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IBM Announces Third-Quarter 1998 Results


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Armonk, N.Y - 20 Oct 1998: . . . IBM today announced third-quarter 1998 diluted earnings per common share of $1.56 compared with diluted earnings per common share of $1.35 in the third quarter of last year. Third-quarter 1998 net earnings totaled $1.5 billion compared with $1.4 billion in the third quarter of 1997. Third-quarter 1998 revenues were $20.1 billion, an increase of 8 percent (11 percent at constant currency) over the year-ago period.

Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "As our results indicate, our business accelerated significantly in the third quarter. We showed strong revenue and earnings growth and substantial improvement across nearly all parts of our product line. In short, we executed well on the strength of our broad portfolio of businesses.

"We're especially encouraged by across-the-board revenue growth in our server group, by ongoing strength in our services and software businesses, and by good improvement in our PC unit. At the same time, our semiconductor business continued to be hit hard by a prolonged, industry-wide downturn in memory chip prices.

"While IBM is entering the fourth quarter with some real momentum," Mr. Gerstner said, "we are facing a number of
significant short-term issues, including an uncertain global economic environment, ongoing weakness in some parts of Asia and Latin America, and continued price pressures in semiconductors.

"Over the longer term, though, we believe we are exceptionally well positioned as we move toward the next millennium. It's clear that customers increasingly are embracing our technology strategies as they seek highly integrated products and services to solve their business problems. We are committed to providing these solutions while maintaining our focus on delivering consistent financial results."

On an as-reported basis, third quarter revenues from North America were $10.0 billion, an increase of 15 percent
compared with the third quarter of 1997. Revenues from IBM's Europe/Middle East/Africa unit totaled $6.1 billion, up
16 percent (15 percent at constant currency). Asia-Pacific revenues declined 16 percent (2 percent at constant currency) to $3.2 billion. Revenues from Latin America fell 6 percent (3 percent at constant currency) to $840 million.

Total hardware sales grew 4 percent (6 percent at constant currency) year over year to $8.7 billion. Personal computer revenues were flat. RS/6000, AS/400 and System/390 revenues increased; within the System/390 line, total MIPS (millions of instructions per second) more than doubled. Storage revenues increased and semiconductor revenues fell.

Services revenues were $5.8 billion, a rise of 23 percent (26 percent at constant currency) over the third quarter of 1997. IBM Global Services signed approximately $10 billion in new services contracts in the quarter. The services gross profit margin increased 1 point year over year.

Overall software revenues totaled $3.2 billion, up 5 percent (8 percent at constant currency) compared with the third quarter of 1997. Revenues grew strongly in database, AS/400 and Tivoli systems management software. The overall software gross profit margin rose 4.3 points to 74.6 percent.

Maintenance revenues were $1.4 billion, a decline of 8 percent (4 percent at constant currency) compared with the
third quarter of last year. Rentals and financing revenues increased 7 percent (9 percent at constant currency) to
$1 billion.

IBM's total gross profit margin was 37.2 percent in the third quarter compared with 38.2 percent in the year-ago period.

Total third-quarter expenses increased 4 percent, due in large part to investments in research and development to support the company's e-business strategies. The company's expense-to-revenue ratio improved 1 point year over year.

IBM spent approximately $1.7 billion on share repurchases in the third quarter. The average number of common shares outstanding in the quarter was 928.4 million compared with 978.0 million during the same period of 1997. There were 922.9 million shares outstanding at the end of the quarter.

The company's core debt (excluding global financing) declined $530 million from year-end 1997 to $2.6 billion. Debt
supporting IBM's worldwide credit operations increased $2.1 billion to $25.9 billion from $23.8 billion at year-end 1997.

Net earnings for the nine months ended September 30, 1998 were $4.0 billion, or $4.11 per diluted common share, compared with net earnings of $4.0 billion, or $3.91 per diluted common share, in the year-ago period. Revenues for the nine months ended September 30, 1998 were $56.5 billion, an increase of 3 percent (7 percent at constant currency) compared with $54.8 billion as of September 30, 1997.

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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