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IBM's 'New Normal' of Mediocrity

NEW YORK ( TheStreet) -- "Quicksand" was the best way I could describe IBM's (IBM - Get Report) recent revenue performance, which has been in a perpetual decline over the past couple of years. This is even though the company has spent well over $16 billion in acquisitions trying to escape its predicament. It hasn't worked.

Now the stock is trading right around $175, after a 6% decline on Thursday, following yet another earnings disappointment; IBM investors can only wish the value erosion was as slow as quicksand. However, as I said on Tuesday, this shouldn't have come as a surprise.

First, there's never been any evidence from IBM's management that it can effectively respond to Oracle (ORCL) in the enterprise or (CRM) in the cloud.

Secondly, look at the degree to which rivals like Accenture (ACN) and Tibco (TIBX) have won significant deals at the expense of IBM. The company is now getting attacked from all sides. Last but not least, there are now reports that the Central Intelligence Agency has bypassed IBM's cloud services in favor of Amazon (AMZN).

In response to these threats, IBM's management has maintained the standard "corporate speak," saying (among other things) "we're going after higher margin businesses." While this might be true, this strategy has come at the expense of higher revenue and market share. Not to mention investor confidence.

On Wednesday, these blunders came home to roost.

Here's the good news first: Both earnings-per-share and net income were up 11% and 6%, respectively. IBM earned $3.68 per share on net income of $4 billion, which was good enough for a 3-cent beat. This isn't much of a surprise. Profits, which have been plentiful (in part) due to significant cost controls, have been the main driver of the stock.

In an effort to streamline costs and achieve its goal to deliver $20 in earnings per share by 2015, the company has been firing workers, while also shutting down portions of its hardware business that's been underperforming. To that end, management's profitability goals remain on track. For instance, while IBM did post a $350 million decline in gross profit, that the company was able to expand gross margin from 47.4% to 48% is nonetheless impressive.
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