NEW YORK (AP) -- IBM shares fell Tuesday after a Goldman Sachs analyst lowered his rating and cut his price target on the stock, saying the company may face more pressure in the near term in emerging markets.
THE SPARK: Analyst Bill Shope said in a client note that IBM may start to face more pressure in emerging markets, which the company is counting on to contribute $17 billion in revenue as part of its five-year growth plan. Shope lowered IBM to "Neutral" from "Buy" and reduced its price target to $200 from $220.
THE BIG PICTURE: While emerging markets now comprise almost a quarter of IBM's total revenue, Shope says that they seem to be stagnating. While first-quarter weakness was recognized by investors, Shope says he's concerned the softness may continue through much of the year.
THE ANALYSIS: Shope said that weakness in China seems to be expanding beyond the technology sector as credit conditions tighten. This is a concern for IBM because the country is a key part of its growth plan — having announced expectations for business in China to double between 2010 and 2015 — he explained.
Shope said IBM is also dealing with more softness in its higher-margin software and services categories.
While near-term quarterly results may be more volatile than investors are used to, the analyst believes that IBM's long-term secular prospects are still sound.
A representative for IBM did not immediately respond to an email seeking comment.
SHARE ACTION: IBM Corp.'s stock shed $2.65, or 1.4 percent, to $192.33 in morning trading Tuesday. They are down almost 11 percent from their 52-week high of $215.90 in mid-March.