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TheStreet Open House

IBM's 'New Normal' of Mediocrity

Stocks in this article: IBM

There's been no easy solution, however, for the struggles in revenue, which has been on a continuous decline. In this quarter, revenue was down again by 4%, missing Street estimates, which called for a flat performance. In that regard, the company's CEO Ginni Rometty said:

"In the third quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue. Where we had identified high-growth opportunities and pursued them aggressively -- Cloud, mobile, business analytics and security -- we continued to show strong growth."

Among the biggest disappointments was the company's systems and technology segment, which posted 16% year-over-year revenue decline. More glaring, IBM's services division, which is the company's largest segment, declined by more than 4%, which supports my belief that Accenture, and to a lesser extent, Infosys (INFY), have begun to steal market share.

While Rometty did talk about "taking action to improve execution in our growth markets," the continued lack of execution and traction is disappointing, given that IBM has now averaged 3% revenue declines over the past five quarters.

Wall Street, meanwhile, which has always had a love affair with IBM on the basis of its strong cash flow and decent return on equity, is finally waking up to IBM's new reality. The company is now just another bellwether with a strong name that's become grossly overrated.

In my article on Tuesday, which predicted exactly what the company just revealed, I closed with: "Should the stock fall to, say, $175 or lower, growth or no growth, I'd have to reconsider." As of Friday morning, the stock is hovering right around $175. Given the company's strong yield and what is still a highly profitable business, I continue to believe this pullback has brought IBM to its fair value.

Not to mention, the Street will continue to give the company the benefit of the doubt as long as it remains on its trajectory of achieving $20 in earnings per share by 2015. While I don't see this as a meaningful accomplishment in the face of declining revenue, there's no point fighting the tide here.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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