IBM Reports 2007 Third-Quarter Results





    --  Diluted earnings of $1.68 per share, up 16 percent as reported;

    --  Total revenues of $24.1 billion, up 7 percent;

    --  Global Business Services revenues up 16 percent; pre-tax income up 29
percent;

    --  Global Technology Services revenues up 13 percent; pre-tax income up
26 percent;

    --  Highest overall Global Services revenue growth in four years.

    ARMONK, N.Y., October 16 /CNW/ - IBM (NYSE:   IBM) today announced
third-quarter 2007 diluted earnings of $1.68 per share from continuing
operations compared with diluted earnings of $1.45 per share in the third
quarter of 2006, an increase of 16 percent as reported. Third- quarter income
from continuing operations was $2.4 billion compared with $2.2 billion in the
third quarter of 2006, an increase of 6 percent. Total revenues for the third
quarter of 2007 of $24.1 billion increased 7 percent (3 percent, adjusting for
currency) from the third quarter of 2006.

    "Our outstanding services results this quarter enabled us to stay on
track toward our objective of accelerated earnings per share growth through
2010, while we work through a transition in our hardware business," said
Samuel J. Palmisano, IBM chairman, president and chief executive officer. "Our
year-to-date performance underscores the strength of major elements of our
long-term roadmap, including revenue growth, margin expansion, and continued
success in emerging market countries and in the integration of our
acquisitions."

    From a geographic perspective, the Americas' third-quarter revenues were
$10.2 billion, an increase of 4 percent as reported (3 percent, adjusting for
currency) from the 2006 period. Revenues from Europe/Middle East/Africa were
$8.1 billion, up 11 percent (4 percent, adjusting for currency). Asia-Pacific
revenues increased 9 percent (6 percent, adjusting for currency) to $4.9
billion. OEM revenues were $890 million, down 12 percent compared with the
2006 third quarter.

    Total Global Services revenues grew 14 percent (10 percent, adjusting for
currency) -- the highest growth since third quarter of 2003 -- with strong
performance in all geographic regions and business sectors. Global Business
Services segment revenues, marked by significant growth in core consulting and
application management services, increased 16 percent (12 percent, adjusting
for currency) to $4.6 billion. Global Technology Services segment revenues
increased 13 percent (9 percent, adjusting for currency) to $9.1 billion,
benefiting from sales of new business to existing clients. IBM signed services
contracts totaling $11.8 billion, up 12 percent year over year, and ended the
third quarter with an estimated services backlog, including Strategic
Outsourcing, Business Transformation Outsourcing, Integrated Technology
Services, Global Business Services and Maintenance, of $116 billion, an
increase of $7 billion year to year.

    Revenues from the Systems and Technology segment totaled $4.9 billion for
the quarter, down 10 percent (13 percent, adjusting for currency). Revenues
decreased 6 percent excluding the year-to-year impact of the Printing System
Division divestiture in June 2007. Systems and Technology revenues from the
System p UNIX server products increased 6 percent compared with the 2006
period and revenues from the System x servers increased 6 percent. Faced with
a difficult comparison, revenues from System z server products decreased 31
percent versus the year-ago period. Total delivery of System z computing
power, which is measured in MIPS (millions of instructions per second),
decreased 21 percent. Revenues from the System i servers decreased 21 percent.
Revenues from System Storage increased 1 percent and revenues from
Microelectronics decreased 15 percent.

    Revenues from the Software segment were $4.7 billion, an increase of 7
percent (3 percent, adjusting for currency) compared with the third quarter of
2006. Revenues from IBM's middleware products, which primarily include
WebSphere, Information Management, Tivoli, Lotus and Rational products, were
$3.6 billion, up 6 percent versus the third quarter of 2006. Operating systems
revenues of $564 million increased 2 percent compared with the prior-year
quarter.

    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 10 percent. Revenues for Information Management software, which
enables clients to leverage information on demand, increased 9 percent.
Revenues from Tivoli software, infrastructure software that enables clients to
centrally manage networks including security and storage capability, increased
5 percent, and revenues for Lotus software, which allows collaborating and
messaging by clients in real-time communication and knowledge management,
increased 9 percent year over year. Revenues from Rational software,
integrated tools to improve the processes of software development, increased 3
percent compared with the year-ago quarter.

    Global Financing segment revenues increased 6 percent (2 percent,
adjusting for currency) in the third quarter to $623 million.

    The company's total gross profit margin was 41.3 percent in the 2007
third quarter compared with 42.0 percent in the 2006 period.

    Total expense and other income increased 6 percent to $6.7 billion
compared to $6.3 billion in the prior-year period. SG&A expense increased 4
percent to $5.3 billion. RD&E expense decreased 1 percent to $1.5 billion
compared with the year-ago period. Intellectual property and custom
development income increased to $270 million compared with $242 million a year
ago. Other (income) and expense contributed income of $95 million in the third
quarter of 2007 versus income of $174 million in the third quarter of 2006.
Interest expense increased to $193 million compared with $70 million in the
prior-year period, primarily due to the increase in debt to finance the
company's accelerated share repurchase agreements executed in the prior
quarter.

    IBM's effective tax rate in the third-quarter 2007 was 28.0 percent
compared with 30.0 percent in the third quarter of 2006.

    The weighted-average number of diluted common shares outstanding in the
third-quarter 2007 was 1.41 billion compared with 1.53 billion shares in the
same period of 2006. As of September 30, 2007, there were 1.38 billion basic
common shares outstanding.

    Debt, including Global Financing, totaled $35.3 billion, compared with
$22.7 billion at year-end 2006. From a management segment view, Global
Financing debt increased $1.5 billion from year-end 2006 to a total of $23.8
billion, resulting in a debt-to-equity ratio of 6.8 to 1. The non-global
financing debt-to-capitalization ratio was 40.3 percent at the end of
September 30, 2007 compared with 46.7 percent at the end of the second
quarter, which reflects increased financial leverage associated with the
accelerated share repurchase agreements. The cash balance was $13.8 billion at
the end of the third quarter.

    Year-To-Date 2007 Results

    Income from continuing operations for the nine months ended September 30,
2007 was $6.5 billion compared with $6.0 billion in the year-ago period.
Diluted earnings per share from continuing operations were $4.42 compared with
$3.81 per diluted share for the 2006 period. Revenues from continuing
operations for the nine-month period totaled $69.9 billion, an increase of 7
percent (4 percent, adjusting for currency) compared with $65.2 billion for
the nine months of 2006.

    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;
fluctuations in revenues and purchases, and volatility of stock prices; the
company's ability to attract and retain key personnel; adverse affects from
tax matters; environmental matters; currency fluctuations and customer
financing risks; customer credit risk on trade receivables; risks from
investing in growth opportunities; 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 -

    --  adjusting for revenues from the Printing System Division divestiture;

    --  adjusting for currency (i.e., at constant currency).

    The rationale for management's use of non-GAAP measures is included as
part of the supplementary materials presented within the third-quarter
earnings materials. These materials are available on the IBM investor
relations Web site at www.ibm.com/investor 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
www.ibm.com/investor/3q07. Presentation charts will be available on the Web
site prior to the Webcast.

    Financial Results Attached (certain amounts may not add due to use of
rounded numbers; percentages presented are calculated from the underlying
whole-dollar amounts).

    
                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                       COMPARATIVE FINANCIAL RESULTS
          (Unaudited; Dollars in millions except per share amounts)

                            Three Months               Nine Months
                         Ended September 30,       Ended September 30,
                                         Percent                   Percent
                          2007     2006  Change     2007     2006  Change
                        ------   ------ -------  -------  ------- -------
    REVENUE


     Global Technology
     Services           $9,093   $8,058    12.8% $26,106  $23,732    10.0%
      Gross margin        30.6%    30.2%            29.9%    29.7%

     Global Business
     Services            4,586    3,959    15.9%  13,108   11,746    11.6%
      Gross margin        22.9%    22.8%            23.7%    22.6%

     Systems and
     Technology          4,898    5,466   -10.4%  14,520   14,900    -2.5%
      Gross margin        38.5%    38.2%            36.9%    35.8%

     Software            4,694    4,406     6.5%  13,723   12,554     9.3%
      Gross margin        84.2%    85.3%            84.3%    84.6%

     Global Financing      623      587     6.1%   1,834    1,744     5.1%
      Gross margin        44.6%    48.6%            47.2%    50.8%

     Other                 225      141    59.3%     630      491    28.4%
      Gross margin         2.7%    13.6%            11.2%     9.4%

    TOTAL REVENUE       24,119   22,617     6.6%  69,920   65,166     7.3%


    GROSS PROFIT         9,956    9,492     4.9%  28,760   26,594     8.1%
      Gross margin        41.3%    42.0%            41.1%    40.8%


    EXPENSE AND OTHER INCOME

     S,G&A               5,324    5,121     4.0%  16,044   14,639     9.6%
      % of revenue        22.1%    22.6%            22.9%    22.5%

     R,D&E               1,524    1,543    -1.2%   4,568    4,520     1.1%
      % of revenue         6.3%     6.8%             6.5%     6.9%

     Intellectual property
      and custom development
      income              (270)    (242)   11.7%    (721)    (659)    9.4%
     Other (income)
       and expense         (95)    (174)  -45.2%    (528)    (616)  -14.3%
     Interest expense      193       70   177.9%     396      207    91.1%

    TOTAL EXPENSE AND
    OTHER INCOME         6,676    6,317     5.7%  19,759   18,091     9.2%
      % of revenue        27.7%    27.9%            28.3%    27.8%

    INCOME FROM CONTINUING
    OPERATIONS BEFORE
    INCOME TAXES         3,280    3,174     3.3%   9,001    8,503     5.9%
      Pre-tax margin      13.6%    14.0%            12.9%    13.0%

    Provision for
    income taxes           918      952    -3.6%   2,534    2,551    -0.7%
      Effective tax
      rate                28.0%    30.0%            28.2%    30.0%

    INCOME FROM CONTINUING
    OPERATIONS          $2,362   $2,222     6.3%  $6,467   $5,952     8.7%
      Net margin           9.8%     9.8%             9.2%     9.1%

    DISCONTINUED OPERATIONS
    Loss from discontinued
    operations              (1)      (0)              (1)      (0)
     NET INCOME         $2,361   $2,222     6.3%  $6,466   $5,952     8.6%
                        ------   ------           ------   ------


    EARNINGS/(LOSS)PER SHARE
    OF COMMON STOCK:

     ASSUMING DILUTION
      CONTINUING
       OPERATIONS        $1.68    $1.45    15.9%   $4.42    $3.81    16.0%
      DISCONTINUED
       OPERATIONS        (0.00)   (0.00)           (0.00)   (0.00)
                        ------   ------           ------   ------
      TOTAL              $1.68    $1.45    15.9%   $4.42    $3.81    16.0%
                        ------   ------           ------   ------
     BASIC
      CONTINUING
       OPERATIONS        $1.72    $1.47    17.0%   $4.50    $3.87    16.3%
      DISCONTINUED
       OPERATIONS        (0.00)   (0.00)           (0.00)   (0.00)
                        ------   ------           ------   ------
      TOTAL              $1.72    $1.47    17.0%   $4.50    $3.87    16.3%
                        ------   ------           ------   ------

    WEIGHTED-AVERAGE NUMBER
    OF COMMON SHARES
    OUTSTANDING (M's)
     ASSUMING DILUTION 1,405.8  1,534.3          1,463.1  1,560.5
     BASIC             1,371.4  1,513.2          1,436.0  1,538.6


                   INTERNATIONAL BUSINESS MACHINES CORPORATION
                  CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                  (Unaudited)

                                             At           At
    (Dollars in millions)          September 30, December 31,  Percent
                                           2007         2006    Change
                                    -----------  -----------   -------
    ASSETS

     Cash, cash equivalents,
     and marketable securities          $13,822      $10,657     29.7%

     Receivables - net, inventories,
     prepaid expenses                    32,766       34,003     -3.6%

     Plant, rental machines,
     and other property - net            14,836       14,440      2.7%

     Investments and other assets        47,184       44,134      6.9%
                                       --------     --------

    TOTAL ASSETS                       $108,609     $103,234      5.2%
                                       --------     --------


    LIABILITIES AND STOCKHOLDERS' EQUITY

     Short-term debt                    $16,546       $8,902     85.9%
     Long-term debt                      18,775       13,780     36.2%
                                       --------     --------
     Total debt                          35,322       22,682     55.7%

     Accounts payable, taxes,
     and accruals                        28,464       31,189     -8.7%

     Other liabilities                   24,277       20,857     16.4%
                                       --------     --------
    TOTAL LIABILITIES                    88,063       74,728     17.8%

    STOCKHOLDERS' EQUITY                 20,546       28,506    -27.9%
                                       --------     --------
    TOTAL LIABILITIES AND
    STOCKHOLDERS' EQUITY               $108,609     $103,234      5.2%
                                       --------     --------


                     INTERNATIONAL BUSINESS MACHINES CORPORATION
                                   SEGMENT DATA
                                    (Unaudited)

                                        THIRD QUARTER 2007
                            ----------------------------------------------
                                                          Pre-tax
                                                           Income
                                                           (Loss)
                                                             From
    (Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                            External Internal    Total Operations   Margin
                            -------- --------  ------- ----------  -------
    SEGMENTS

    Global Technology
     Services                $9,093     $408    $9,501    $1,028     10.8%
      Y-T-Y Change             12.8%    -4.6%     12.0%     26.3%

    Global Business Services  4,586      276     4,862       521     10.7%
      Y-T-Y Change             15.9%   -18.0%     13.2%     28.6%

    Systems and Technology    4,898      236     5,134       361      7.0%
      Y-T-Y Change            -10.4%    -7.5%    -10.3%    -12.4%

    Software                  4,694      571     5,265     1,283     24.4%
      Y-T-Y Change              6.5%     2.0%      6.0%     -1.5%

    Global Financing            623      348       970       339     34.9%
      Y-T-Y Change              6.1%     3.2%      5.1%      1.1%

    TOTAL REPORTABLE
     SEGMENTS                23,894    1,838    25,732     3,532     13.7%
      Y-T-Y Change              6.3%    -4.1%      5.5%      8.1%

    Eliminations / Other        225   (1,838)   (1,613)     (252)

    TOTAL IBM CONSOLIDATED  $24,119       $0   $24,119    $3,280     13.6%
      Y-T-Y Change              6.6%               6.6%      3.3%


                                        THIRD QUARTER 2006
                            ----------------------------------------------
                                                          Pre-tax
                                                           Income
                                                           (Loss)
                                                             From
    (Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                            External Internal   Total  Operations   Margin
                            -------- --------  ------- ----------  -------
    SEGMENTS

    Global Technology
     Services                $8,058     $428    $8,486      $814      9.6%

    Global Business Services  3,959      337     4,295       405      9.4%

    Systems and Technology    5,466      255     5,721       413      7.2%

    Software                  4,406      559     4,965     1,302     26.2%

    Global Financing            587      337       924       335     36.2%

    TOTAL REPORTABLE
     SEGMENTS                22,476    1,916    24,391     3,268     13.4%

    Eliminations / Other        141   (1,916)   (1,774)      (94)

    TOTAL IBM CONSOLIDATED  $22,617       $0   $22,617    $3,174     14.0%


                  INTERNATIONAL BUSINESS MACHINES CORPORATION
                                 SEGMENT DATA
                                   (Unaudited)

                                          NINE MONTHS 2007
                            ----------------------------------------------
                                                          Pre-tax
                                                           Income
                                                           (Loss)
                                                             From
    (Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                            External Internal    Total Operations   Margin
                            -------- --------  ------- ----------  -------
    SEGMENTS

    Global Technology
     Services               $26,106   $1,243   $27,348    $2,497      9.1%
      Y-T-Y Change             10.0%    -6.5%      9.1%      2.1%

    Global Business Services 13,108      906    14,014     1,477     10.5%
      Y-T-Y Change             11.6%   -11.5%      9.7%     26.4%

    Systems and Technology   14,520      758    15,279       789      5.2%
      Y-T-Y Change             -2.5%    -6.0%     -2.7%     35.7%

    Software                 13,723    1,704    15,427     3,569     23.1%
      Y-T-Y Change              9.3%     5.4%      8.9%      2.6%

    Global Financing          1,834    1,037     2,871     1,045     36.4%
      Y-T-Y Change              5.1%    -0.2%      3.1%     -2.2%

    TOTAL REPORTABLE
     SEGMENTS                69,291    5,648    74,939     9,376     12.5%
      Y-T-Y Change              7.1%    -2.8%      6.3%      7.3%

    Eliminations / Other        630   (5,648)   (5,018)     (375)

    TOTAL IBM CONSOLIDATED  $69,920       $0   $69,920    $9,001     12.9%
      Y-T-Y Change              7.3%               7.3%      5.9%


                                          NINE MONTHS 2006
                            ----------------------------------------------
                                                          Pre-tax
                                                           Income
                                                           (Loss)
                                                             From
    (Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                            External Internal    Total Operations   Margin
                            -------- --------  ------- ----------  -------
    SEGMENTS

    Global Technology
     Services               $23,732   $1,328   $25,061    $2,445      9.8%

    Global Business
     Services                11,746    1,023    12,769     1,168      9.1%

    Systems and Technology   14,900      807    15,706       582      3.7%

    Software                 12,554    1,616    14,170     3,478     24.5%

    Global Financing          1,744    1,039     2,784     1,068     38.4%

    TOTAL REPORTABLE
     SEGMENTS                64,676    5,814    70,490     8,741     12.4%

    Eliminations / Other        491   (5,814)   (5,323)     (239)

    TOTAL IBM CONSOLIDATED  $65,166       $0   $65,166    $8,503     13.0%
    




For further information:

For further information: IBM Edward Barbini, 914/499-6565
barbini@us.ibm.com


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