Despite a profit slump of more than 9%, investors were warming to AT&T ( T) stock Wednesday after the firm posted solid first-quarter results.

AT&T's shares rose $1, or 3.96%, to $26.28, as the tech bellwether appeared to side-step the worst of the recession.

Despite missing analysts' revenue forecast and seeing its profit dip 9.7%, AT&T comfortably beat Wall Street's earnings estimate, and is enjoying improved margins.

The telecom giant reported earnings of 53 cents a share on net income of $3.1 billion, compared to 57 cents and $3.5 billion in the prior year's quarter, well above analysts' estimate of 48 cents.

Crucially, however, AT&T broke the 40% margin barrier for its wireless business, which positions the firm well for future growth.

"AT&T reported a strong Q1 today, with better-than-expected margins on strong cost controls more than offsetting slightly weaker-than-expected revenues," wrote Craig Moffett, an analyst at Bernstein Research, in a note.

The telecom firm's wireless margin has typically been dented by its Apple ( AAPL) iPhone subsidies, and analysts had expected a margin of just 37.5%.

Speaking on a conference call early Wednesday, AT&T CFO Rick Lindner described the wireless margin as a "pleasant surprise" and predicted that this figure would stay in the low 40% range for the rest of the year.

"Dilution from the iPhone 3G initiative is down significantly," he said. "The good news is that as we drive growth in wireless, we're also delivering strong margins."

Even AT&T's revenue, which was flat year over year at $30.6 billion, and came in below Wall Street's forecast of $31.8 billion, was shrugged off by Bernstein's Moffett.

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