Shares of IBM (NYSE:IBM) plunged as much as 4.6% overnight, following last night's fourth-quarter report. The ultimate blue-chip stock is still down 3.5% as of this writing, shaving 42 points off the Dow Jones Industrial Average (DJINDICES:^DJI) all by itself. IBM's drop explains nearly all of the Dow's downward move today. It's the only Dow stock to slice more than 10 points off the index today.

Big Blue beat Wall Street's earnings estimates but fell short of revenue projections. In fact, total sales dropped 5% lower year over year as IBM's hardware sales collapsed.

In most cases, a revenue drop is a big red flag, a signal to run and hide, staying far away from this imploding business and its doomed-to-die stock. But it would be a mistake to apply that mindset to IBM's results, or to the company's recent trajectory in general.

If IBM's lower sales scare you, it's time to ask yourself how the company managed to deliver strong earnings in spite of flagging revenue.

Here's what's really going on inside IBM. The company is adjusting its business model to new market realities, shifting out of the low-margin hardware business to refocus on far more profitable software and services.

There's even a change going on within the software department, as IBM's AIX Unix system keeps moving closer and closer to the Linux platform. IBM's proprietary systems will only shrink from here, and the company knows it. This quarter, IBM acknowledged that unstoppable trend by adding even more Linux compatibility to its AIX software.

IBM started this shift way back in 2001, when it added basic Linux features to its AIX 5L release. Now, you can run Linux workloads both on IBM's AIX-powered middle tier and on System Z mainframes. The strategy here is focused on keeping IBM's customers happy and competitive, not on preserving IBM's aging in-house brands.

IBM's entire server portfolio can run Red Hat (NYSE:RHT) Linux already, tapping into the red-hot platform's phenomenal growth. That's a sharp contrast to fellow computing powerhouse Oracle (NYSE:ORCL), which recognized the power of Linux platforms like Red Hat early on but decided to build its own Linux alternative instead. Forking the Red Hat code to provide an Oracle-branded Linux product seems silly to the former systems administrator in me, which explains why I prefer IBM's simpler partnering approach.

So IBM is moving out of the low-margin server hardware business, the better to refocus on very profitable sales of software and support services. It's a sustainable long-term strategy that lets IBM trade easy top-line revenue for fatter bottom-line profit. In the long run, I'm sure that IBM investors will appreciate this strategy adjustment.

Maybe it's time to take advantage of IBM's discount-priced shares, trading at a bargain basement 9.1 times forward earnings. From that perspective, IBM is the cheapest stock on the Dow right now.

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