updated 4/15/2004 5:02:10 PM ET 2004-04-15T21:02:10

First-quarter profits rose 16 percent at IBM Corp. and matched Wall Street estimates Thursday, though the technology bellwether exceeded revenue estimates.

IBM earned $1.6 billion, or 93 cents per share, on revenue of $22.3 billion in the first three months of the year. In the comparable period last year, IBM made $1.38 billion, or 79 cents a share, on $20.1 billion in revenue.

Analysts surveyed by Thomson First Call were expecting IBM to show earnings of 93 cents per share and revenue of $21.9 billion, but some talk of an “upside surprise” had bubbled up on Wall Street in recent days.

In earlier reports to investors, IBM executives had expressed optimism that corporate technology spending would start a new growth cycle this year. In Thursday’s report, the company at least initially held back on issuing a detailed outlook.

“We remain enthusiastic about our prospects for 2004,” chairman and CEO Sam Palmisano said.

IBM shares rose 27 cents to close at $93.97 on the New York Stock Exchange before the earnings report.

IBM tinkered with its internal alignment in the quarter, bringing the money-losing technology group, which makes high-end chips for Big Blue and outside companies, into the company’s successful systems group, which sells mainframes and servers. IBM also announced that it would share chip designs and collaborate more with outside developers in hopes of getting its semiconductors into wider use.

Combined, the systems and technology group showed an operating profit of $170 million in the first quarter. On its own, the technology group lost $252 million in 2003.

IBM’s services division, which accounts for about half of the company’s sales, showed a 9 percent gain in revenue, though the increase would have been only 1 percent without currency fluctuations. Palmisano said the unit booked $10 billion in new contracts in the quarter.

The company’s services thrust has been taking the company in new directions. This week IBM announced a $300 million deal to take over product service for Philips’ consumer electronics division, putting Big Blue in charge of handling warranties and overseeing repairs for TVs and CD players.

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