expects to deliver earnings of at least $20 a share next year as promised by former chief executive Samuel Palmisano, who vowed to double earnings by 2015. IBM’s chief executive, Ginni Rometty, said: “We saw a marked slowdown in September in client buying behaviour, and our results also point to the unprecedented pace of change in our industry.”
IBM is wrestling with a plan to focus on higher-end products such as mobile, cloud, and big data. FBR Capital Markets analyst Daniel Ives said: “IBM needs to find success and growth in the cloud through organic and acquisitive means in our opinion, otherwise there could be some darker days ahead for the tech giant (and its investors).”
Ms Rometty said: “While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas – cloud, data and analytics, security, social and mobile – where we continue to shift our business.  We will accelerate this transformation.
“We are executing on a clear strategy that is moving IBM to higher value, and we’ve taken significant actions to exit non-strategic elements of the business.” 
Mr Buffett paid about $10.9bn building up his stake in IBM in 2011, paying about $170 a share. He now has a stake of 70.2 million shares worth about $11.7bn at yesterday’s price.
Last week, he sold down his long-held stake in Tesco after seeing the company hit by a string of profit warnings and its scandal over £250m of lost profits. Shortly before that sale,  he had seen about £465m wiped off his investment and described it as a “huge mistake”.