IBM's China-driven slump sparks executive shakeup

Loughridge blamed much of the revenue decline on China, which accounts for about 5 percent of IBM's business. About 40 percent of that business is hardware. He said the country was working on a nationwide economic reform plan ahead of a major government plenary session in November, which depressed sales.

Much of China's corporate sector is dominated by the state in a centrally planned economy, and government enterprises often hold back on spending in the run-up to major nationwide policy changes.

But he also admitted that about half of the decline was due to "execution" issues, noting that Di Leo's appointment was aimed at addressing a "leadership differential".

Sales pangs

IBM shares closed down 6.4 percent at $174.83 on the New York Stock Exchange after touching a two-year low of $172.57. That marked their steepest one-day slide since April 19, also triggered by disappointing sales.

The world's largest technology services company reiterated its full-year profit outlook, but analysts raised doubts about the company's ability to convert services backlog to revenue. IBM has reported a decline in revenue for six straight quarters.

"Software has been the growth engine for IBM and has been one of the key reasons investors held the stock. However, it appears that the engine may have stalled and no longer can outgrow the broader software market," J.P. Morgan analysts said in a note.

IBM, which sold its personal computer business to Lenovo Group Ltd in 2005, has been shifting to a more software-focused business.

Talks with Lenovo earlier this year about selling off IBM's low-end server business failed.