Bothered by Big Blue

IBM's domestic results are worrisome for the IT sector.
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Jackie Wilson would be smiling over this market: Investor love, it seems, keeps lifting it higher and higher. The

Dow

even set a couple of new all-time highs this past week.

But let's not forget another Jackie Wilson line -- namely, "Quench my desire."

What could bring on the quenching of said desire by investors? It's not that lower-valued stocks like

Exxon Mobil

(XOM) - Get Report

and

Altria

(MO) - Get Report

are poised for growth. Or that pricier ones, like old-king-log

Microsoft

(MSFT) - Get Report

and problem-plagued drugmaker

Merck

(MRK) - Get Report

, are navigating through foggier waters.

No, the more worrisome news from the past week came from a company whose price-to-earnings ratio lies comfortably between both extremes:

IBM

(IBM) - Get Report

.

On the face of it, this is an absurd claim. IBM's historical P/E is 15, yet its earnings are forecast to grow 11% in 2007 and 10% in 2008. That's enough to lower its P/E to 14 based on this year's profits and 13 on next year's.

Considering that the Dow Jones Industrial Average's P/E is 17, that's pretty good any way you slice it.

On Tuesday, IBM said first-quarter revenue grew 7% to $22 billion and net profit grew 12% to $1.21 a share, as Priya Ganapati

reported. That was in line with estimates. So investors, who tend not to get too overexcited about IBM, should have been happy.

Yet the stock has fallen about 3% on those numbers. Why? I believe those sellers are on the forward edge of a trend that could quench the desire for a lot of other companies in the months to come.

IBM's revenue grew a mere 1% in its "Americas" division in the quarter, which is a nice way of saying it shrank in its core market of the U.S.

It was up in all the other regions: 13% in Europe and some "double-digit" growth in Asia. Well, either way it beats the hell out of 1% in the Americas, where most of the business is.

On the

conference call last week, analysts were naturally focused on the less-than-spectacular growth (if not actual shrinkage) in the U.S. markets. Here's how IBM Chief Financial Officer Mark Loughridge responded to those concerns: "If you look at the U.S., however, we did see weakness, predominantly at the end of the quarter, in our enterprise space."

That's a Wall Street way of saying: Gentlemen, start your sell orders!

Weakness at the start of the quarter -- well, it's anyone's guess. Weakness at the end of the period -- when, if anything, companies should be rushing to fill all the allocated orders because they might need to order even more in the current quarter -- that's a different matter.

In other words, a last-minute rush for IT spending is welcome, even normal. But an eleventh-hour scrimping could spell trouble not just for IBM -- but for any company relying on software spending. Best case scenario: It's simply a randomly aberrational slowdown for IBM during its normally steady IT-spending-driven growth.

But if it were truly an aberration, would Loughridge have said the following:

"Today, I will start the discussion with our geographic results. I will focus the country-specific comments on the results at constant currency. The Americas revenue grew 1%. We had strong growth in Latin America, and Canada also grew, but the United States growth slowed and revenue was flat versus last year."

The U.S. business almost sounds like an afterthought. If the heart of its business were doing better, wouldn't he have said something like, "the America's revenue growth was slow, but we don't foresee further slowdown." He didn't, and that could presage further slowdown all around.

If Loughridge didn't misspeak, it's scary for many companies. IBM is not just a company that has overcome -- time and again -- the restrictions that mature growth can impose on a company. It's become, by virtue of its central role in the software and services world, a proxy for IT spending.

And, reading its earnings call closely, it's a disturbing thumbs-down in the middle of a bull rush: If companies are spending less on their information technology, which is more efficient and productive today than it was during the boom years, what else are they cutting back on?

In that case, I'll turn it over to the prescient Jackie Wilson, who also said:

"One day you laugh, the next day you cry,

And it's all a part of love."