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IBM Struggling Under a Cloud

Tickers in this article: AMZN IBM
NEW YORK (TheStreet) -- I'm an IBM shareholder. Have been for several years. And I've been a happy one.

But an increasing number of IBM shareholders are becoming unhappy, are bailing on the company, and are asking whether CEO Virginia Rometty is up to the task of running it.

The company reported lower revenue for the third quarter, in part blaming China, saying it will increase its sales there once the Chinese government's latest economic plans are set next month.

Instead, the company's stock plunged in the pre-market, down below $173. This is a stock that was over $210 as recently as April, and the plunge is taking place against the backdrop of a rising market. If IBM isn't working, there are plenty of other places to put money.

While it is possible that Rometty has lost the plot, and I'm sure plenty of writers are going there this morning, it's also possible that this is just a product transition and that the company is well-positioned. Since that's the road less traveled, let's go there.

The world is moving from what was once called "enterprise computing" toward cloud. But instead of moving from that platform toward a "hybrid cloud" system of privately run clouds and compatible public systems -- and maintaining budgets -- big businesses have been experimenting with public clouds and starving their existing enterprise systems for funds.

IBM makes those enterprise systems.

During this transition, dirt-cheap public clouds like Amazon have been the way to go. The best example of this is the recent CIA contract, which IBM lost to Amazon, and whose award was recently upheld, as our Andrea Tse reported. .

Instead of trying to make its existing systems compatible with cloud, the spooks are building their own dirt-cheap cloud and, from a software standpoint, starting from scratch.

That could, over the longer run, offer IBM opportunities, because Amazon's cloud is just infrastructure. It doesn't have the software tools of a platform, and tools have to be used in order to build applications, which are the real aim of any computing system.