Interim Results

IBM
                  

                IBM Reports 2005 Second-Quarter Results

    --  Total diluted earnings per common share of $1.14, including $.02 per
        diluted share of non-recurring charges and gains; without these
        non-recurring actions, IBM diluted earnings per share were $1.12.

    --  Total revenue of $22.3 billion, down 4 percent versus the second quarter
        of 2004, but up 6 percent without the impact of the divested PC
        business.

IBM today announced second-quarter 2005 diluted earnings per common share of
$1.14 from continuing operations, including a $.72 per share of incremental
charges related to workforce reductions, a $.45 per share gain on the sale of
its Personal Computing business, and $.29 per share of other income due to a
settlement agreement entered into with Microsoft. Without these non-recurring
items, diluted earnings per share were $1.12 compared with diluted earnings in
the second quarter of 2004 of $1.01 per share.

Second-quarter income from continuing operations was $1.85 billion, including
the non-recurring pretax items for incremental restructuring charges of $1.7
billion, offset by a $1.1 billion gain on the sale of the PC business, and a
$775 million settlement received from Microsoft. Without these non-recurring
items, income from continuing operations was $1.82 billion as compared to $1.74
billion in the second quarter of 2004. Total revenues for the second quarter of
2005 of $22.3 billion, which includes $557 million of PC revenue for April 2005,
decreased 4 percent (6 percent, adjusting for currency) from the second quarter
of 2004. Excluding the revenue from the divested PC business, second-quarter
revenues increased 6 percent (4 percent, adjusting for currency) compared with
the second quarter of 2004.

Samuel J. Palmisano, IBM chairman and chief executive officer, said: 'IBM made
several strategic and important transitions in the second quarter. We seamlessly
moved our PC business to Lenovo, implemented a streamlined management system in
Europe, and restructured important parts of the company for future growth. I am
proud of how the IBM team managed these transitions while, at the same time,
delivering a solid quarter.

'IBM returned to form in this quarter. In particular, strategic, high-growth
businesses -- in Business Performance Transformation Services, software and in
key industry sectors and emerging markets -- were among our best-performing
operations, achieving double-digit revenue growth. In addition, IBM Business
Consulting Services posted an outstanding quarter, with strong revenue growth
and a 30 percent increase in signings. This performance reinforces our
confidence in our business model, and in our mission to apply unique, high-value
skills and solutions to transform our clients' businesses.'

As previously announced, IBM completed an agreement on April 30, 2005 to sell
its PC business. As a result, the company's second-quarter 2005 results include
the operational performance of the PC business for the month of April 2005 only.
The segment results included in the press release reflect the new segment
structure under which the company will operate as of the second quarter of 2005.
PC results are identified on a standalone basis. In the second quarter of 2005,
external PC revenue was $557 million and the pretax loss was $149 million,
including a loss on intercompany sales and charges of $13 million.

Additional detail regarding the incremental restructuring charges, the gain on
the PC sale, the Microsoft settlement, and the PC operation performance in the
company's second-quarter results will be provided during IBM's regular quarterly
earnings conference call.

Second-quarter revenue growth of 6 percent (4 percent, adjusting for currency)
excluding the divested PC business was driven by growth across all geographies.
In the Americas, second-quarter revenues were $9.4 billion, down 3 percent as
reported (up 5 percent, adjusting for currency and PCs) from the 2004 period.
Revenues from Europe/Middle East/Africa were $7.5 billion, flat (up 4 percent,
adjusting for currency and PCs). Asia-Pacific revenues decreased 10 percent (up
2 percent, adjusting for currency and PCs) to $4.6 billion. OEM revenues were
$702 million, flat compared with the 2004 second quarter.

Without the PC business, revenues increased in all of IBM's five industry
sectors in the second-quarter 2005 led by double-digit growth in the Public and
Distribution sectors, as well as in sales to Small and Medium Businesses.

Revenues from Global Services, including maintenance, increased 6 percent (4
percent, adjusting for currency) to $12.0 billion in the second quarter. Global
Services revenues, excluding maintenance, increased 6 percent (4 percent,
adjusting for currency) as well. IBM signed services contracts totaling $14.6
billion and ended the quarter with an estimated services backlog, including
Strategic Outsourcing, Business Consulting Services, Integrated Technology
Services and Maintenance, of $113 billion.

IBM's revenues for Business Performance Transformation Services grew over 25
percent in the quarter (and are up over 30 percent year to date), and in
addition to the Global Services signings and backlog figures, there were
approximately $250 million of Engineering and Technology Services signings to
provide BPTS customers with design skill and technical capabilities.

Hardware revenues decreased 25 percent (27 percent, adjusting for currency) to
$5.6 billion in the second-quarter 2005 versus the year-ago period. Hardware
revenues excluding the divested PC business were $5.0 billion, an increase of 5
percent (4 percent, adjusting for currency).

Hardware revenues for the Systems and Technology Group, which was newly
realigned to include Retail Stores Solutions and Printing Systems, totaled $4.9
billion for the quarter, up 5 percent. Revenue growth from S&TG eServer products
was driven by pSeries UNIX servers, which increased 36 percent, and xSeries
servers and iSeries midrange servers, which increased 11 percent and 10 percent,
respectively. Revenues from the zSeries mainframe product decreased 24 percent
compared with the year-ago period. Total delivery of zSeries computing power,
which is measured in MIPS (millions of instructions per second), decreased 19
percent. In addition to eServers, revenues from Storage Systems increased 19
percent and Microelectronics decreased 5 percent.

Revenues from Software were $3.8 billion, an increase of 10 percent (7 percent,
adjusting for currency) compared with the second quarter of 2004. Revenues from
IBM's middleware brands, which include WebSphere, DB2, Tivoli, Lotus and
Rational products, were $3.0 billion, up 11 percent versus the second quarter of
2004. Operating systems revenues increased 3 percent to $592 million compared
with the prior-year quarter.

Revenues for the WebSphere family of software products, which facilitates
customers' ability to manage a wide variety of business processes using open
standards to interconnect applications, data and operating systems, increased 18
percent. Revenues for Information Management software increased 15 percent with
revenue growth of 14 percent in the DB2 database family of software offerings,
which enables clients to leverage information on demand. Revenues from Tivoli
software (infrastructure software that enables customers to centrally manage
networks and storage) increased 28 percent, and revenues for Lotus software,
which allows collaborating and messaging by customers in real-time communication
and knowledge management, increased 17 percent. Revenues from Rational software
(integrated development tools) increased 8 percent compared with the year-ago
quarter.

As a result, IBM expects to gain market share for the second quarter in the
collaborative software, systems management and security software, Web services
and data management categories.

Global Financing revenues declined 4 percent (7 percent, adjusting for currency)
in the second quarter to $622 million. Revenues from the Enterprise
Investments/Other area, which includes industry-specific IT solutions such as
product life-cycle management software, decreased 3 percent (5 percent,
adjusting for currency) to $286 million versus the prior-year second quarter.

The company's total gross profit margin was 39.4 percent in the 2005 second
quarter compared with 36.4 percent in the 2004 period. Excluding the PC
business, gross profit margin is 40.6 percent versus 39.7 percent in the
prior-year quarter.

The effect of the company's second-quarter actions is included in several
components of total expense and other income. Overall, 2005 second quarter's
total expense and other income increased 2 percent to $6.0 billion. SG&A expense
increased 35 percent to $6.5 billion primarily due to the incremental
restructuring charges of $1.5 billion. RD&E expense was $1.5 billion,
essentially the same as the year-ago period. Intellectual property and custom
development income decreased to $288 million compared with $432 million a year
ago. Other (income) and expense was $1.7 billion of income in the second quarter
of 2005, reflecting the $775 million benefit for the Microsoft settlement and
the $1.1 billion gain from the sale of the PC business offset by incremental
charges of $236 million relating to restructuring, versus $23 million of expense
in the same period last year.

IBM's effective tax rate, including the second-quarter actions, in the
second-quarter 2005 was 32.3 percent, compared with 30.1 percent in the second
quarter of 2004. The company's tax rate increased 2.2 points due to the effect
of the second-quarter non-recurring actions.

Share repurchases totaled approximately $1.6 billion in the second quarter. The
weighted-average number of diluted common shares outstanding in the
second-quarter 2005 was 1.63 billion compared with 1.71 billion shares in the
same period of 2004. As of June 30, 2005, there were 1.60 billion basic common
shares outstanding.

IBM ended the second quarter of 2005 with $8.7 billion of cash on hand. The
balance sheet remains strong, and the company is well positioned to take
advantage of opportunities.

Debt, including Global Financing, totaled $23.7 billion, compared with $22.9
billion at year-end 2004. From a management segment view, the non-global
financing debt-to-capitalization ratio was 9.5 percent at the end of June 30,
2005, and Global Financing debt declined $1.4 billion from year-end 2004 to a
total of $20.9 billion, resulting in a debt-to-equity ratio of 6.7 to 1.

Year-To-Date 2005 Results

Income from continuing operations for the six months ended June 30, 2005 was
$3.26 billion, including non-recurring pretax items for incremental
restructuring charges of $1.7 billion, offset by the $1.1 billion gain on the
sale of the PC business, and the $775 million settlement received from
Microsoft. Diluted earnings per share from continuing operations were $1.98
compared with $1.80 per diluted share for the 2004 period. Revenues from
continuing operations for the six- month period, which includes PC revenues of
$2.9 billion for the first four months of 2005 only, totaled $45.2 billion,
essentially flat (down 3 percent, adjusting for currency) compared with $45.3
billion for the six months of 2004. Without the revenues from the divested PC
business, revenues totaled $42.3 billion, up 5 percent (3 percent, adjusting for
currency) compared with the six-month period of 2004.

For total operations, net income for the first six months of 2005, including a
loss from discontinued operations of $27 million, was $3.23 billion, or $1.96
per diluted share, compared with the six months of 2004 net income of $3.10
billion, or $1.80 per diluted share, which included a loss from discontinued
operations of $3 million.

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 U.S. Securities and Exchange Commission (SEC).

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:

- non-recurring items

- IBM results without PC business

- adjusting for currency

The rationale for management's use of non-GAAP measures is included as part of
the supplementary materials presented within the second- quarter earnings
materials. These materials are available on the IBM investor relations Web site
at www.ibm.com/investor and will be included in a subsequent Form 8-K.

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/2q05. Presentation charts will be available on the Web site
prior to the Webcast.

Financial Results Attached



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

                            Three Months               Six Months
                           Ended June 30,            Ended June 30,
                                     Percent                   Percent
                       2005    2004*  Change     2005    2004*  Change
                    -------  ------- -------  -------  ------- -------
REVENUE

 Global Services    $11,985  $11,272     6.3% $23,681  $22,296    6.2%
  Gross margin         26.1%    24.4%            25.2%    24.1%

 Hardware             5,556    7,423   -25.2%  12,305   14,158  -13.1%
  Gross margin         33.9%    29.0%            30.4%    27.8%

 Software             3,821    3,458    10.5%   7,372    6,924    6.5%
  Gross margin         86.7%    86.2%            86.6%    86.1%

 Global Financing       622      651    -4.3%   1,202    1,313   -8.4%
  Gross margin         52.6%    59.4%            53.4%    59.9%

 Enterprise Investments/
 Other                  286      294    -2.5%     618      582    6.2%
  Gross margin         43.8%    46.4%            48.5%    43.0%


TOTAL REVENUE        22,270   23,098    -3.6%  45,178   45,273   -0.2%


GROSS PROFIT          8,775    8,406     4.4%  17,029   16,298    4.5%
  Gross margin         39.4%    36.4%            37.7%    36.0%


EXPENSE AND OTHER INCOME
 S,G&A                6,497    4,820    34.8%  11,430    9,478   20.6%
  % of revenue         29.2%    20.9%            25.3%    20.9%

 R,D&E                1,477    1,476     0.1%   2,936    2,892    1.5%
  % of revenue          6.6%     6.4%             6.5%     6.4%

 Intellectual property
  and custom development
  income               (288)    (432)  -33.5%    (507)    (612) -17.3%
 Other (income)
   and expense       (1,711)      23      nm   (1,689)      36      nm
 Interest expense        67       33   104.4%     116       68   71.3%

TOTAL EXPENSE AND
OTHER INCOME          6,042    5,920     2.0%  12,286   11,862    3.6%
  % of revenue         27.1%    25.6%            27.2%    26.2%

INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES          2,733    2,486     9.9%   4,743    4,436    6.9%
  Pre-tax margin       12.3%    10.8%            10.5%     9.8%

Provision for
income taxes            882      749    17.7%   1,485    1,335   11.2%
  Effective tax
  rate                 32.3%    30.1%            31.3%    30.1%

INCOME FROM CONTINUING
OPERATIONS           $1,851   $1,737     6.6%  $3,258   $3,101    5.1%
  Net margin            8.3%     7.5%             7.2%     6.8%

DISCONTINUED OPERATIONS
Loss from discontinued
operations               22        2               27        3

NET INCOME           $1,829   $1,735     5.4%  $3,231   $3,098    4.3%
                     ======   ======           ======   ======

EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:

 ASSUMING DILUTION
  CONTINUING
   OPERATIONS         $1.14    $1.01    12.9%   $1.98    $1.80   10.0%
  DISCONTINUED
   OPERATIONS         (0.01)   (0.00)           (0.02)   (0.00)
                     ------   ------           ------   ------
  TOTAL               $1.12**  $1.01    10.9%   $1.96    $1.80    8.9%
                     ======   ======           ======   ======
 BASIC
  CONTINUING
   OPERATIONS         $1.15    $1.03    11.7%   $2.02    $1.84    9.8%
  DISCONTINUED
   OPERATIONS         (0.01)   (0.00)           (0.02)   (0.00)
                     ------   ------           ------   ------
  TOTAL               $1.14    $1.03    10.7%   $2.00    $1.84    8.7%
                     ======   ======           ======   ======

WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's)
  ASSUMING DILUTION 1,627.9  1,711.3          1,644.2  1,719.4
  BASIC             1,603.9  1,679.6          1,616.3  1,685.6

nm - not meaningful

* Restated 2004 financial results to include the impact of share-based
compensation expense.

** Does not total due to rounding.

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

                                         At           At
(Dollars in millions)              June 30,  December 31,  Percent
                                       2005         2004*   Change
                                -----------  -----------   -------
ASSETS

 Cash, cash equivalents,
 and marketable securities           $8,659      $10,570    -18.1%

 Receivables - net, inventories,
 prepaid expenses                    31,851       36,573    -12.9%

 Plant, rental machines,
 and other property - net            14,212       15,175     -6.3%

 Investments and other assets        48,666       48,685      --
                                   --------     --------

TOTAL ASSETS                       $103,388     $111,003     -6.9%
                                   ========     ========


LIABILITIES AND STOCKHOLDERS' EQUITY

 Short-term debt                     $6,134       $8,099    -24.3%
 Long-term debt                      17,584       14,828     18.6%
                                   --------     --------
 Total debt                          23,718       22,927      3.5%

 Accounts payable, taxes,
 and accruals                        26,063       31,687    -17.7%

 Other liabilities                   23,482       24,701     -4.9%
                                   --------     --------
TOTAL LIABILITIES                    73,263       79,315     -7.6%

STOCKHOLDERS' EQUITY                 30,125       31,688     -4.9%
                                   --------     --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY               $103,388     $111,003     -6.9%
                                   ========     ========

* Restated 2004 financial position to include the impact of
share-based compensation expense.

                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                               SEGMENT DATA
                                (Unaudited)

                                       SECOND QUARTER 2005
                         ---------------------------------------------
                                                       Pre-tax
                                                        Income
                                                        (Loss)
                                                          From
(Dollars in millions)    --------- Revenue -------- Continuing Pre-tax
                         External Internal    Total Operations  Margin
                         -------- --------  ------- ---------- -------
SEGMENTS

Global Services          $11,985     $775   $12,760      ($93)   -0.7%
  % change                   6.3%     2.1%      6.1%   -110.1%

Systems and Technology
Group*                     4,855      254     5,109       290     5.7%
  % change                   4.6%   -10.9%      3.7%    -48.4%

Software                   3,821      471     4,292       953    22.2%
  % change                  10.5%     3.1%      9.6%     11.9%

Global Financing             620      275       895       338    37.8%
  % change                  -4.9%    -3.8%     -4.6%     -0.3%

Enterprise Investments       261        3       264       (58)  -22.0%
  % change                  -3.0%    50.0%     -2.6%    -18.4%

Personal Computing
Division                     557        7       564      (149)  -26.4%
  % change                    nm       nm        nm        nm

TOTAL SEGMENTS            22,099    1,785    23,884     1,281     5.4%
  % change                  -3.8%    -1.9%     -3.7%    -51.0%

Eliminations / Other         171   (1,785)   (1,614)    1,452

TOTAL IBM                $22,270       $0   $22,270    $2,733    12.3%
  % change                  -3.6%              -3.6%      9.9%


                                       SECOND QUARTER 2004**
                         ---------------------------------------------
                                                       Pre-tax
                                                        Income
                                                        (Loss)
                                                          From
(Dollars in millions)    --------- Revenue -------- Continuing Pre-tax
                         External Internal    Total Operations  Margin
                         -------- --------  ------- ---------- -------
SEGMENTS

Global Services          $11,272     $759   $12,031      $921     7.7%

Systems and Technology
Group *                    4,640      285     4,925       562    11.4%

Software                   3,458      457     3,915       852    21.8%

Global Financing             652      286       938       339    36.1%

Enterprise Investments       269        2       271       (49)  -18.1%

Personal Computing
Division                   2,679       31     2,710       (10)   -0.4%

TOTAL SEGMENTS            22,970    1,820    24,790     2,615    10.5%

Eliminations / Other         128   (1,820)   (1,692)     (129)

TOTAL IBM                $23,098       $0   $23,098    $2,486    10.8%

nm - not meaningful

* Systems and Technology Group segment results have been reclassified
to conform with current reporting structure.

** Restated 2004 financial results to include the impact of
share-based compensation expense.

                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                                SEGMENT DATA
                                 (Unaudited)

                                         SIX MONTHS 2005
                         ---------------------------------------------
                                                       Pre-tax
                                                        Income
                                                        (Loss)
                                                          From
(Dollars in millions)    --------- Revenue -------- Continuing Pre-tax
                         External Internal    Total Operations  Margin
                         -------- --------  ------- ---------- -------
SEGMENTS

Global Services          $23,681   $1,520   $25,201      $723     2.9%
  % change                   6.2%    -0.1%      5.8%    -58.7%

Systems and Technology
Group*                     9,144      495     9,639       352     3.7%
  % change                   3.1%    -5.7%      2.7%    -48.8%

Software                   7,372      932     8,304     1,775    21.4%
  % change                   6.5%     8.6%      6.7%     10.6%

Global Financing           1,199      724     1,923       729    37.9%
  % change                  -9.0%    27.9%      2.1%      3.6%

Enterprise Investments       553        5       558       (92)  -16.5%
  % change                   1.7%    25.0%      1.8%     12.4%

Personal Computing
Division                   2,876       33     2,909      (165)   -5.7%
  % change                    nm       nm        nm        nm

TOTAL SEGMENTS            44,825    3,709    48,534     3,322     6.8%
  % change                  -0.4%     5.2%      0.0%    -27.7%

Eliminations / Other         353   (3,709)   (3,356)    1,421

TOTAL IBM                $45,178       $0   $45,178    $4,743    10.5%
  % change                  -0.2%              -0.2%      6.9%


                                         SIX MONTHS 2004**
                         ---------------------------------------------
                                                       Pre-tax
                                                        Income
                                                        (Loss)
                                                          From
(Dollars in millions)    --------- Revenue -------- Continuing Pre-tax
                         External Internal    Total Operations  Margin
                         -------- --------  ------- ---------- -------
SEGMENTS

Global Services          $22,296   $1,521   $23,817    $1,752     7.4%

Systems and Technology
Group*                     8,865      525     9,390       687     7.3%

Software                   6,924      858     7,782     1,605    20.6%

Global Financing           1,317      566     1,883       704    37.4%

Enterprise Investments       544        4       548      (105)  -19.2%

Personal Computing
Division                   5,056       50     5,106       (48)   -0.9%

TOTAL SEGMENTS            45,002    3,524    48,526     4,595     9.5%

Eliminations / Other         271   (3,524)   (3,253)     (159)

TOTAL IBM                $45,273       $0   $45,273    $4,436     9.8%

nm - not meaningful

* Systems and Technology Group segment results have been reclassified
to conform with current reporting structure.

** Restated 2004 financial results to include the impact of
share-based compensation expense.

    CONTACT: IBM
             Edward Barbini, 914-499-6565
             [e-mail]