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IBM needs a rebound in software to turn around slump: Top Analyst

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.

Read MoreIBM revenue missed even the most pessimistic estimates

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.

Earlier Tuesday, FBR Capital Markets' Daniel Ives told CNBC that IBM and other large cap tech companies are in a "quicksand situation" as customers transition to cloud computing, and the only escape may be mergers and acquisitions.

"It really comes down to M&A. If they went big on big data, cybersecurity, cloud that's the only — in our opinion — solution to put fuel in the tank for growth. It's not going to happen organically," FBR's senior analyst told CNBC's "Squawk Box."

According to Ives, IBM and its cohort should consider picking up big data firms like Splunk and Tableau, cybersecurity outfits like Fortinet and CyberArk, and enterprise software companies like Workday and NetSuite.

Big cap tech is "in a horse and buggy in the right lane and all these companies are passing them in the Maseratis and Ferraris in the left lane," Ives said.

He pointed to Dell's announced takeover last week of EMC, the largest in tech tie up ever, saying EMC CEO Joseph M. Tucci would not have had to sell had he made acquisitions sooner.

Read MoreDell to buy EMC in deal worth about $67 billion

Ives said the legacy tech companies have become accustomed to blaming their results on currency headwinds, but in the end, earnings come down to core execution and mature products offerings.

Armonk, New York-based IBM gets more than half its revenue from overseas. The average value of the dollar against a basket of currencies in the third quarter was about 17 percent higher than the same quarter last year.

Even adjusted for currency and divestitures, the company's revenue fell 1 percent.

—Reuters contributed to this report.

DISCLOSURE: Neither the analysts, nor their families owns shares of IBM. FBR Capital Markets and Sanford B. Bernstein do not hold a greater than 1 percent share in the stock, and do not provide investment banking services to IBM.