IBM Reports 2007 First-Quarter Results

ARMONK, NY - 17 Apr 2007:

IBM (NYSE: IBM) today announced first-quarter 2007 diluted earnings of $1.21 per share from continuing operations, an increase of 12 percent as reported, compared with diluted earnings of $1.08 per share in the first quarter of 2006. First-quarter income from continuing operations was $1.8 billion compared with $1.7 billion in the first quarter of 2006, an increase of 8 percent. Total revenues for the first quarter of 2007 of $22.0 billion increased 7 percent (4 percent, adjusting for currency) from the first quarter of 2006.

"IBM's good results in the quarter demonstrate the breadth of our global capabilities, the advantages of our business model and our focus on profitable growth," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. "We continued to grow in the higher-value products and services that help our clients transform their businesses. We again grew gross profit margins and earnings, and continued to generate significant cash from operations. This gives us considerable financial capability to strengthen our position in the profitable growth segments and create further value for our investors."

From a geographic perspective, the Americas first-quarter revenues were $9.1 billion, an increase of 1 percent as reported (1 percent, adjusting for currency) from the 2006 period. Revenues from Europe/Middle East/Africa were $7.6 billion, up 13 percent (5 percent, adjusting for currency). Asia-Pacific revenues increased 10 percent (9 percent, adjusting for currency) to $4.5 billion. OEM revenues were $828 million, down 5 percent compared with the 2006 first quarter.

Total Global Services revenues grew 8 percent (4 percent, adjusting for currency). Segment revenues from Global Business Services increased 9 percent (6 percent, adjusting for currency) to $4.2 billion, and segment revenues from Global Technology Services increased 7 percent (4 percent, adjusting for currency) to $8.3 billion. IBM signed services contracts totaling $11.1 billion, down 2 percent year over year, and ended the first quarter with an estimated services backlog, including Strategic Outsourcing, Business Transformation Outsourcing, Global Business Services, Integrated Technology Services and Maintenance, of $115 billion.

Revenues from the Systems and Technology (S&T) segment totaled $4.5 billion for the quarter, up 2 percent (flat, adjusting for currency). S&T revenues from System z server products increased 12 percent compared with the year-ago period. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), increased 9 percent. Revenues from the System p UNIX server products increased 14 percent compared with the 2006 period. Revenues from the System x servers increased 7 percent, and revenues from the System i servers decreased 13 percent. Revenues from Microelectronics decreased 7 percent and revenues from System Storage decreased 1 percent.

Revenues from the Software segment were $4.3 billion, an increase of 9 percent (5 percent, adjusting for currency) compared with the first quarter of 2006. Revenues from IBM's middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.2 billion, up 10 percent versus the first quarter of 2006. Operating systems revenues of $522 million were flat compared with the prior-year quarter. Revenues from other software and services increased, which includes the Product Lifecycle Management portfolio of products.

For the WebSphere family of software products, which facilitate customers' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, revenues increased 14 percent. Revenues for Information Management software, which enables clients to leverage information on demand, increased 20 percent. Revenues from Tivoli software, infrastructure software that enables customers to centrally manage networks including security and storage capability, increased 18 percent, and revenues for Lotus software, which allows collaborating and messaging by customers in real-time communication and knowledge management, increased 7 percent year over year. Revenues from Rational software, integrated tools to improve the processes of software development, increased 15 percent compared with the year-ago quarter.

Global Financing segment revenues increased 6 percent (3 percent, adjusting for currency) in the first quarter to $614 million.

The company's total gross profit margin was 40.2 percent in the 2007 first quarter compared with 39.1 percent in the 2006 period -- the 11th consecutive quarter of year-to-year increase.

Total expense and other income increased 11 percent to $6.3 billion compared with the prior-year period. SG&A expense increased 11 percent to $5.1 billion. RD&E expense increased 4 percent compared with the year-ago period. Intellectual property and custom development income decreased to $205 million compared with $229 million a year ago. Other (income) and expense contributed income of $180 million in the first quarter of 2007 versus income of $246 million in the first quarter of 2006.

IBM's effective tax rate in the first-quarter 2007 was 28.5 percent compared with 30.0 percent in the first quarter of 2006.

Shares repurchased totaled approximately $3.5 billion in the first quarter. The weighted-average number of diluted common shares outstanding in the first-quarter 2007 was 1.52 billion compared with 1.59 billion shares in the same period of 2006. As of March 31, 2007, there were 1.48 billion basic common shares outstanding.

Debt, including Global Financing, totaled $23.9 billion, compared with $22.7 billion at year-end 2006. From a management segment view, the non-global financing debt-to-capitalization ratio was 2.8 percent at the end of March 31, 2007, and Global Financing debt increased $1.0 billion from year-end 2006 to a total of $23.2 billion, resulting in a debt-to-equity ratio of 6.9 to 1.

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, including the company's failure to continue to develop and market new and innovative products and services and to keep pace with technological change; competitive pressures; failure to obtain or protect intellectual property rights; quarterly fluctuations in revenues and volatility of stock prices; the company's ability to attract and retain key personnel; adverse affects from tax matters; currency fluctuations and customer financing risks; customer credit risk on trade receivables; the company's failure to maintain the adequacy of its internal controls; the company's use of certain estimates and assumptions; dependence on certain suppliers; changes in the financial or business condition of the company's distributors or resellers; the company's ability to successfully manage acquisitions and alliances; failure to have sufficient insurance; legal, political, health and economic conditions; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company's Form 10-Q, Form 10-K and in the company's other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. The company assumes no obligation to update or revise any forward- looking statements.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

IBM Results --

The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the first-quarter earnings materials. These materials are available on the IBM investor relations Web site at and are being included in Attachment II ("Non- GAAP Supplementary Materials") to the Form 8-K that includes this press release and is being submitted today to the SEC.

Conference Call and Webcast

IBM's regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EDT, today. Investors may participate by viewing the Webcast at Presentation charts will be available on the Web site prior to the Webcast.

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