As Wall Street turns an eye toward

IBM's

(IBM) - Get Report

fourth-quarter earnings report, set for release after the close Wednesday, most investors believe the worries that weighed down the stock last year are behind it.

Last year's concerns, kindled anew last October in IBM's third-quarter earnings report, centered on narrowing margins and slowing growth at the company's big hardware unit, and on the notion that IBM managed earnings by taking big restructuring charges that made subsequent quarters look better. After the stock slid 25% in October on a flat earnings forecast, many investors got back on board, reasoning that Y2K's passage would bolster corporate orders.

But some analysts and money managers believe Big Blue's far from in the clear. These people continue believe that IBM hasn't addressed key issues in its core business and that earnings quality has slipped in recent quarters. With the stock up 30% from its midautumn lows, much is at stake for the Armonk, N.Y., computer giant.

No New Taxes

IBM's expected to report fourth-quarter net income of $1.06 a share, down from $1.24 a year ago, as revenue is expected to decline. The news won't get any better in the first quarter, ending in March: IBM's former CFO Doug Maine, who now works at IBM's marketing unit, warned back in October that first-quarter sales would at best be flat with last year's levels.

Nonetheless,

Goldman Sachs'

Laura Conigliaro -- who recently placed Big Blue on her firm's closely watched recommended list -- says IBM has very conservative estimates in place, meaning any sign of top-line growth would be looked at favorably. Conigliaro also believes IBM will continue to be a "defensive tech play" in a volatile investing environment. She explains that lingering accounting concerns are "last year's issue."

But Ken Schapiro, president of

Condor Capital

and an IBM shareholder, says he is glad he bought in when IBM stumbled last fall, but he is now "very concerned and interested in what IBM management will say" when it reports Wednesday.

Rolling the Tice

Why? Albert Meyer, an analyst at

David Tice & Associates

, argues that there has been very little organic growth at IBM. Instead, he says, the company has been using creative accounting to secure slow but steady earnings growth. Meyer's firm is short IBM.

"IBM used a tax valuation allowance in 1998 and Global Network in 1999 to boost earnings," says Meyer, who allows that the gains on the Global Network sale were whittled down by one-time charges. "What's IBM going to use in 2000?"

IBM disagrees. "Our accounting practices are appropriate," says spokesman John Bukovisti. "In our third-quarter earnings press release, we were very clear on what those special items were and it was obvious to us and to the analysts."

Hammers and Nails

Another concern stems from trends at the company's largest division, its hardware sales unit, which accounted for 42% of revenue in the third quarter. The unit's revenue fell 1% from a year ago that quarter, and it's projected to show a 12% decline from a year ago for the fourth quarter, according to the bullish Jones. Over two years, the hardware division has seen margins narrow to 27% from 34%.

"I would like IBM to show us an improvement in margins, especially in the hardware segment," says Meyer. "How will they make up for the lost margin? The services segment is making a huge contribution, but margin contraction seems to be winning the day."

Assuming that IBM will return to strong revenue and EPS growth after its first quarter, as many investors seem to, may also be presumptuous, warns Dan Niles, an analyst at

Robertson Stephens

, which hasn't done IBM underwriting.

If IBM warns investors about continued problems Wednesday, all the goodwill CEO Lou Gerstner has built up over the years may be thrown out the window. "A lot of firms are recommending IBM, but if they have one more bad quarter this optimism may not hold up," says Niles, who rates IBM long-term attractive. "I just don't think there will be a big snapback effect."