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IBM Abandons Long-Promised 2015 Profit Target

New profit targets coming in January.

IBM abandoned a long-promised plan to deliver $20 a share in profits by 2015 after suffering a significant slowdown in spending by its clients that sent its shares plunging more than eight percent this morning.

Big Blue said it missed sales and profit expectations for the quarter, and paid GlobalFoundries $1.5 billion to take over its chip manufacturing business, blaming the shortfall on “unprecedented change” in the IT industry. The fall in IBM’s shares was responsible for about 85 points of a 102-point fall in the Dow Jones Industrial Average. The news also hurt shares of IBM’s rivals. Hewlett-Packard fell two percent. EMC fell one percent. Accenture fell one percent. Oracle fell 1.5 percent. Microsoft fell by more than one percent.

IBM said it earned a profit of $3.68 per share, which was 14 percent below the $4.32 that had been expected. Its shares fell by more than $15 to $166.79 in pre-market trading. Revenue fell four percent year over year to $22.4 billion, or about $1 billion short of what analysts expected.

The earnings miss was the worst for IBM in recent memory, and forced CEO Ginni Rometty to abandon a promise made by her predecessor Sam Palmisano that the company will earn a combined $20 a share in 2015.

“We are disappointed in our performance,” Rometty said in a statement. “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.”

The earnings miss coincided with an announcement that IBM will hand over its chip-manufacturing assets to GlobalFoundries, a privately held company that manufactures semiconductors under contract for others. IBM said it will pay GlobalFoundries $1.5 billion over three years for taking on the unit.

Under the terms of the deal, GlobalFoundries will manufacture chips for IBM’s Power line of servers for 10 years. IBM will also continue research into chip technology. Earlier this year it said it would spend $3 billion on research efforts to push the boundaries of chip technology and GlobalFoundries will have access to the results of that research. IBM said it would record a $4.7 billion pre-tax charge on its quarterly results as part of the deal.

IBM has been divesting itself of hardware businesses and emphasizing new efforts in cloud computing. Earlier this year it sold its commodity server business to Lenovo. And last year it spent about $2 billion to acquire SoftLayer which has formed the backbone of its cloud computing business which competes with Amazon Web Services.

Patrick Moorhead, an analyst with the boutique research firm Moor Insights, said Big Blue’s transformation is way behind where it needs to be. “IBM is the best at selling what fewer data center customers are looking for: Expensive, closed and proprietary systems and software,” he said. “The company is putting a ton of effort to make the turn to the open cloud and the Internet of Things, but in some way, it could be a case of too little, too late.”

Once a powerhouse of chip manufacturing technology — last decade it supplied the primary chips for all three major gaming systems and in the 1990s supplied Apple with chips for the Mac — IBM’s chip business has fallen on hard times. The unit lost $700 million in 2013 and lost $400 million in the first half of this year.

GlobalFoundries is comprised of the factories once owned by chipmaker Advanced Micro Devices and of the former Chartered Semiconductor, and is majority-owned by an investment firm controlled by the Middle Eastern nation of Abu Dhabi. It will take over IBM-owned factories in upstate New York and Vermont.

This article originally appeared on Recode.net.

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