Updated from 10:43 a.m. EDT

IBM ( IBM) shares lost some ground Friday, as the level of new business in Big Blue's massive services arm underscored that a real upturn in enterprise spending is not yet under way. Investors were also disappointed by a bigger-than-expected loss in the company's semiconductor arm.

IBM's stock was recently off $2, or 2.1%, to $92.

But IBM also delivered an upside surprise on first-quarter sales and in-line earnings in an after-the-bell report.

At Goldman Sachs, analyst Laura Conigliaro summed up the quarter as unexciting. "IBM's in-line March quarter was not the definitive statement we would have preferred, although, on balance, it was also not much different from many other tech companies with revenue a little higher and earnings in line," she wrote. Conigliaro noted that IBM also offered the now-familiar commentary that rising corporate profits should stimulate more technology buying.

"In short, investors will probably have to wait until the June quarter is well under way before getting a real sense of upside potential. That said, IBM's organic growth is beginning to look a little healthier and should improve further during the year," she said. IBM's real revenue growth (at constant currency) of 2.9% was "higher than we had expected (0.8%), driven primarily by hardware and software," she noted.

In fact, the currency benefits of a weak dollar that have helped IBM so much over the past year or so will be a little less evident in the June quarter, when currency should contribute about 400 basis points (down from the March quarter's 750 basis points). But Conigliaro thinks that with enterprise spending improving and continued share gains by Big Blue, IBM could show signs of potential top- and bottom-line upside by the end of the June quarter. (Goldman hasn't done recent banking for IBM.)

"I do expect IBM to do better later in the year simply because they're so large and economically exposed" -- and the economy is in rebound mode, said Michael Holland, manager of the Holland Balanced fund, which owns IBM shares. "I expect better results relative to expectations as the year goes on."

"We see the breadth of IBM's product and services offerings and IBM's on-demand initiative as clear differentiators for enough momentum in 2004 to even offset unfavorable currency direction," i.e., if the dollar strengthens, wrote CIBC analyst Ali Irani, who kept his revenue and earnings estimates unchanged. His firm has done investment banking for IBM.

Other analysts likewise cast the quarter as one that was largely in line with expectations and made only minor tweaks in their estimates.

At First Albany, Joel Wagonfeld pushed up his 2004 revenue estimate to $95.6 billion from $95.0 billion and pushed up EPS to $4.93 to $4.89. He noted few net surprises in IBM's March quarter. For example, though new services bookings of $10.5 billion were at the low end of his expectations (for $10 billion to $12 billion), he noted that services revenue was a little better than he'd forecast, helped by strategic outsourcing and maintenance. First Albany hasn't done banking for IBM.

Sales from continuing operations in the first quarter were $22.2 billion, up 11% from last year's levels and slightly above Wall Street expectations for $21.91 billion. Currency benefits contributed 7.5 percentage points of IBM's sales gain.

Gross profit margin of 36% was identical with last year's levels.

Net income totaled $1.6 billion, or 93 cents a share, in line with expectations.

The company said it had signed services contracts of $10.5 billion, in constant currency, or $11.2 billion at spot rates. Many analysts had geared for bookings of around $11 billion.

In a prepared statement, CEO Sam Palmisano said the company had "entered the first quarter with good momentum," adding, "We remain enthusiastic about our prospects for 2004."

On a postclose conference call, CFO John Joyce said first-quarter growth in the company's hardware and software lines affirm his view -- first voiced in January -- that tech spending would improve this year. "Customers' existing infrastructure is the oldest it's been in nearly 20 years. There's a need for customers to update," he said.

Not only do corporate operating budgets appear likely to be headed up, Joyce said, but also many potential customers are now benefiting from lower depreciation after several years of minimal spending, which could make it easier for them to begin purchasing new technology again.

Many on Wall Street anticipate that Big Blue will see more upside later this year or in 2005, assuming that corporate profits stay strong and big companies become more willing to invest in information technology.

By business line, revenue from IBM's flagship global services arm was up 9% to $11.1 billion (or 1% after adjusting for currency benefits from a weak dollar), while hardware was up 16% to $6.7 billion (10% after currency adjustments).

IBM said its semiconductor arm lost about $150 million, well above the $50 million loss projected by many analysts. It expects the division to break even or be profitable for the full year 2004, however, assuming that it can improve subpar yields in its 300-millimeter wafer fabrication plant, hold income from intellectual property flat and see demand continue to rise.

IBM's software sales rose 11% to $3.5 billion (3% after currency adjustments).

Also after the bell, IBM endorsed full-year consensus estimates, which call for the company to earn $4.93 per share and post $95.663 billion in revenue.