Updated from 9:42 a.m. EST

Shares of IBM ( IBM) dropped modestly Wednesday as some analysts honed in on the currency benefit that helped the technology bellwether beat analysts' fourth-quarter earnings estimates by a nickel a day earlier.

Shares of IBM recently fell 65 cents, or 0.7%, to $94.25.

Although some analysts characterized Big Blue's quarter as strong, solid and stellar, others were far less bullish. Sanford C. Bernstein analyst Toni Sacconaghi Jr. noted that the company enjoyed a nearly $1 billion benefit from currency vs. a year ago in the fourth quarter, which he believes was not fully factored into consensus estimates.

"In many ways, it was a typical IBM quarter, as the company has met or exceeded EPS in 20 out of the 21 previous quarters, but failed to meet revenue expectations in 11 of those same 21 quarters," wrote Sacconaghi, who has a market perform rating on IBM. "In the absence of improved revenue growth going forward, we do think it will be difficult for IBM to materially migrate away from a market multiple." (Bernstein doesn't do investment banking.)

But on the more bullish side, Prudential analyst Steve Fortuna said IBM shares look attractive at the current multiple of only 17 times 2005 earnings. "We think they represent a compelling investment, considering the long track record of consistent execution, the strength of the product portfolio and the potential for services margin expansion," wrote Fortuna, who maintained his overweight rating on the stock.

"We continue to look for a meaningful improvement in large enterprise spending in the middle part of 2005, which should benefit IBM given its focus on large customers," Fortuna added. (His firm doesn't do investment banking.)

Armonk, N.Y.-based IBM posted profit from continuing operations of $3.1 billion, or $1.81 a share, compared with last year's $2.7 billion, or $1.56 a share. It marked the first time Big Blue's earnings exceeded $3 billion in the fourth quarter and beat the consensus estimate of $1.76 a share gathered by Thomson First Call.

Fourth-quarter revenue of $27.7 billion was up 7% (or 3% adjusting for currency) from last year's $25.9 billion. The revenue results exceeded Wall Street's expectations of $27.5 billion.

For the full year, IBM earned $8.4 billion, or $4.94 a share, including a one-time $320 million pretax charge to settle pension claims, compared with $4.34 a share in the same period a year earlier. Revenue from continuing operations rose 8%, or 4% on a constant currency basis, to $96.5 billion from $89.1 billion in 2003.

IBM CFO Mark Loughridge described 2004 as a year in which the economic environment improved, shifting from recovery to moderate expansion.

"We're encouraged as we go into 2005 in a large part by the improvement we've seen in our organic performance," Loughridge said, adding that 2004 experienced the strongest organic performance seen by the company in years. "We anticipate organic performance to continue to accelerate in 2005."

Overall, Loughridge said that IBM is targeting long-term double-digit earnings growth fueled by revenue growth in the mid- to high-single digits.

He said revenue should grow this year about one percentage point faster than the current Wall Street average estimate of 6%, excluding IBM's PC business. The company plans to close the sale of that business to Lenovo Group in the second quarter, recognizing a gain of $900 million to $1.2 billion at that time.

Sacconaghi interpreted that guidance as revenue growth of 3% to 3.5% at constant currency in 2005 -- short of the company's objectives.

Meanwhile, Loughridge said analysts' earnings forecast of 11% for 2005 is "reasonable." An 11% jump in earnings equates to $5.60 a share in 2005 -- a nickel higher than the latest consensus estimate because analysts weren't counting on the nickel overachievement in fourth-quarter results.

Loughridge noted that such growth in 2005 would come despite a $1 billion impact from the company's pension fund during the year. Excluding that, earnings would increase 18% in 2005, he said.

In the fourth quarter, IBM reported global services revenue of $12.6 billion, up 10%, or 6% in constant currency, from a year ago. The services segment's pretax margin rose to 10.6% from 9.5% in the prior quarter, surpassing the company's pledge to continue improving pretax margin with a half-point increase in the fourth quarter.

IBM said it signed services contracts totaling $12.7 billion and that its services backlog rose to $111 billion from $110 billion in the prior quarter. That reversed a drop in backlog in the previous quarter but still marked a decline from the $120 billion backlog registered by IBM at the end of 2003 -- the first year-over-year decline, according to Sacconaghi.

Investors may be forgiving of that decline given the strong fourth-quarter results, but IBM will need to show renewed year-over-year backlog growth in 2005 to keep its long-term growth story in tact, CIBC analyst Matthew Smith wrote Wednesday. (CIBC has done investment banking and non-investment banking business with IBM.)

Smith, who has a "sector outperformer" rating on IBM, said he believes IT services hold the greatest and most sustainable potential for IBM. Although contracts are getting shorter, he wrote, IBM is getting better at monetizing its existing backlog, increasing utilization and shifting its mix to its richest segments.

Elsewhere, IBM's hardware business delivered $9.5 billion in revenue, up 4%, or 1% in constant currency.

Software revenue totaled $4.5 billion, up 7%, or 3% in constant currency, from a year ago, driven by 8% growth in middleware. Revenue in the company's global financing arm fell 10%, or 13% at constant currency, to $657 million.

IBM's soon-to-be-sold PC business suffered a 2% revenue decline at constant currency after enjoying more than 10% growth in the previous three quarters. That apparently reflects customer anxiety about the pending sale to Lenovo, suggesting IBM's exit could present opportunities for rivals Dell ( DELL) and Hewlett-Packard ( HPQ), Sacconaghi suggested.

IBM's total gross profit margin from continuing operations was 39.2% in the fourth quarter of 2004, up from 38.4% a year ago.

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