ARMONK, N.Y., January 15, 2004 . . . IBM today announced fourth- quarter 2003 diluted earnings per common share of $1.56 from continuing operations compared with diluted earnings of $1.11 per share in the same period of 2002, an increase of 41 percent. The prior-year period included $.23 per diluted share for charges primarily associated with the acquisition of PricewaterhouseCoopers Consulting (PwCC). Without these charges, diluted earnings per share from continuing operations improved 16 percent year over year. Income from continuing operations for the same period of 2003 was $2.7 billion compared with $1.9 billion a year ago, an increase of 42 percent, including $405 million for the after-tax charges primarily related to the PwCC acquisition. Fourth- quarter revenues from continuing operations were $25.9 billion, up 9 percent compared with revenues of $23.7 billion in the 2002 period.

Samuel J. Palmisano, IBM chairman and chief executive officer, said: "This was a very good quarter for IBM and an encouraging end to a year in which we steadily gained momentum and posted record revenues. Our pretax earnings and earnings per share were up double digits for 2003, and we ended the year with more than $7.6 billion in cash.

"IBM's product and services portfolio -- fueled by unmatched innovation capability -- is very strong and getting stronger. With few exceptions, the company performed well across the board. We had more than $17 billion in services signings, and good growth in our industry- leading server and WebSphere businesses. Most encouraging is that our On Demand strategy is today a reality -- it has entered the mainstream, and it is increasingly driving our business results.

"The company's performance would not be possible had we not made investments during the downturn and fundamentally repositioned IBM for leadership in the high-value enterprise space, which remains our sole focus. We are gratified that the strategies and investments are paying off, and that team IBM is executing on behalf of our clients.

"We enter 2004 with good momentum. The client buying environment is steadily improving. We are enthusiastic about our prospects for this year and beyond."

Fourth-quarter revenue growth of 9 percent (1 percent at constant currency) was driven by growth in all geographies. In the Americas, fourth-quarter revenues from continuing operations were $10.6 billion, up 4 percent (1 percent at constant currency) from the same period last year. Revenues from Europe/Middle East/Africa were $9.1 billion, an increase of 17 percent (1 percent at constant currency). Asia-Pacific revenues rose 13 percent (3 percent at constant currency) to $5.4 billion. OEM revenues decreased 14 percent (14 percent at constant currency) to $714 million compared with 2002's fourth quarter.

Revenues grew at double digits in four of IBM's six industry sectors in the fourth quarter, led by the largest sector, Financial Services, which grew at 17 percent year over year.

Revenues from Global Services, including maintenance, increased 8 percent (down 1 percent at constant currency) to $11.4 billion in the fourth quarter. Global Services revenues, excluding maintenance, increased 8 percent as well (down 1 percent at constant currency). IBM signed $17.3 billion in services contracts in the fourth quarter including three contracts over $1 billion and an additional 18 contracts in excess of $100 million each. The estimated services backlog, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and maintenance, was $120 billion at December 31, 2003.

Hardware revenues from continuing operations were $9.1 billion, an increase of 12 percent (4 percent at constant currency) from the 2002 fourth quarter. Total Systems Group revenues were $4.9 billion, up 18 percent. Revenues from zSeries mainframes, benefiting from a full quarter of new technology availability on the z990 products, increased significantly as a result of strong deliveries of zSeries computing power as measured in MIPS (millions of instructions per second), which increased 62 percent versus the year-ago period. Systems Group's eServer revenues increased for xSeries Intel processor-based servers and pSeries UNIX-based servers. Revenues also were higher for iSeries midrange servers. As a result of growth in tape and DASD FAStT products, Storage Systems revenues increased year over year as well.

Personal Systems Group revenues increased 16 percent to $3.5 billion primarily from higher revenues for personal computers, particularly mobile products, as increased volumes more than offset reductions in prices. Technology Group revenues decreased 20 percent to $775 million, partially attributable to actions taken in 2002 to refocus and direct the microelectronics business to the high-end foundry, ASICs and standard products, while creating a new technology services business. These actions included the divestiture of multiple non-core businesses.

Revenues from software were $4.3 billion, an increase of 12 percent (2 percent at constant currency) compared with the fourth quarter of 2002. Revenues from IBM's middleware brands, which include WebSphere, DB2, Rational, Tivoli and Lotus products, increased 14 percent to $3.4 billion in the fourth quarter of 2003. Operating systems revenues increased 6 percent to $683 million compared with the year-ago period.

Revenues in the fourth quarter increased 10 percent from WebSphere, software which facilitates customers' ability to manage a wide variety of business processes through the Web. Revenues for DB2 database software increased 3 percent. Revenues from Tivoli software - - which enables customers to centrally manage networks and storage -- increased 17 percent, and revenues for Lotus software, which enables customers to communicate, collaborate and learn effectively, increased 2 percent. Revenues from Rational (comprehensive software development tools) which was acquired during the first quarter of 2003 accounted for approximately 42 percent of the fourth-quarter 2003 middleware revenue increase.

Global Financing revenues decreased 12 percent (18 percent at constant currency) in the fourth quarter to $734 million. Revenues from the Enterprise Investments/Other area, which includes industry- specific IT solutions such as product life-cycle management software, increased 5 percent (down 4 percent at constant currency) to $360 million compared with the fourth quarter of 2002.

The company's total gross profit margin from continuing operations was 38.4 percent in the 2003 fourth quarter, compared to 38.8 percent from the same period in 2002.

Total expense and other income from continuing operations in the fourth quarter of 2003 was $6.1 billion, 6 percent lower from the year- ago period (which included pre-tax charges of about $575 million primarily associated with the PwCC transaction). Selling, general and administrative expense was $4.9 billion, a decrease of 10 percent year over year (last year's expense included the charges related to PwCC), while research, development and engineering expense increased 12 percent to $1.3 billion compared with the same period of 2002 (fourth-quarter 2003 expense includes the effect of acquisitions by the Software Group). Intellectual property and custom development income decreased 15 percent. Other (income) and expense was $124 million of expense in the fourth quarter of 2003 versus $116 million in the same period last year primarily from higher foreign exchange losses on hedging contracts.

IBM's effective tax rate from continuing operations in the fourth- quarter 2003 was 30.0 percent compared with 29.5 percent in the fourth quarter of 2002.

For total operations, net income for the fourth quarter of 2003, including discontinued operations, was $2.7 billion, or $1.55 per diluted common share, compared with fourth-quarter 2002 net income of $1.0 billion, or $.59 per diluted share, which included $1.0 billion in after-tax charges associated with 2002 actions, or $.59 per diluted share for charges.

Share repurchases totaled approximately $3.1 billion in the fourth quarter. The weighted average number of diluted common shares outstanding in the quarter was 1.75 billion compared with 1.73 billion shares in the same period of 2002.

Full-Year 2003 Results

For the year ended December 31, 2003, income from continuing operations was $7.6 billion compared with $5.3 billion for the same period of 2002, which included after-tax charges of $433 million related to the acquisition of PwCC and $1.1 billion associated with 2002 actions. Diluted earnings per common share from continuing operations was $4.34 compared with $3.07 after the 2002 charges of $.88 per diluted share, an increase of 41 percent. Without these charges, diluted earnings per share from continuing operations improved 10 percent year over year. Revenues from continuing operations totaled $89.1 billion, up 10 percent compared with 2002 revenues of $81.2 billion.

Full-year revenue growth of 10 percent (3 percent at constant currency) was driven by growth in all geographies. In the Americas, full-year revenues were $38.1 billion, up 5 percent (4 percent at constant currency) from the 2002 period. Revenues from Europe/Middle East/Africa were $29.1 billion, an increase of 20 percent (3 percent at constant currency) from the 2002 period. Asia-Pacific revenues were up 13 percent (5 percent at constant currency) at $19.3 billion. OEM revenues decreased 21 percent (22 percent at constant currency) to $2.6 billion.

Revenues in all six of IBM's industry sectors grew for the full year, with four of the sectors growing by double digits.

Revenues from Global Services in 2003 totaled $42.6 billion, an increase of 17 percent (9 percent at constant currency). Hardware revenues were $28.2 billion, an increase of 3 percent (down 3 percent at constant currency). Software revenues totaled $14.3 billion, an increase of 9 percent (2 percent at constant currency). Global Financing revenues totaled $2.8 billion, a decrease of 13 percent (18 percent at constant currency). Revenues from the Enterprise Investments/Other area increased 5 percent (down 3 percent at constant currency) to $1.1 billion.

For total operations, net income, including discontinued operations, was $7.6 billion, or $4.32 per diluted common share, compared with $3.6 billion, or $2.06 per diluted share, which included $2.5 billion in after-tax charges associated with 2002 actions, or $1.47 per diluted share for the charges.

Share repurchases totaled approximately $4.4 billion in 2003. The weighted average number of diluted common shares outstanding in 2003 was 1.76 billion compared with 1.73 billion shares in the same period of 2002. As of December 31, 2003, there were 1.69 billion basic common shares outstanding.

Debt, including Global Financing, totaled $23.6 billion, a decline of $2.4 billion from year-end 2002. From a management segment view, the non-global financing debt-to-capitalization ratio was 1.5 percent at the end of 2003, and Global Financing debt declined $564 million from year-end 2002 to a total of $23.3 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, as discussed in the company's filings with the Securities and Exchange Commission (SEC).

Presentation of Information in this Press Release

This release includes certain non-GAAP financial measures, as defined under SEC rules. The company provides a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures, as part of the supplementary materials being presented within the fourth-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor.

Conference Call and Webcast

IBM's regular quarterly earnings conference call is scheduled to begin at 8:00 a.m. EST, today. Investors may participate by viewing the Webcast at www.ibm.com/investor/4q03.