Analyst Richard Gardner says IBM's $21.5 billion in revenues was below his and the consensus estimates of $21.9 billion to $22.1 billion, due to weaker-than-expected consulting and system integration revenues. He notes services bookings were in line, but says there's $2 billion of backlog leakage, and management guided the bookings down to $14 billion in the fourth quarter. He says server margins are poor, due to competitive pricing pressure in the UNIX and mainframe business.
Gardner is keeping his $1.46 fourth-quarter earnings per share estimate, which is 5 cents below the pre-call consensus, but cut the $4.79 2004 earnings per share estimate to $4.70. He also trimmed the $5.27 2005 estimate to $5.15. Gardner recommends his overweight position if IBM's stock trades for less than $80, and recommends investors underweight the stock if it trades for more than $85.