IBM is seeing incremental erosion in its business and needs to turn around its software unit, Sanford B. Bernstein's Toni Sacconaghi said Tuesday, a day after the company reported quarterly sales declined for the 14th-consecutive time.
"Right now the old businesses are winning out per se in terms of pulling down growth rate for the company," he told CNBC's "Squawk on the Street."
He said hardware tends to be cyclical. "Really what we need to see is software stablilizing," he added. "It's been down the last several quarters in constant currency."
Software accounts for about half of IBM's profits, the top-rated hardware analyst noted. The other key issue for investors is pressure on services margins.
Shares of IBM were down about 5½ percent in trading on Tuesday. On Monday, the company posted a bigger-than-expected drop in revenue for the fifth-straight quarter and lowered its full-year profit forecast, due to a strong dollar and the sale of low-margin businesses.
IBM is shifting from making hardware to cloud computing and, like established rivals such as Oracle and Microsoft, is striving to boost Internet-based software and services sales to compete with Salesforce.com and Amazon.com's Web software unit.
Like many traditional tech companies, IBM has an old set of businesses that account for about 70 percent of revenues and are mired in decline, Sacconaghi said. New businesses like data analytics and cloud computer are "growing nicely," he added, but not enough to offset losses.