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Shares of IBM, which is seen as a key indicator for the health of the IT sector, fell $6.08, or 4.8%, to $121.91 in early trading Friday, outpacing the broader retreat in tech stocks that saw the Nasdaq dip 0.7%.
With expanding margins and slight sequential sales growth, IBM performed well in the third quarter. Some analysts, however, say that there could be more upside elsewhere in the tech sector."Impressive execution continues to be driven by IBM's focus on strategic business units, for example, IT services and software, with higher associated margins coupled with tight cost controls," wrote Brian Marshall, an analyst at Broadpoint AmTech, in a note released Friday. "However, we continue to prefer IBM's business partners such as NetApp (NTAP - Get Report) and Brocade (BRCD - Get Report) at this point in the economic recovery cycle." Brocade and NetApp have already been touted as potential acquisition targets on account of their strong product stories, and Marshall believes that both firms offer faster growth profiles and higher operating leverage than IBM. Goldman Sachs analyst David Bailey also thinks that investors should look beyond Big Blue. "IBM's small top- and bottom-line beat in Q3 are probably not enough to sustain the recent up-move in the stock and our rating remains Neutral," he wrote, in a note released Friday. "We continue to favor stocks with greater top-line growth and margin expansion potential, including NetApp, Arrow (ARW), Seagate (STX - Get Report), and Molex (MOLX)."