I’m not going to lie IBM was one of the dumbest recommendations I have ever made. The old guard IT tech space is rapidly deteriorating due to competitive pressures from IaaS upstarts, which has made it difficult for IBM to sustain healthy growth rates. The street is now revising its estimates even lower to reflect the weakness in foreign exchange and faltering share of IBM’s software and service revenue within conventional IT. Of course, IBM has developed a comprehensive ecosystem around its UNIX OS with the bulk of revenue coming from middleware. The company’s competitive position won’t necessarily deteriorate overnight, but many companies are opting to avoid the vendor lock-ins of big box IT in favor of AWS, Azure and Google Cloud. I anticipate that it will take at least a couple years before IBM can recover its sales growth, as there’s a lot of promising software pertaining to big data analytics, software services and solutions that could carry the company well into the future. According to Credit Suisse things look ugly over the near term:Software disappointments. Software revenues came in $6.8bn, down 11% yoy, and PTI margins were 39.4%, down 530bp yoy. Specifically, what is concerning is that the decline in Software at constant currency is now running at –6% yoy, much worse than feared, and seems to be accelerating. While IBM attributes this to continued transition towards SaaS business and lower transactional revenues, we believe that this is practically due to high levels of hardware attach and negative shift towards cloud architectures. However, the near term is what truly matters, as the company reported software revenue weakness, and Credit Suisse believes that cloud migration has slowed. Of course, IBM has a competitive cloud offering, but AWS puts a lot of pressure on pricing. IBM likes immediate profitability, whereas Amazon is happy to accept lower margins and will pass on whatever cost savings in terms of TCO whenever possible. In other words, there are better plays within the enterprise IT space, which is why Credit Suisse lowered its price target from $125 to $110. The company missed on its headline earnings and sales numbers, and I do anticipate continued deceleration of sales and earnings, which makes it a value trap in the interim. Sure, the broader market could experience a rally towards the second half of the year, but IBM will remain an industry laggard. So, valuation recovery isn’t a strong enough case for the company until we see a strategic shift in the cloud segment. I’m revising my buy recommendation to a sell. I haven’t arrived at a price target, but will do so at some later point.