IBM ( IBM) shares slid slightly Tuesday after an analyst predicted the tech giant will fail to match revenue estimates through fiscal year 2007 due to currency fluctuations and light bookings in services. Shares of IBM recently shed $2.08, or 2.4%, to $83.88. Citigroup analyst Richard Gardner said in a research note that services bookings appear to be coming in light during the fourth quarter. Armonk, N.Y.-based IBM has announced only several hundred millions dollars' worth of signings so far during the quarter, far short of the billions of dollars in signings typically announced at this point in recent quarters, he wrote. "Flat bookings quarter over quarter (down 10% to 15% from a year ago) strikes us as the most likely scenario," he wrote. He noted that management said it would need double-digit bookings growth in order to achieve service revenue expectations for the year. Gardner, who maintained his buy rating, also said if currency exchange rates remain at current levels, they will hurt IBM's revenue by 3% in the fourth quarter and 2% in fiscal 2007. Gardner said he sees near-term downside in the stock to around $80 on the heels of mediocre fourth-quarter services bookings and currency-related revenue revisions, but left his buy rating unchanged because he believes the stock could reach the high-$90s within a year. (His firm has done investment banking with IBM.) Gardner reduced his fourth-quarter revenue estimate to $25.6 billion from $25.3 billion, his 2006 revenue target to $91 billion from $94.2 billion and his 2007 revenue estimate to $93.8 billion to $97.5 billion. Those are all at least $1 billion short of the current consensus estimate gathered by Thomson First Call, which pegs fourth-quarter sales at $26.7 billion, 2006 sales at $93.6 billion and 2007 revenue at $97.9 billion.
However, Gardner still expects strong seasonal mainframe sales and robust microprocessor shipments for Microsoft's ( MSFT) Xbox 360 video game console. Consequently, he left intact his fourth-quarter earnings estimate of $1.95 a share, which is a penny higher than the consensus, and his 2006 earnings target of $5.65 a share, which is a dime lower than the consensus. But he lowered his 2007 earnings-per-share estimate by 20 cents to $6.10, bringing it below the consensus estimate of $6.26. Gardner also said microprocessor shipments for Xbox 360 appear to be tracking significantly ahead of finished consoles, which suggests a potential inventory correction in the first or second quarter of next year. Recent checks also show that Sony ( SNE) may be planning to increase its share of microprocessor production for its next-generation PlayStation 3 console expected to launch next spring, prompting IBM to delay capacity additions in its microprocessor manufacturing plant. Get Jim Cramer's picks for 2006.