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IBM Raises the 2010 Ante

IBM shares took a hit as soon as its first quarter numbers hit the tape, despite a healthy top and bottomline beat. Those pesky gross margins did the company in, but after a moment or two, cooler heads prevailed, and IBM shares began to recover. And a good thing too.

IBM Earnings
CNBC.com
IBM Earnings

The company reported a $1.97 cents a share, 4 cents better than the $1.93 consensus, on $22.9 billion dollars. The Street was at $22.75 billion. Gross margins though were a disappointment, coming in at 43.6 percent when analysts had anticipated 44.1 percent.

The good news for the company: not only does this report continue a two-year string of beating Wall Street estimates, but IBM also raises its full year EPS guidance to $11.20 a share.

You'll remember that prior to January, the EPS range was $10 to $11 a share; then with the company's fourth quarter report, IBM said the number would be "at least $11 a share." The company throws the market a bone by increasing by a couple of dimes.

Some more good news: The company spent something like $1 billion during the quarter on acquisitions, well ahead of the take-out pace the company enjoyed in the same period a year ago.

Look for this topic to come up on the call, especially with IBM sitting on better than $14 billion in cash on its balance sheet and so many tempting targets sit on the shelf trading at still-discounted multiples. (Salesforce.com, are you listening?)

IBM reported $9.3 billion in revenue in its Technology Services unit, a little better than the $9.21 billion consensus; Business Services was in line at $4.4 billion; Software revenue jumped 11 percent to $5 billion; Systems/Technology was up 5 percent and in line at $3.4 billion. The company's total backlog is now a staggering $134 billion.

The message seems to be clear that IBM is seeing a nice turnaround in business, riding the broader macro trends that are affecting so much of big cap tech. Even a slight beat on the top line can be considered very good news because analysts had wanted to see evidence that customers were spending again, and that IBM wasn't merely improving its bottom line through operational efficiencies.

The bigger issue for IBM is that gross margin. Because of the company's laser focus on its own business logistics, analysts will want to know what happened that lead to a GM miss, and whether those trends might have prevented IBM from raising its full-year EPS guidance even more.

Meantime, bottom line for IBM is that this was a modest report with some pretty good news, and the stock is reacting accordingly. Not great news; not terrible news. More like "just right" news.

Up next? Apple , Yahoo,eBay,Microsoft and Amazon . The week has only just begun.

Questions? Comments? TechCheck@cnbc.com