2nd Quarter Results

International Bus Mach Corp (IRS)
18 July 2001

( BW)(NY-IBM)(IBM) IBM Announces Second-quarter 2001 Results -

2Q01 EPS increased 8%



    Business Editors/High Tech Writers



   ARMONK, N.Y.--(BUSINESS WIRE)--July 18, 2001--IBM today announced

second-quarter 2001 diluted earnings per common share of $1.15, an 8

percent increase compared with diluted earnings per common share of

$1.06 in the second quarter of 2000. Second-quarter 2001 net income

was $2.0 billion, a 5 percent increase from $1.9 billion in the

year-earlier period. IBM's second-quarter 2001 revenues totaled $21.6

billion, flat (up 5 percent at constant currency) compared with the

second quarter of 2000.

   Louis V. Gerstner, Jr., IBM chairman and chief executive officer,

said: 'In light of the extremely difficult industry conditions, as

well as the dismal results posted by many IT companies, we're very

pleased with our second-quarter results. While others stumbled, we

grew revenue, recorded record operational profits and, most

importantly, increased our market share in almost every one of our

strategic business categories.

   'Our services business continued its explosive growth, increasing

its revenue by 15 percent, excluding maintenance, and signing $16

billion of new business. We increased share in the server segment for

the third quarter in a row. Key software products like WebSphere and

our leading database product, DB2, also outgrew their competitors and

our Microelectronics Division continued its success in winning new

design contracts with important OEM customers around the world.

Finally, we generated an additional billion dollars in cash flow year

over year and our debt decreased by approximately $2 billion from last

year.

   'We also were not immune from some of the problems that affected

many of our competitors in the second quarter. We saw ongoing weakness

in PCs and hard disk drives and we continued to be hurt by the

negative effects of currency translations. We expect that these

factors will continue to work against us in the second half of this

year. Additionally, we are now seeing signs of slowing in our

Microelectronics business as our OEM customers reduce purchases.

   'Beyond these near-term issues,' Mr. Gerstner said, 'it is

important to understand that IBM's market share gains result from the

strategic decisions we made years ago and from our technological

leadership in both hardware and software. Some pundits in the industry

seem to think that the piece-part makers who fared so well during the

dot-com mania will return to leadership simply because the economy

will turn around. Nothing could be further from the truth. The

short-term, cyclical problems of the industry are totally unrelated to

the fundamental shift in customer buying behavior that foretells an

industry driven by services, built on an infrastructure dominated by

powerful, secure servers, with application integration provided by

middleware software. We believe we are uniquely positioned to lead in

this new environment, regardless of economic conditions.'

   In the Americas, second-quarter revenues were $9.6 billion, a

decrease of 1 percent (flat at constant currency) from the 2000

period. Revenues from Europe/Middle East/Africa were $5.8 billion,

down 1 percent (up 7 percent at constant currency). Asia-Pacific

revenues declined 2 percent (up 10 percent at constant currency) to

$4.3 billion. OEM revenues increased 11 percent (12 percent at

constant currency) to $1.9 billion compared with the second quarter of

2000.

   Revenues from IBM Global Services, including maintenance, grew 7

percent (13 percent at constant currency) in the second quarter to

$8.7 billion. Global Services revenues, excluding maintenance,

increased 9 percent (15 percent at constant currency). Revenues from

e-business services increased nearly 30 percent. IBM signed $16

billion in services contracts and concluded the quarter with a total

services contract backlog of approximately $95 billion.

   Hardware revenues decreased 5 percent (1 percent at constant

currency) to $8.7 billion from the second quarter of 2000. Revenues

for zSeries mainframes grew strongly, and mainframe computing

shipments grew in excess of 40 percent, as measured in MIPS (millions

of instructions per second). Revenues for the pSeries Unix servers and

iSeries mid-market servers declined in as-reported terms but grew in

constant currency; revenues increased strongly for high-end enterprise

pSeries models while iSeries revenues were up substantially in Europe.

Personal computer revenues declined, reflecting industry weakness in

this area. Storage revenues increased significantly, led by more than

50 percent growth in Shark. Hard disk drive revenues declined due to

price pressures and weakness in the PC industry. Microelectronics

revenues increased year over year.

   Software revenues decreased 5 percent (flat at constant currency)

to $3.0 billion compared to the second quarter of 2000. IBM's key

distributed middleware products, WebSphere and DB2, grew strongly,

while Tivoli revenues declined as a result of continuing transitions

in this unit's product line. Tivoli's decline adversely affected IBM

software revenues by approximately five points of growth. IBM signed

13 new alliances with independent software vendors during the quarter;

these ISVs have committed to lead with IBM services, servers and

middleware in helping customers build applications.

   Global Financing revenues increased 3 percent (7 percent at

constant currency) in the second quarter to $845 million.

   Revenues from the Enterprise Investments/Other area, which

includes custom hardware and software products for specialized

customer uses, declined 7 percent (flat at constant currency) year

over year to $293 million. These results are consistent with IBM's

strategy to increasingly work with third-party companies in the

development and distribution of these products.

   The company's total gross profit margin improved to 37.3 percent

in the 2001 second quarter from 36.3 percent in the 2000 second

quarter.

   Second-quarter expenses were $5.1 billion. The total

expense-to-revenue ratio was 23.8 percent compared with 23.5 percent

in the year-earlier period. Operating expense and interest

expense-to-revenue improved, while other income declined due to

writedowns of certain equity investments. The company also continued

to reduce its expenses through increased use of e-procurement, on-line

learning and other actions related to IBM's ongoing e-business

transformation.

   IBM's tax rate in the second quarter was 29.5 percent compared

with 30.0 percent in the second quarter of last year.

   IBM spent approximately $1.2 billion on share repurchases in the

second quarter. The average number of basic common shares outstanding

in the quarter was 1.74 billion compared with 1.77 billion shares in

the same period of 2000. There were 1.74 billion basic common shares

outstanding at June 30, 2001.

   The company's debt in support of operations, excluding global

financing, increased $134 million from year-end 2000 to $1.2 billion,

resulting in a debt-to-capitalization ratio of 6 percent at the end of

the second quarter 2001. Global Financing debt declined $1.4 billion

from year-end 2000 to a total of $26.1 billion, resulting in a

debt-to-equity ratio of 6.7 to 1.

   Net income for the six months ended June 30, 2001 was $3.8

billion, or $2.13 per diluted common share, compared with net income

of $3.5 billion, or $1.89 per diluted common share, in the

year-earlier period. Revenues for the six months ended June 30, 2001

were $42.6 billion, an increase of 4 percent (9 percent at constant

currency) compared with $41.0 billion for the first six months of

2000.



    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.



   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
                     2001  2000(a) Change     2001    2000(a) Change

                  -------  ------- -------  -------  ------- -------

REVENUE



 Global Services   $8,742   $8,184     6.8% $17,213  $15,736     9.4%

  Gross margin       27.6%    27.1%            26.6%    26.5%



 Hardware           8,652    9,151    -5.5%  17,199   16,863     2.0%

  Gross margin       29.9%    27.3%            30.1%    27.4%



 Software           3,036    3,182    -4.6%   5,954    6,109    -2.5%

  Gross margin       82.4%    82.5%            81.3%    81.3%



 Global Financing     845      819     3.1%   1,677    1,635     2.6%

  Gross margin       48.2%    45.2%            47.7%    44.3%



 Enterprise Investments/

 Other                293      315    -7.0%     569      656   -13.4%

  Gross margin       43.3%    47.9%            46.3%    47.7%





TOTAL REVENUE      21,568   21,651    -0.4%  42,612   40,999     3.9%





GROSS PROFIT        8,038    7,863     2.2%  15,646   14,797     5.7%

  Gross margin       37.3%    36.3%            36.7%    36.1%





EXPENSE



 S,G&A              3,765    3,867    -2.6%   7,573    7,573     0.0%

  % of revenue       17.5%    17.9%            17.8%    18.5%



 R,D&E              1,279    1,269     0.8%   2,482    2,441     1.7%

  % of revenue        5.9%     5.9%             5.8%     6.0%



 Other income          34     (130) -125.9%      70     (319) -121.9%

 Interest expense      58       84   -30.4%     130      159   -18.3%



TOTAL EXPENSE       5,136    5,090     0.9%  10,255    9,854     4.1%

  % of revenue       23.8%    23.5%            24.1%    24.0%



INCOME BEFORE

INCOME TAXES        2,902    2,773     4.7%   5,391    4,943     9.1%

  Pre-tax margin     13.5%    12.8%            12.7%    12.1%



Provision for

income taxes          857      832     3.0%   1,596    1,483     7.6%

  Effective tax

  rate               29.5%    30.0%            29.6%    30.0%





NET INCOME         $2,045   $1,941     5.4%  $3,795   $3,460     9.7%

  Net margin          9.5%     9.0%             8.9%     8.4%





Preferred stock

dividends               5        5               10       10



NET INCOME

APPLICABLE TO COMMON

SHAREHOLDERS       $2,040   $1,936     5.4%  $3,785   $3,450     9.7%

                   ======   ======           ======   ======



EARNINGS PER

SHARE OF COMMON

STOCK - ASSUMING

DILUTION            $1.15    $1.06     8.4%   $2.13    $1.89    12.7%

                   ======   ======           ======   ======



EARNINGS PER

SHARE OF COMMON

STOCK - BASIC       $1.17    $1.10     6.4%   $2.18    $1.95    11.8%

                   ======   ======           ======   ======



AVERAGE NUMBER OF

COMMON SHARES OUT-

STANDING (M's)

  DILUTED         1,777.7  1,818.0          1,779.5  1,824.0

  BASIC           1,738.2  1,767.6          1,739.6  1,772.4



(a) Reclassified to conform with 2001 presentation.



           INTERNATIONAL BUSINESS MACHINES CORPORATION

          CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                         (Unaudited)





                                        At           At

(Dollars in millions)              June 30, December 31,  Percent
                                      2001         2000    Change

                                  --------  -----------   -------

ASSETS



 Cash, cash equivalents,

 and marketable securities          $3,780       $3,722      1.6%



 Receivables - net, inventories,

 and prepaid expenses               36,794       40,158     -8.4%



 Plant, rental machines,

 and other property - net           16,611       16,714     -0.6%



 Investments and other assets       26,755       27,755     -3.6%

                                  --------     --------



TOTAL ASSETS                       $83,940      $88,349     -5.0%

                                  ========     ========





LIABILITIES AND STOCKHOLDERS' EQUITY



 Short-term debt                    $8,536      $10,205    -16.4%

 Long-term debt                     18,770       18,371      2.2%

                                  --------     --------

 Total debt                         27,306       28,576     -4.4%



 Accounts payable, taxes,

 and accruals                       21,413       26,201    -18.3%



 Other liabilities                  12,630       12,948     -2.5%

                                  --------     --------

TOTAL LIABILITIES                   61,349       67,725     -9.4%



STOCKHOLDERS' EQUITY                22,591       20,624      9.5%

                                  --------     --------

TOTAL LIABILITIES AND

STOCKHOLDERS' EQUITY               $83,940      $88,349     -5.0%

                                  ========     ========



                 INTERNATIONAL BUSINESS MACHINES CORPORATION

                               SEGMENT DATA

                                (Unaudited)



                                      SECOND QUARTER 2001

                       ---------------------------------------------

                                                              Pre-tax

(Dollars in millions)   ------- Revenue ----------  Pre-tax    Income

                        External Internal     Total  Income    Margin

                        -------- --------   ------- -------   -------

SEGMENTS



Global Services          $8,742     $650    $9,392  $1,307      13.9%

          % change          6.8%     8.3%      6.9%   22.3%



Technology                2,120      618     2,738      46       1.7%

          % change          4.8%   -12.8%      0.2%  -77.6%



Personal and Printing

Systems                   3,067       14     3,081      (8)     -0.3%

          % change        -17.8%    16.7%    -17.6% -300.0%



Enterprise Systems        3,477      205     3,682     526      14.3%

          % change          2.5%    19.2%      3.3%   30.8%



Software                  3,036      236     3,272     711      21.7%

          % change         -4.6%    12.9%     -3.5%   -3.4%



Global Financing            838      217     1,055     291      27.6%

          % change          1.1%   -17.8%     -3.5%   -4.9%



Enterprise Investments      287        0       287     (27)     -9.4%

          % change        -10.6%  -100.0%    -10.9%   75.9%



TOTAL SEGMENTS           21,567    1,940    23,507   2,846      12.1%

          % change         -0.4%    -1.4%     -0.5%    9.3%



Eliminations / Other          1   (1,940)   (1,939)     56



TOTAL IBM               $21,568       $0   $21,568  $2,902      13.5%

          % change         -0.4%              -0.4%    4.7%





                                      SECOND QUARTER 2000(a)

                       ---------------------------------------------

                                                              Pre-tax

(Dollars in millions)   ------- Revenue ----------  Pre-tax    Income

                        External Internal     Total  Income    Margin

                        -------- --------   ------- -------   -------

SEGMENTS



Global Services          $8,184     $600    $8,784  $1,069      12.2%



Technology                2,023      709     2,732     205       7.5%



Personal and Printing

Systems                   3,729       12     3,741      (2)     -0.1%



Enterprise Systems        3,392      172     3,564     402      11.3%



Software                  3,182      209     3,391     736      21.7%



Global Financing            829      264     1,093     306      28.0%



Enterprise Investments      321        1       322    (112)    -34.8%



TOTAL SEGMENTS           21,660    1,967    23,627   2,604      11.0%



Eliminations / Other         (9)  (1,967)   (1,976)    169



TOTAL IBM               $21,651       $0   $21,651  $2,773      12.8%



(a) Reclassified to conform with 2001 presentation.





                 INTERNATIONAL BUSINESS MACHINES CORPORATION

                                SEGMENT DATA

                                 (Unaudited)



                                        SIX MONTHS 2001

                       ---------------------------------------------

                                                              Pre-tax

(Dollars in millions)   ------- Revenue ----------  Pre-tax    Income

                        External Internal     Total  Income    Margin

                        -------- --------   ------- -------   -------

SEGMENTS



Global Services         $17,213   $1,239   $18,452  $2,375      12.9%

          % change          9.4%     3.7%      9.0%   14.9%



Technology                4,437    1,167     5,604     177       3.2%

          % change         24.1%   -22.2%     10.4%  -14.5%



Personal and Printing

Systems                   6,243       32     6,275     (66)     -1.1%

          % change         -8.8%    45.5%     -8.7%   28.3%



Enterprise Systems        6,613      372     6,985     917      13.1%

          % change          4.4%    10.4%      4.7%   18.9%



Software                  5,954      450     6,404   1,297      20.3%

          % change         -2.5%    17.2%     -1.4%   -1.5%



Global Financing          1,672      443     2,115     564      26.7%

          % change          0.9%    -5.7%     -0.6%   -5.1%



Enterprise Investments      540        1       541    (167)    -30.9%

          % change        -18.4%   -50.0%    -18.5%   -7.7%



TOTAL SEGMENTS           42,672    3,704    46,376   5,097      11.0%

          % change          4.3%    -5.3%      3.4%    8.2%



Eliminations / Other        (60)  (3,704)   (3,764)    294



TOTAL IBM               $42,612       $0   $42,612  $5,391      12.7%

          % change          3.9%               3.9%    9.1%





                                        SIX MONTHS 2000(a)

                       ---------------------------------------------

                                                              Pre-tax

(Dollars in millions)   ------- Revenue ----------  Pre-tax    Income

                        External Internal     Total  Income    Margin

                        -------- --------   ------- -------   -------

SEGMENTS



Global Services         $15,736   $1,195   $16,931  $2,067      12.2%



Technology                3,576    1,500     5,076     207       4.1%



Personal and Printing

Systems                   6,849       22     6,871     (92)     -1.3%



Enterprise Systems        6,336      337     6,673     771      11.6%



Software                  6,109      384     6,493   1,317      20.3%



Global Financing          1,657      470     2,127     594      27.9%



Enterprise Investments      662        2       664    (155)    -23.3%



TOTAL SEGMENTS           40,925    3,910    44,835   4,709      10.5%



Eliminations / Other         74   (3,910)   (3,836)    234



TOTAL IBM               $40,999       $0   $40,999  $4,943      12.1%



(a) Reclassified to conform with 2001 presentation.



    CONTACT: IBM

             Rob Wilson, 914/499-6565

             [e-mail]

             or

             Carol Makovich, 914/499-6212

             [e-mail]