A quick glance at the stock market today shows the Nasdaq and S&P 500 rising, but the Dow falling. What happened?
A quarterly earnings report from IBM happened.
Here are the highlights. Third-quarter net income fell more than 99% from a year ago. Ouch. The reason? IBM booked a $4.7 billion pre-tax charge related to the chip division sale to Globalfoundries.
IBM will pay Globalfoundries nearly $1.5 billion in cash over the next three years to rid themselves of the chip division. It’s the latest move by the tech company to get out of the hardware space. Back in 2005, Lenovo snatched up IBM’s consumer PC laptop business for $1.25 billion.
IBM’s quarterly profit came in at just $18 million. Earnings per share on an adjusted basis fell well short of expectations at $3.68 a share. Analysts were looking for something closer to $4.32 a share.
But, how can 1 stock affect an entire portion of the stock market? Well, for those of you not familiar with the stock market, 30 stocks make up the Dow Jones Industrial Average. IBM is one of these stocks. It also accounts for 7.14% of the index according to IndexArb.com, making it the second most influential stock behind Visa.
The earnings miss has sent shares of IBM reeling more than 6%. And, since it makes up such a large part of the DJIA, it pushes the entire average lower.
The Dow Jones is still in negative territory as we near lunch-time trading, but it has erased some of its losses.