Few on Wall Street expect much from

IBM

(IBM) - Get Report

when it announces earnings Wednesday after the market closes.

The difficulties the company had producing high-end disk drives earlier in the year are expected to show up again, with Chairman Lou Gerstner having admitted to analysts in early May that the problem was "going to cost us in this quarter." Concerns about the company's mainframe business came to a head two weeks ago when mainframe-software makers

Computer Associates

(CA) - Get Report

and

BMC Software

(BMCS)

warned of revenue shortfalls.

Meanwhile, the performance of IBM's services segment has also come under scrutiny following warnings from companies like

Perot Systems

(PER) - Get Report

and

Electronic Data Systems

(EDS)

.

Given all this, analysts polled by

First Call/Thomson Financial

expect that IBM will report that it earned $1 a share in the second quarter, compared with the year-ago 91 cents.

Second-Half Story

But the stock market is a forward-looking organism, and analysts will be looking beyond the second quarter during Wednesday's conference call.

"It's history," says

Bear Stearns

analyst Andy Neff, who rates the stock buy and whose firm hasn't performed recent underwriting for IBM. Neff lowered his second-quarter earnings-per-share estimate to 97 cents from $1.02 earlier in July, but he's not thinking about that now. "I'm more focused on what's coming down the pipe. It's not surprising that the second quarter was a tough quarter. We're optimistic about the second half."

IBM will need to reinforce that optimism if it's going to regain its long-lost momentum. The stock has fallen more than 20% in the last year and is nearly 15% off its June high.

IBM's Stock Suffers
The stock is well off its June highs.

Neff believes that a host of factors that worked against IBM in the year's first half are ready to start working for it. The company's problems with hard disk drive production should be behind it now. The PC business, which IBM has been driving to improve since it exited the unprofitable U.S. retail market late last year, should pick up. The

Unix

server business should capitalize on the company's refreshed product line. Mainframe sales will get a boost when IBM releases its new Freeway G7 mainframe product later this year. And services finally should be free of any lingering Y2K effects.

Bookings, MIPS

More than anything else, analysts are looking for the company to indicate a rebound in mainframe sales and a resumption of services growth, a hulking business that makes up more than a third of Big Blue's revenue. The services segment has been fighting against difficult year-over-year comparisons since IBM sold its network-services division to

AT&T

(T) - Get Report

. But the company could do much to quell fears of a general slowing in the sector by announcing a jump in new bookings for services, which have been running around $9 billion a quarter for the last couple of quarters.

While most observers expect Big Iron sales to get an automatic boost when the Freeway mainframes roll out, IBM will be faced with the task of reassuring investors skeptical about the mainframe's long-term prospects. To do that, the company will need to show strong growth in MIPS deployed by customers. MIPS, or millions of instructions per second, is the standard measure of demand for mainframe computing capacity.

Phil Rueppel, an analyst at

Deutsche Banc Alex. Brown

, is looking for year-over-year MIPS growth above 20% in the quarter, after two straight quarters of negative growth.

"There's been a controversy about how well

the mainframe is doing," Rueppel says. "It's important for IBM to demonstrate that the mainframe business is solid while they enter what should be a strong ramp for them as they get their new G7 product out there." Reuppel's firm hasn't done any recent underwriting for IBM, which he rates a strong buy.