Institutional investor FAQ

Our microelectronics business delivers substantial value, to both our semiconductor customers, and our own IBM servers. 

Technology performance enhancement is increasingly more dependent on integration than on frequency.  IBM continues to invest in the fundamental science that drives technology innovation. 

POWER chips, designed and built by IBM, are at the heart of the fastest computer in the world, and are behind the share gains in our server business.  POWER5, the latest version of this technology, is the world's most advanced microprocessor.  This technology now drives our pSeries and iSeries servers, and most recently enterprise storage.

In the consumer market, POWER is also becoming the technology of choice for the fast growing gaming sector.  The Cell processor, jointly developed with Sony Group and Toshiba, is a multicore 64 bit processor developed for next-generation computing applications and digital consumer electronics.

Hardware success is not limited to our POWER-based platforms.

We are delivering value in xSeries -- with 11 consecutive quarters of double-digit growth and our leadership in the blade market. 

And mainframes remain the centerpiece of our clients on demand infrastructures.  In addition to the strong growth in hardware revenue in 2004, this platform provides IBM with additional revenue and profit opportunities in software, services and financing.

In the last four years, IBM has gained over 10 points of server share.

Our strategy is to be the world leader in providing high value solutions to enterprise clients - and our hardware business contributes to that strategy.

We will adopt FAS 123R no later than third quarter of 2005.  The required implementation date is for the financial reporting period commencing after June 15, 2005.

Equity compensation information has been included in the footnotes of our quarterly and annual filings.  This disclosure includes pro forma operating results for IBM including the cost of stock-based compensation plans.  The additional expense from these plans for 2003 would have been 58 cents per share. 

Stock option expensing has been pending for some time.  In anticipation, we have taken actions to reduce the number of equity grants issued and to redesign our equity programs.  For example, in February of 2004 we announced that senior executives would be granted premium-priced options.  These actions will result in favorable year-to-year comparison of equity compensation expense when IBM begins to expense options.

The year-over-year reduction in option expense is one of the items referenced in IBM's fourth quarter earnings report to offset the year-to-year increase in pension costs in 2005. 

* 2004 excludes one-time pension settlement charge of $.3 billion

IBM's earnings-per-share increased 16% in 2004, after overcoming $.8 billion of increased pension expense.

The analysts' average estimate for full year 2005 earning per share was $5.55.  After rolling through the impact of fourth quarter 2004 overachievement, earnings-per-share increases 11% year-to-year.  This year-to-year growth includes the billion dollar year-to-year pension impact. IBM is taking actions to overcome this pension impact - such as divesting the PC business, redesigning our equity program, and globalizing our business. 

The sale of IBM's PC Division does not impact the 2005 year-to-year estimated pension increase of $1 billion.

Holding the 2005 pension expense at the 2004 level (no year-to-year increase), based on these estimates, IBM's earnings would be up over 18% in 2005. 

* As of 1/18/2005