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IBM Announces Third-Quarter 2000 Results

3Q00 EPS increased 20%, excluding 1999 items

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ARMONK, N.Y. - 17 Oct 2000: IBM today announced

third-quarter 2000 diluted earnings per common share of $1.08
compared with 1999 diluted earnings per common share of $.93 (or $.90
after excluding the net benefit of $.03 in the third quarter of last
year from the gain on the sale of the IBM Global Network and other
actions). Excluding these 1999 items, IBM's third-quarter 2000
diluted earnings per share increased 20 percent. Third-quarter 2000
net income totaled $2.0 billion compared with $1.8 billion in 1999
(or net income of $1.7 billion in 1999 after excluding the after-tax
net benefit of $63 million from the Global Network sale and the other
1999 actions). Third-quarter 2000 revenues grew 3 percent (6 percent
at constant currency), to $21.8 billion, compared with the
year-earlier period.

Louis V. Gerstner, Jr., IBM chairman and chief executive
officer, said: "This was a solid quarter, with earnings per share up
20 percent and an acceleration of revenue growth relative to the
first half of the year. We would like to have seen more revenue in
the quarter, but we were held back by three items. First, demand for
our microelectronics products -- from both outside customers and
internal IBM customers -- far outstripped our ability to supply
components. Second, the upcoming release of our new high-end server
slowed demand for the System/390 family of servers. Finally, parts
of our software business slowed unexpectedly in September.

"On a positive note, our services business continued to overtake
the Y2K pause that pressured the first half of the year. Our PC
business rebounded strongly, with particularly good demand for our
server and ThinkPad products. In addition, our business in Asia
continued to grow strongly," Mr. Gerstner said.

"This has turned out to be an unusual year for the information
technology industry, with many ups and downs. Through it all, the
breadth of our portfolio and the strength of our global position have
allowed us to produce consistently good earnings. We expect our
broad portfolio will be even more important as we go forward,
especially compared to the single-segment companies in our industry."

Third-quarter revenues from the Americas totaled $9.7 billion,
an increase of 1 percent (1 percent at constant currency) compared
with the same period of last year. Revenues from Europe/Middle
East/Africa were $5.6 billion, down 3 percent (up 8 percent at
constant currency). Asia/Pacific revenues grew 18 percent
(17 percent at constant currency) to $4.3 billion. OEM revenues
totaled $2.1 billion, a 4 percent increase (5 percent at constant
currency) compared with the third quarter of 1999.

Hardware revenues were $9.5 billion in the third quarter, an
increase of 4 percent (6 percent at constant currency) compared with
last year's third quarter. Personal computer revenues increased, and
the unit was profitable in the quarter. Web server revenues also
increased, with demand far exceeding supply for certain RS/6000
models. AS/400 revenues declined due to supply shortages.
System/390 revenues fell as a result of the major product transition
in this area combined with year-over-year price declines. Storage
revenues were mixed, with high-end disk drive revenues, led by Shark,
up strongly year over year while hard disk drive revenues declined.
Microelectronics revenues grew strongly.

Revenues from IBM Global Services, including maintenance, grew
4 percent (8 percent at constant currency) in the third quarter to
$8.2 billion, with continued strength in the Asia/Pacific region,
particularly in strategic outsourcing.

Revenue comparisons for IBM Global Services were adversely
affected by the sale of the IBM Global Network to AT&T in 1999 and by
a year-over-year decline in Y2K services business. After adjusting
for these factors, Global Services revenues (excluding maintenance)
increased 9 percent (12 percent at constant currency). IBM signed
$13.3 billion in services contracts and concluded the quarter with a
total Services contract backlog of approximately $81.0 billion. The
Services business is continuing to hire aggressively to meet demand.

Software revenues declined 3 percent in the quarter (up
1 percent at constant currency) to $2.9 billion. Quarterly results
in this sector reflect sales execution issues late in the quarter as
well as an industry-wide transition in the systems management
software marketplace, which had an adverse effect on the company's
Tivoli products. Revenues from IBM's database and WebSphere products
grew strongly in the quarter, while operating system revenues
declined overall.

Revenues from Global Financing increased 11 percent (14 percent
at constant currency) in the third quarter to $859 million.

Revenues from the Enterprise Investments/Other area, which
includes custom hardware and software products for specialized
customer uses, decreased 19 percent (15 percent at constant currency)
year over year to $323 million.

The company's overall gross profit margin of 35.8 percent in the
third quarter was the same as in the third quarter of last year (or
36.4 percent excluding the 1999 actions).

Third-quarter expenses were $5.0 billion and the
expense-to-revenue ratio was 22.9 percent, compared to 23.3 percent
in the year-earlier period (or 24.9 percent excluding the 1999
actions).

IBM's tax rate in the third quarter was 30.0 percent compared
with 33.0 percent in the third quarter of last year (or 30.0 percent
excluding the 1999 actions).

IBM spent approximately $1.4 billion on common share repurchases
in the third quarter. The average number of basic common shares
outstanding in the quarter was 1,758 million compared with
1,805 million in the third quarter of 1999. There were 1,754 million
basic common shares outstanding at September 30, 2000.

Debt in support of operations, excluding global financing,
increased $264 million from year-end 1999 to $1.8 billion, resulting
in a debt-to-capitalization ratio of 11 percent. Global financing
debt grew $753 million from the end of 1999 to a total of
$27.6 billion, resulting in a debt-to-equity ratio of 6.1 to 1.

Net income for the nine months ended September 30, 2000 was
$5.4 billion, or $2.97 per diluted common share compared with net
income of $5.6 billion, or $2.99 per diluted common share, in the
year-earlier period (or net income of $4.9 billion, or $2.59 per
diluted share, in 1999 after excluding the after-tax net benefit from
the sale of the Global Network and other 1999 actions). Revenues for
the nine months ended September 30, 2000 were $62.8 billion, a
decrease of 1 percent (up 1 percent at constant currency) compared
with $63.4 billion for the nine months of 1999.

Effective in the first quarter of this year, results reflect
changes the company made in the organization of its business
segments, including the transfer of the system-level product
businesses from the Technology segment to the Enterprise Systems
segment and the transfer of point-of-sale products from the
Enterprise Investments segment to the Personal Systems segment. Also
reflected are changes the company made in its expense allocation
methodology, allocating expense items previously unallocated and
enhancing shared expense allocation. Third-quarter and year-to-date
1999 results have been reclassified to conform with the 2000
presentation.

Forward-looking and cautionary statements

Except for the historical information and discussions contained
herein, statements contained in this release may constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve a
number of risks, uncertainties and other factors that could cause
actual results to differ materially, as discussed in the company's
filings with the Securities and Exchange Commission.

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