Jan. 19 (Bloomberg) -- International Business Machines Corp. shares fell, triggering a decline in technology stocks, after the world's biggest computer-services company posted earnings that disappointed investors.

IBM dropped 3.3 percent today, the biggest slide in almost two years, after sales of server computers and semiconductors missed analysts' estimates. Shares of Hewlett-Packard Co. and Dell Inc. extended losses, and EMC Corp., a maker of storage systems, also slumped.

The results added to announcements from Apple Inc. and Intel Corp., the first big technology companies to report quarterly earnings. Shares of Apple dropped the most in almost a year yesterday after the company's forecast for this quarter trailed analysts' estimates. Intel fell on concern the chipmaker will keep sacrificing profit margins to gain market share.

``You're seeing broad weakness in technology,'' said Pat Becker Jr., who helps oversee $2.5 billion at Becker Capital Management in Portland, Oregon. ``Technology is going through commoditization as there's competitive pressure, and the economy is showing signs of slowing.''

Shares of Armonk, New York-based IBM fell $3.28 to $96.17 at 4 p.m. in New York Stock Exchange composite trading. The company's announcement followed three days of declines by the Nasdaq 100 Index, sparked by reports from Apple, Intel and Lam Research Corp. The index rose 0.2 percent to 1796.81 today.

`Some Good News'

IBM's fourth-quarter net income rose to $3.54 billion, or $2.31 a share, from $3.19 billion, or $1.99, a year earlier, helped by a lower tax rate. Sales gained 7.5 percent to $26.3 billion, helped by its services and software units.

The company signed $17.8 billion of computer-services contracts, including agreements from the state of Texas and the German army.

While sales and profit beat analysts' estimates, investors were looking for more. Sales of hardware rose 4.3 percent, less than the increase predicted by analysts including Keith Bachman at Banc of America Securities. Revenue growth at the unit slowed from an 8.9 percent gain in the third quarter.

``They had some good news in there, but it was offset by some bad news as well,'' said Rob Enderle, president of the Enderle Group research firm in San Jose, California. He attributed the share drop partly to ``overall nervousness'' in the market about technology stocks.

UBS AG analyst Benjamin Reitzes, who is based in New York, said today in a note to clients that while the hardware unit results were ``clearly disappointing,'' services showed progress. He rates the shares ``buy.'' J.P. Morgan analyst Bill Shope, also based in New York, called the hardware business a ``sour spot.''

Hewlett-Packard, Dell

Hewlett-Packard and Dell, the biggest personal-computer makers, fell yesterday after Framingham, Massachusetts-based researcher IDC said worldwide PC shipments rose 8.7 percent in the fourth quarter, missing a 10.1 percent forecast.

Shares of Hewlett-Packard fell 0.8 percent today, bringing the drop for the week to 3.5 percent. Dell shares also lost 0.8 percent for a decline of 6 percent this week. Shares of EMC fell 1.2 percent to $13.59 today.

IBM hardware revenue rose to $7.19 billion in the quarter as a weaker dollar helped boost the value of sales outside the U.S. Revenue would have been unchanged excluding currency effects. Gross margin narrowed to 41 percent from 42 percent year earlier.

Sales of large computers will slow as companies' systems can increasingly be improved with software upgrades, instead of buying new hardware, Becker said.

``This trend is going to be negative for IBM,'' Becker said. ``There needs to be some sort of a catalyst, something new that would be in customers' interest to deploy'' for IBM's sales to pick up.

Microelectronics

Within the hardware unit, microelectronics revenue fell 6 percent. Enderle attributed that drop to Sony Corp.'s delay in releasing its PlayStation 3 video-game console, which uses IBM computer chips, and Apple Inc.'s switch to using Intel chips.

IBM sold its personal computer unit to Lenovo Group Ltd., China's largest computer maker, in May 2005.

Service contract signings rose 55 percent from a year earlier, signaling growth in the global services unit will continue this year. Revenue at the division, IBM's largest, advanced 6.4 percent to $12.8 billion in the quarter.

The software division, IBM's most profitable, recorded a 15 percent increase in sales to $5.65 billion.

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net.

Last Updated: January 19, 2007 16:16 EST