The sentiment surrounding IBM's ( IBM) second-quarter results has looked rather blue as analysts near and far have stepped up to temper their expectations for the company's performance while the stock has reset new 52-week lows.

Since IBM last reported its quarterly numbers, investors have avoided the shares. Mirroring the pattern of many technology stocks, shares of the IT services giant have slipped about $10 lower than what investors were willing to pay in April. The stock closed Monday at $73.70.

Recent warnings from tech stocks such as EMC ( EMC) and SAP ( SAP) have also contributed to a bleak picture, says Sushil Wagle, senior vice president of investments for J. & W. Seligman.

"There is a feeling that earnings are going to be less than stellar as we go forward," Wagle says. "People are worried that the consensus earnings numbers out there are too high. People are worried about revenue deceleration."

That said, Wagle believes the company's bottom line could be a pleasant surprise. "EPS could actually beat. The top line is where I'm worried. That could come out light again."

Analysts polled by Thomson First Call expect IBM to say later Tuesday that it earned $1.29 a share for the quarter on sales of $21.89 billion.

Three months ago, IBM beat earnings predictions by 3 cents a share. Revenue was in line with consensus estimates, falling 10% to $20.7 billion from the same quarter last year, but was up 4% when adjusting for currency and the company's divested PC business. Global services, which represent more than half the company's revenue, dipped 1%, but when adjusted for currency, rose 3%.

The stock perked up slightly after the results, but the good feelings didn't last, however, and IBM shareholders could only stand by and watch the rest of the tech sector run to its high for the year in early May. Unfortunately, IBM stock has "shared" in the recent tech downturn.

As always, IBM's services division will go a long way toward deciding the fate of the company's shares. "Even though the stock looks cheap, I think it's going to be a little bit of a struggle for them on the services side," Wagle said. He predicted that "overall, services will be muted -- OK to lower."

That less-than-enthusiastic expectation on the services side is shared by several analysts who lowered their performance estimates last week because of the company's lackluster services signings and hardware trends.

Bill Shope, an analyst with JPMorgan, wrote in a note last week that he expects services signings of about $11 billion, representing a 4% decline sequentially and a 25% drop from a strong second quarter last year.

UBS analyst Benjamin Reitzes also lowered his services signings estimates to $10 billion from a range of $12 billion to $13 billion.

Global services revenue for the June quarter will be flat at $12 billion, Shope wrote, down from his earlier estimate of $12.12 billion. He also lowered his hardware sales estimate to $5.03 billion from $5.11 billion.

"We remain concerned that revenue and profit pressures in the services and hardware segments will intensify in coming quarters," Shope wrote. He rates the stock neutral. JPMorgan has an investment-banking relationship with the company.

Reitzes modified his quarterly EPS forecast down by a penny to $1.29. He also adjusted his full-year forecast for 2006 EPS to $5.75 from $5.80, reflecting lower services and hardware revenue, slightly offset by intellectual-property income and cost-cutting. UBS does and seeks to do business with the companies covered in its research reports.

Growth in services revenue may disappoint investors this year because of a slowing trend in short-term signings, Shope wrote. IBM is also facing mounting competition for mega-deals in that area.

Reitzes said the lack of publicly announced deals indicates lower bookings than expected. IBM's second quarter could be its fourth successive quarter with disappointing signings, and an ongoing trend of misses can hurt outsourcing revenue over the long term.

Meanwhile, Reitzes wrote, IBM's hardware division has had a difficult quarter as its p-series servers work through a product transition. Also, a trend favoring environmentally friendly servers that minimize power consumption could contribute to IBM's weakness in the space.

Still, there are those who see a brighter outlook for Big Blue.

"We think they can do modestly ahead of consensus on EPS ," says Bill Gorman, vice president in the equity research department with PNC Wealth Management, which holds IBM shares in one of its funds. "Revenue looks like they could meet or exceed."

"It sounds like they had a lousy quarter for services signing, but that doesn't have to be a serious drawback," Gorman says. "That business has started to recover." Even with one subpar quarter, he said, the company can make it up later in the year.

Gorman also will be paying attention to IBM's server shipments, which had a disappointing March quarter.

Analysts said competition from Dell ( DELL), Hewlett-Packard ( HPQ) and Sun Microsystems ( SUNW) could pressure IBM's server business as well.

"We think there will be some improvement, not meaningful, but hopefully in the right direction, and will gain further momentum," Gorman says.

Looking ahead to the current, or September quarter, analysts forecast IBM to earn $1.35 a share on revenue of $22.16 billion.

If you liked this article you might like

EDS Back on Track

EDS Back on Track

Citrix to Miss 10-K Deadline

Citrix to Miss 10-K Deadline

VeriSign to Miss Filing Deadline

VeriSign to Miss Filing Deadline

Audible Shares Skyrocket

Audible Shares Skyrocket

Audible Narrows Loss

Audible Narrows Loss