IBM is a technology bellwether and can affect the industry as a whole

New York-based IBM blamed a failure to close business deals and slow economic growth in key European markets.

Net profit in the three months to 31 March was $1.4bn (�745m) from �1.36bn a year earlier. Sales were $22.9bn, less than the $23bn analysts had forecast.

Shares in IBM were down almost 8%, at $77.75, on the New York Stock Exchange.

'Large canary'

Analysts said that the announcement may lead to a reassessment of the strength of earnings growth in the information technology industry as a whole.

Disappointing US retail sales figures earlier this week already have worried many investors and questions are being asked about the robustness of the recovery in the US and global economy.

People may just have to ratchet their expectations down for IT hardware and software spending Rich Peterson, Pacific Crest IBM shares

"Maybe this is a large canary in the coal mine," said Cummins Catherwood, managing director of Walnut Asset Management. "Maybe we're really having a slowdown."

Stocks across the industry were dented by the news. Shares of computer maker Dell, software firm Microsoft and chipmaker Intel all dropped in after-hours trading in New York.

"It's going to be tough for stocks" on Friday, said Rich Peterson, an analyst at Pacific Crest. "People may just have to ratchet their expectations down for IT hardware and software spending."

Surprise move

IBM warned that it may have to undertake a "sizeable restructuring" to get itself back on track.

"This quarter did not play out as we expected," said Mark Loughridge, IBM's chief financial officer.

Mr Loughridge said the company was already making changes and "a couple of those actions may require some sizable restructuring activities, primarily designed to move decision-making closer to the customer".

According to the Wall Street Journal, IBM is planning to cut jobs in Europe and shut operations, moving them to cheaper locations in Eastern Europe.

Europe was a main weakness for the company in the first quarter, and IBM said sales were hit by "weak" economic growth in countries including Germany, France and Italy.