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IBM shares sink as Buffett cuts stake

IBM shares came under pressure on Friday when Berkshire Hathaway, one of the technology group’s biggest shareholders, revealed that it sold a third of its stake.

The Armonk, New York-based company’s shares declined by 2.8 per cent on the day to $154.58, bringing its year-to-date fall to 6.8 per cent. Big Blue’s market value has tumbled by $12.5bn since the end of 2016, according to Bloomberg data.

Berkshire head Warren Buffett, the billionaire investor who is famous for his buy-and-hold approach to stockpicking, said that he made the decision to reduce the holdings in IBM after changing his view on the company’s prospects for competing with rivals.

“I don’t value IBM the same way that I did six years ago when I started buying . . . I’ve revalued it somewhat downward,” Mr Buffett, frequently called the Oracle of Omaha, said on CNBC television. “IBM is a big, strong company, but they’ve got big, strong competitors, too.”

Ginni Rometty, IBM chief executive, has bet that shifts into artificial intelligence and cloud computing could help the more than century-old company revive its prospects, as its legacy businesses sputter amid structural change in the technology industry.

But investors have grown increasingly impatient in the turnround efforts. Revenues fell in the first quarter of this year for the 20th straight quarter, while its gross profit margin, a key gauge of profitability, declined.

IBM faces threats from numerous other companies in the tech sector that have bet big on cloud computing, and are also making moves into AI. That includes Microsoft, which has bulked up its cloud business under chief Satya Nadella, along with Amazon, and Google-parent Alphabet.

The decline in IBM shares dragged on the price-weighted Dow Jones Industrial Average, which was off by 0.1 per cent to 20,932.57 by midday in New York. Meanwhile, the S&P 500 and the Nasdaq Composite were up 0.1 per cent to 2,390.93 and 6,080.11, respectively.

Elsewhere, Shake Shack shares advanced 5.5 per cent to $34.94 on Friday despite an initial sell-off after the burger chain cut its full-year forecast for a key sales metric but lifted its revenue outlook

The company said that it now expected same-store sales to remain flat relative to last year, compared with its previous outlook for growth of 2 to 3 per cent. However, the company lifted its revenue outlook to a range of $351m-$355m, from $349m-$353m previously.

“We are clearly dissatisfied with our comp result [in the first quarter] but, as a reminder, our small comp base is made up of only 32 Shacks, the majority of which exist in the north-east region which was most affected by cold weather and the holiday shift in March,” Randy Garutti, chief executive, said.

Meanwhile, shares in Herbalife jumped nearly 9 per cent to $67.71 after the nutrition drinks marketing business lifted its full-year earnings outlook alongside better than expected quarterly results.

The Los Angeles-based company said it expected to earn $4.05-$4.45 a share in fiscal 2017, compared with its previous projections of earnings of $3.65-$4.05 a share.

Via FT