International Business Machines Corp. (NYSE: IBM) managed to beat earnings expectations, as most would have expected.  The company reported earnings at $1.97 EPS and $22.9 billion in revenues, which compared to Thomson Reuters estimates of $0.93 EPS and $22.75 billion in revenues.  This translates to earnings growth of about 16% and revenue growth of 5%, or flat after adjusting for currencies.  While the earnings are ahead of estimates, some wanted more and there are some concerns about what lies ahead.

IBM came in with 43.6% in margins, which might be a tad soft compared to some talk of 44%.  Here was a brief breakdown: 4% growth in technology services; software grew 11%; systems & technology rose 5%.  Services signings were $12.3 billion, down 2%.  Global Financing revenues fell 7% (12% if adjusted for currency).

The services backlog came in at $134 billion, which is up $8 billion versus a year ago.  However, we would note that backlog was $137 billion just one quarter ago.

IBM is also raising guidance now to at least $11.20 EPS versus an earlier formal target of “at least $11.00 EPS” before and a $10.00 to $11.00 EPS range before that.

IBM ended the quarter with $14 billion in cash and it generated free cash flow of $1.4 billion; it also returned $4.7 billion to shareholders via $700 million in dividends and $4 billion in share repurchases. IBM’s tax rate in the first-quarter 2010 was 26.0% versus with 26.5% in the year ago quarter.

IBM closed up 1.2% at $132.23, but shares are down 1.5% at $130.40 in the after-hours session.  Its 52-week trading range is $98.20 to $134.25.

The top-line and bottom-line numbers may be fine here, but stocks have to beat better than this to entice new buyers now.  That backlog is also worth watching ahead as that is the future of its forward orders for the future ahead.

JON C. OGG

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