Over the past year, IBM has been talking to investors about a goal of generating $20 in earnings per share (EPS) each year, perhaps by 2015. Shares trading for less than 10 times that goal have simply led investors into a value trap. In today’s market, tech investors are focused on corporate strategy, industry positioning and, most of all, revenue growth. Though IBM has been making tentative forays into cloud computing, virtualization, Big Data analytics and other hot tech niches, few would consider the company to be a trend-setter in any niche.

IBM’s success over the past few years was predicated on its ability to be a one-stop shop for clients. The company’s many acquisitions over the past decades were never part of a grand vision — they were instead made simply to fill a hole in the product line.

Trouble is, today’s IT managers are more squarely focused on the performance of each piece of hardware and software they buy, ponying up for best-of-breed suppliers. That’s a lesson that has already been learned by Hewlett-Packard (NYSE: HPQ) and Dell (Nasdaq: DELL), both of which also pursued a “soup-to-nuts” strategy.

Companies like IBM, Computer Sciences (NYSE: CSC) and Electronic Data Systems (now owned by HP) landed massive service contracts over the past 15 years as Fortune 500 companies began to outsource all non-core administrative functions. Yet in recent years, it’s become a race to the bottom, leading these firms to send jobs to India in hopes of preserving margins. Pricing pressures continue, so margins in this niche are now being compressed.

The fact that IBM now has more employees in India than in the U.S. highlights just how commoditized the company’s core revenue base has become. (And as a resident of New York’s Hudson Valley, I lament the fact that Big Blue is a shadow of its former self in terms of white-collar employment.)

IBM has increasingly come to rely on financial gimmickry to produce bottom-line results. For example, in the the third-quarter, the company posted a lower-than-expected tax rate to beat the $3.96 EPS consensus by a few cents. If the company used the tax rate that analysts were told to use 90 days ago, IBM would have missed EPS by a considerable amount.

Unfortunately, IBM has become notorious for financial sleights of hand, and savvy investors should see right through it. For example, the company’s goal of $20 in EPS comes with a huge caveat. Free cash flow might not be nearly as robust, and that’s the most important metric that investors should be tracking. In the third quarter, for example, IBM’s cash conversion rate was just 67%, which means that free cash flow badly trailed net income.

The biggest problem with IBM — and one that has been around since long before Rometty took the reins — is that it has continually frittered away its basis of innovation. IBM’s engineers routinely help the company to earn more patents than any company on earth. And management then routinely lets that base of intellectual property (IP) go unused.

Here’s an example: IBM was a pioneer in the field of rapid prototyping, developing machines back in the 1980s that could convert digital blueprints into actual three-dimensional products. A young engineer named Scott Crump realized that IBM had no plans to commercialize the technology, and bought the IP for pennies on the dollars IBM had invested. 

Today, Crump oversees Stratasys (Nasdaq: SSYS), a $4 billion leader in the fast-growing field of rapid prototyping. There are many other companies that eventually profited from the great work done by IBM’s engineers. The challenge is for IBM to take the work of its own engineers more seriously and again become a home of innovative products — and not just patent applications. 

So after watching IBM, Dell and HP spit the bit, should you conclude that investing in large tech companies is a bad idea? After all, a number of hot tech IPOs this year are garnering lush valuations from excited investors. But that’s more a function of the stock market in 2013, and not all of these young companies will live up to their expectations. The short answer: You can’t simply write off the large tech names.

Take Cisco Systems (Nasdaq: CSCO) as an example. The network equipment giant has also posted anemic revenue growth in recent years, and like IBM, has been able to generate EPS growth only through massive share buybacks. But unlike IBM, Cisco continues to push for industry-leading innovation in all of its tech niches, and it looks very well-positioned to boost sales when its core end-markets start to grow. The distinction in these two companies’ technology visions explains why one company is a bargain and the other is a value trap.