Citigroup Keeps 'Sell' on IBM Corp.

Analyst Richard Gardner says the computer maker's revenue fell below his estimates, and says server margins are poor

Citigroup reiterates sell on computer maker and information-technology services provider IBM Corp. (IBM ).

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.

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