IBM Fans Feel the Pain

Updated from 10:46 a.m. EDT

IBM(IBM) investors saw shares slump Friday as Wall Street tried to figure out what went wrong in the computer giant's first quarter.

CSFB downgraded the shares to neutral from overweight Friday and dropped its price target to $80 from $100, citing last night's earnings miss. The brokerage cited indications that IBM plans to restructure its European operations as evidence the trouble could be longer term.

According to The Wall Street Journal, IBM has told employees at several plants in Germany and Sweden to prepare for closures as the company seeks to move production to countries where labor is cheaper.

The stock was also cut to neutral at First Albany, while Goldman Sachs kept it at outperform.

Shares of Big Blue closed down $6.94, or 8.3%, to $76.70. The shares have fallen every day this month, losing about 16% over 11 sessions.

IBM reported net income of $1.4 billion, or 84 cents a share, on sales of $22.9 billion. During the same quarter last year, IBM earned $1.36 billion, or 81 cents a share, on sales of $22.2 billion. Analysts had expected earnings of 90 cents a share on sales of $23.6 billion, on average, according to Thomson First Call.

The technology giant's unexpected first-quarter financial results came two business days ahead of schedule.

IBM's miss followed two days of heavy selling in technology shares and in the broader market, and exacerbated the situation Friday. Sun Microsystems(SUNW) also announced late Thursday that it too missed its financial targets for its just completed quarter.

Among shares moving lower in sympathy Friday were Intel(INTC), Microsoft(MSFT), Cisco(CSCO) and Dell(DELL).

"We've just had a couple of rough weeks across the board," said CFO Mark Loughridge during a conference call. He said the first two months of the quarter were strong and all signs indicated that the situation would continue into the quarter's final month. It didn't.

Loughridge said service customers deferred more contracts than expected. Sales execution and customer deferrals also hampered growth in a couple of product lines, and a storage product transition occurred later than expected.

"Overall, we could have done better this quarter, but we had two soft weeks, following several consecutive quarters of solid performance," said the CFO. "We're taking actions to address the issues and improve our overall performance."