GOVERNMENT

ARMONK, NY -- IBM today announced fourth-quarter 2001 diluted earnings per common share of $1.33, a 10 percent decrease compared with diluted earnings per common share of $1.48 in the fourth quarter of 2000. Fourth-quarter 2001 net income was $2.3 billion, a 13 percent decrease from $2.7 billion in the year-earlier period. IBM's fourth-quarter 2001 revenues totaled $22.8 billion, down 11 percent (8 percent at constant currency) compared with the fourth quarter of 2000. Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "This was a solid finish to a demanding year. We achieved strong profitability and we continued to gain market share in high- priority segments of our software, storage and server businesses. For example, our new 'Regatta' UNIX servers, which didn't begin shipping until late in the quarter, are sold out. On a full-year basis, our mainframe revenues grew for the first time since 1989. Our services business also had over $15 billion in new signings, although many of these signings also came very late in the quarter, reflecting the tough business environment. We also once again demonstrated exceptional management of our cost and expense structure, and we ended the year with very powerful free cash flow. "We had our share of challenges, too, but these were largely expected: slow PC sales and ongoing weakness in our OEM business. Our overall revenue decline came principally from these two units, and we've taken a number of actions to improve our long-term competitiveness in these areas. As we have demonstrated time after time, our diverse business portfolio allows us to overcome weakness in certain areas and still deliver strong results. "Business conditions remain difficult as we enter the new year, although we believe that our business will strengthen as we move through the year," Mr. Gerstner said. "Further, and most important, we have absolutely no doubt that customer buying patterns throughout the world are continuing to shift in IBM's favor. Customers increasingly are demanding fully integrated technology -- not the latest single- function offerings from the piece-part makers -- and that plays directly to IBM's strengths in e-business software, in powerful, secure servers, and in our unparalleled global services capabilities." In the Americas, fourth-quarter revenues were $9.8 billion, a decrease of 9 percent (8 percent at constant currency) from the 2000 period. Revenues from Europe/Middle East/Africa were $6.9 billion, down 6 percent (6 percent at constant currency). Asia-Pacific revenues declined 10 percent (1 percent at constant currency) to $4.5 billion. OEM revenues decreased 34 percent (33 percent at constant currency) to $1.6 billion compared with the fourth quarter of 2000. Revenues from Global Services, including maintenance, declined 1 percent (up 1 percent at constant currency) in the fourth quarter to $9.1 billion. Global Services revenues, excluding maintenance, declined 2 percent (up 1 percent at constant currency). New contract signings for Global Services in the fourth quarter were approximately $15 billion. IBM's total services backlog at year-end 2001 was $102 billion. Overall, the gross profit margin for Global Services improved 1.2 points year over year to 28.2 percent. Hardware revenues decreased 24 percent (21 percent at constant currency) to $8.7 billion from the 2000 fourth quarter. Revenues from z900 mainframe servers were essentially flat, reflecting a difficult year-over-year comparison. Mainframe computing capacity grew 12 percent in the fourth quarter as measured in MIPS (millions of instructions per second). Revenues from IBM's UNIX-based pSeries declined, in large part because of a transition to IBM's new "Regatta" family of UNIX servers, which began shipping on December 14. Personal computer and microelectronics revenues decreased substantially over the prior year's quarter, principally due to price pressures in PCs and an ongoing downturn affecting the worldwide semiconductor and OEM markets. Revenues from IBM's high-end storage product line -- Shark -- grew in a declining market. Software revenues increased 6 percent (8 percent at constant currency) to $3.8 billion compared to the prior year's fourth quarter. Overall, IBM's middleware software revenues grew 10 percent at constant currency. IBM's premier data management and WebSphere products grew 48 percent and 43 percent, respectively. Operating system revenues fell 2 percent. The company's total gross profit margin in software improved 1.8 points, to 85.2 percent. Global Financing revenues decreased 5 percent (4 percent at constant currency) in the fourth quarter to $927 million. As expected, revenues from the Enterprise Investments/Other area, which includes products for specialized customer uses, declined 20 percent (18 percent at constant currency) compared to the fourth quarter of 2000 to $340 million. IBM has been consistently shifting development and distribution of products in this segment to third-party companies. The company's total gross profit margin improved to 38.3 percent in the 2001 fourth quarter from 37.3 percent in the 2000 fourth quarter. Despite absorbing workforce-balancing actions and writedowns of certain equity investments, IBM's total expenses improved 6 percent year over year to $5.4 billion. The improvement came from each of the company's two main expense categories: selling, general and administrative expenses as well as research and development expenses. IBM continued to reduce its expenses and improve operating efficiencies through the use of electronic procurement, sales, education and customer support systems. These systems -- known as e-procurement, IBM.com, e-learning and e-Care -- have resulted in substantial productivity improvements. IBM's tax rate in the fourth quarter was 29.3 percent compared with 29.5 percent in the fourth quarter of 2000. IBM spent approximately $1.0 billion on share repurchases in the fourth quarter. The average number of basic common shares outstanding in the quarter was 1.72 billion compared with 1.75 billion shares in the same period of 2000. Full-year 2001 Results Net income for the year ended December 31, 2001 was $7.7 billion, or $4.35 per diluted common share, compared with net income of $8.1 billion, or $4.44 per diluted common share, in 2000. Revenues in 2001 totaled $85.9 billion, a decline of 3 percent (up 1 percent at constant currency) compared with revenues of $88.4 billion in the year-earlier period. In the Americas, full-year revenues were $37.4 billion, down 3 percent (2 percent at constant currency) from the 2000 period. Revenues from Europe/Middle East/Africa were $24.0 billion, a decrease of 1 percent (up 3 percent at constant currency). Asia-Pacific revenues fell 2 percent (up 8 percent at constant currency) to $17.2 billion. OEM revenues decreased 7 percent (6 percent at constant currency) to $7.2 billion. Revenues from Global Services totaled $35.0 billion, an increase of 5 percent (10 percent at constant currency). Hardware revenues in 2001 were $33.4 billion, a decrease of 12 percent (8 percent at constant currency). Software revenues totaled $12.9 billion, an increase of 3 percent (7 percent at constant currency). Global Financing revenues totaled $3.4 billion, a decrease of 1 percent (up 1 percent at constant currency). Revenues from the Enterprise Investments/Other area declined 18 percent (14 percent at constant currency) to $1.2 billion. Common share repurchases totaled approximately $5.3 billion in 2001. The average number of basic shares outstanding was 1.73 billion in 2001 compared with 1.76 billion in 2000. There were 1.72 billion basic common shares outstanding at December 31, 2001. IBM completed 2001 with $6.4 billion in cash, after major expenditures which included the share repurchases, capital investments of $5.6 billion and an 8 percent dividend increase. The company's debt in support of operations, excluding global financing, increased $543 million from year-end 2000 to $1.6 billion, resulting in a debt-to-capitalization ratio of 7 percent at the end of 2001. Global financing debt declined $2.0 billion from year-end 2000 to a total of $25.5 billion, resulting in a debt-to-equity ratio of 6.8 to 1.