IBM Reports 2006 Third-Quarter Results

IBM
Edward Barbini, 914/499-6565
[e-mail]
                  
    --  Diluted earnings of $1.45 per share from continuing operations, up 54
        percent as reported, or 15 percent compared with $1.26 per diluted share
        from the third-quarter 2005, excluding a non-recurring item;

    --  Income from continuing operations of $2.2 billion, up 47 percent, or 9
        percent, excluding the 2005 non-recurring item;

    --  Total revenues of $22.6 billion, up 5 percent as reported.

IBM (NYSE: IBM) today announced third-quarter 2006 diluted earnings of $1.45 per
share from continuing operations, an increase of 54 percent as reported,
compared with diluted earnings of $.94 per share in the third quarter of 2005;
the third-quarter 2005 diluted earnings include $.32 per share for a one-time
charge of $525 million for taxes in connection with the 2005 repatriation of
foreign earnings. Diluted earnings per share for the third-quarter 2006 grew 15
percent compared with the year-ago quarter of $1.26 per diluted share, without
the one-time per share charge.

Third-quarter income from continuing operations was $2.2 billion compared with
$1.5 billion in the third quarter of 2005, including the one- time charge, an
increase of 47 percent. Income from continuing operations for the third quarter
grew 9 percent compared with the third-quarter 2005 income from continued
operations of $2.0 billion, excluding the one-time charge. Total revenues for
the third quarter of 2006 of $22.6 billion increased 5 percent (4 percent,
adjusting for currency) from the third quarter of 2005.

Samuel J. Palmisano, IBM chairman, president and chief executive officer, said:
'Our strong performance is the result of excellent execution and the
repositioning of IBM's business model to capture the growth and profit areas of
a rapidly changing IT industry.'

From a geographic perspective, the Americas third-quarter revenues were $9.8
billion, an increase of 3 percent as reported (2 percent, adjusting for
currency) from the 2005 period. Revenues from Europe/Middle East/Africa were
$7.3 billion, up 6 percent (2 percent, adjusting for currency). Asia-Pacific
revenues increased 4 percent (6 percent, adjusting for currency) to $4.5
billion. OEM revenues were $1.0 billion, up 24 percent compared with the 2005
third quarter.

Revenues from Software were $4.4 billion, an increase of 9 percent (7 percent,
adjusting for currency) compared with the third quarter of 2005. Revenues from
IBM's middleware brands, which include WebSphere, Information Management,
Tivoli, Lotus and Rational products, were $3.4 billion, up 12 percent versus the
third quarter of 2005. Operating systems revenues decreased 6 percent to $552
million compared with the prior-year quarter. Revenues from other software and
services increased, which includes the Product Lifecycle Management portfolio of
products.

For the WebSphere family of software products, which facilitate customers'
ability to manage a wide variety of business processes using open standards to
interconnect applications, data and operating systems, revenues increased 30
percent. Revenues for Information Management software, which enables clients to
leverage information on demand, increased 12 percent. Revenues from Tivoli
software, infrastructure software that enables customers to centrally manage
networks including security and storage capability, increased 44 percent, and
revenues for Lotus software, which allows collaborating and messaging by
customers in real-time communication and knowledge management, increased 8
percent year over year. Revenues from Rational software, integrated tools to
improve the processes of software development, increased 2 percent compared with
the year-ago quarter.

Revenues from Global Services increased 3 percent (2 percent, adjusting for
currency) to $12.0 billion in the third quarter of 2006. IBM signed services
contracts totaling $10.5 billion and ended the quarter with an estimated
services backlog, including Strategic Outsourcing, Business Transformation
Outsourcing, Global Business Services, Integrated Technology Services and
Maintenance, of $109 billion.

Hardware revenues increased 9 percent (8 percent, adjusting for currency) to
$5.6 billion in the third-quarter 2006 compared to $5.1 billion in the year-ago
period. Systems and Technology Group (S&TG) revenues totaled $5.5 billion for
the quarter, up 10 percent. S&TG revenues from System z server products
increased 25 percent compared with the year-ago period. Total delivery of System
z computing power, which is measured in MIPS (millions of instructions per
second), increased 16 percent. Revenues from the System p UNIX server products
increased 10 percent compared with the 2005 period. Revenues from the System x
servers increased 4 percent, and revenues from the System i servers decreased 22
percent. Revenues from Microelectronics increased 29 percent and revenues from
System Storage increased 12 percent.

Global Financing revenues decreased 2 percent (3 percent, adjusting for
currency) in the third quarter to $591 million.

The company's total gross profit margin was 42.0 percent in the 2006 third
quarter compared with 40.6 percent in the 2005 period.

Total expense and other income increased 8 percent to $6.3 billion compared with
the prior-year period. SG&A expense increased 11 percent to $5.1 billion. RD&E
expense increased 7 percent compared with the year-ago period. Intellectual
property and custom development income increased to $242 million compared with
$213 million a year ago. Other (income) and expense was income of $174 million
in the third quarter of 2006 versus income of $99 million in the third quarter
of 2005.

IBM's effective tax rate in the third-quarter 2006 was 30.0 percent, compared
with 48.0 percent in the third quarter of 2005. The tax rate decrease was
substantially driven by the incremental tax charge of $525 million in the third
quarter of 2005 related to the company's repatriation of foreign earnings.

Share repurchases totaled approximately $1.6 billion in the third quarter. The
weighted-average number of diluted common shares outstanding in the
third-quarter 2006 was 1.53 billion compared with 1.62 billion shares in the
same period of 2005. As of September 30, 2006, there were 1.51 billion basic
common shares outstanding.

IBM ended the third quarter of 2006 with $10.9 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 $22.0 billion, compared with $22.6
billion at year-end 2005. From a management segment view, the non-global
financing debt-to-capitalization ratio was 2.3 percent at the end of September
30, 2006, and Global Financing debt increased $771 million from year-end 2005 to
a total of $21.3 billion, resulting in a debt-to-equity ratio of 6.9 to 1.

Year-To-Date 2006 Results

Income from continuing operations for the nine months ended September 30, 2006
was $6.0 billion, compared with $4.8 billion in the year-ago period, which
includes a charge of $525 million for taxes in connection with the 2005
repatriation of foreign earnings, and non-recurring pretax items for incremental
restructuring charges of $1.7 billion, offset by the $1.1 billion gain on the
sale of the Personal Computing (PC) business, and the $775 million legal
settlement received from Microsoft. Diluted earnings per share from continuing
operations were $3.81 compared with $2.92 per diluted share for the 2005 period.
Revenues from continuing operations for the nine-month period totaled $65.2
billion, a decrease of 2 percent as reported and adjusting for currency compared
with $66.7 billion for the nine months of 2005, which includes PC revenues of
$2.9 billion for the first four months of 2005 only. Excluding the divested PC
business, revenues increased 2 percent (3 percent, adjusting for currency)
compared with the nine-month period of 2005.

For total operations, net income for the nine months of 2006 was $6.0 billion,
or $3.81 per diluted share, compared with the nine months of 2005 net income of
$4.7 billion, or $2.90 per diluted share, which included a loss from
discontinued operations of $27 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, including the company's failure
to continue to develop and market new and innovative products and services and
to keep pace with technological change; competitive pressures; failure to obtain
or protect intellectual property rights; quarterly fluctuations in revenues and
volatility of stock prices; the company's ability to attract and retain key
personnel; adverse affects from tax matters; currency fluctuations and customer
financing risks; customer credit risk on trade receivables; the company's
failure to maintain the adequacy of its internal controls; the company's use of
certain estimates and assumptions; dependence on certain suppliers; changes in
the financial or business condition of the company's distributors or resellers;
the company's ability to successfully manage acquisitions and alliances; failure
to have sufficient insurance; legal, political, health and economic conditions;
risk factors related to IBM securities; and other risks, uncertainties and
factors discussed in the company's Form 10-Q, Form 10-K and in the company's
other filings with the U.S. Securities and Exchange Commission (SEC) or in
materials incorporated therein by reference. The company assumes no obligation
to update or revise any forward-looking statements.

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:

IBM results:

    --  without non-recurring items,

    --  without divested PC business,

    --  adjusting for currency (i.e., at constant currency).

The rationale for management's use of non-GAAP measures is included as part of
the supplementary materials presented within the third-quarter earnings
materials. These materials are available on the IBM investor relations Web site
at www.ibm.com/investor and are being included in Attachment II ('Non-GAAP
Supplementary Materials') to the Form 8-K that includes this press release and
is being submitted today to the SEC.

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/3q06. Presentation charts will be available on the Web site
prior to the Webcast.

Financial Results Attached (amounts may not total due to rounding)

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

                         Three Months               Nine Months
                      Ended September 30,       Ended September 30,

                                     Percent                   Percent
                      2006    2005*  Change     2006    2005*  Change
                    -------  ------- -------  -------  ------- -------
REVENUE

 Global Services   $12,017  $11,697     2.7% $35,478  $35,407     0.2%
  Gross margin        27.8%    26.1%            27.4%    25.5%

 Hardware            5,583    5,130     8.9%  15,306   17,445   -12.3%
  Gross margin        37.7%    37.1%            35.1%    32.3%

 Software            4,406    4,059     8.5%  12,554   11,930     5.2%
  Gross margin        85.3%    84.9%            84.6%    84.4%

 Global Financing      591      600    -1.5%   1,755    1,802    -2.6%
  Gross margin        48.6%    54.5%            50.9%    53.7%

 Other                  20       43   -54.5%      74      123   -39.9%
  Gross margin         8.1%    29.2%            -9.1%    51.5%


TOTAL REVENUE       22,617   21,529     5.1%  65,166   66,707    -2.3%


GROSS PROFIT         9,492    8,738     8.6%  26,594   25,767     3.2%
  Gross margin        42.0%    40.6%            40.8%    38.6%


EXPENSE AND OTHER INCOME

 S,G&A               5,121    4,632    10.5%  14,639   16,062    -8.9%
  % of revenue        22.6%    21.5%            22.5%    24.1%

 R,D&E               1,543    1,447     6.6%   4,520    4,383     3.1%
  % of revenue          6.8%     6.7%             6.9%     6.6%

 Intellectual property
  and custom development
  income              (242)    (213)   13.2%    (659)    (720)   -8.4%
 Other (income)
   and expense        (174)     (99)   75.9%    (616)  (1,788)  -65.6%
 Interest expense       70       56    24.0%     207      172    20.6%

TOTAL EXPENSE AND
OTHER INCOME         6,317    5,823     8.5%  18,091   18,109    -0.1%
  % of revenue        27.9%    27.0%            27.8%    27.1%

INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES         3,174    2,915     8.9%   8,503    7,658    11.0%
  Pre-tax margin      14.0%    13.5%            13.0%    11.5%

Provision for
income taxes           952    1,399   -32.0%   2,551    2,884   -11.6%
  Effective tax
  rate                30.0%    48.0%            30.0%    37.7%

INCOME FROM CONTINUING
OPERATIONS          $2,222   $1,516    46.6%  $5,952   $4,774    24.7%
  Net margin            9.8%     7.0%             9.1%     7.2%

DISCONTINUED OPERATIONS
Loss from discontinued
operations               (0)       0               (0)      27

NET INCOME          $2,222   $1,516    46.5%  $5,952   $4,747    25.4%
                    ======   ======           ======   ======


EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:

 ASSUMING DILUTION
  CONTINUING
   OPERATIONS       $1.45    $0.94    54.3%   $3.81    $2.92    30.5%
  DISCONTINUED
   OPERATIONS       (0.00)    0.00            (0.00)   (0.02)
                    -----   ------           ------   ------
  TOTAL             $1.45    $0.94    54.3%   $3.81    $2.90    31.4%
                   ======   ======           ======   ======
 BASIC
  CONTINUING
   OPERATIONS       $1.47    $0.95    54.7%   $3.87    $2.97    30.3%
  DISCONTINUED
   OPERATIONS       (0.00)    0.00            (0.00)   (0.02)
                   ------   ------           ------   ------
  TOTAL             $1.47    $0.95    54.7%   $3.87    $2.95    31.2%
                   ======   ======           ======   ======

WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's)
 ASSUMING DILUTION 1,534.3  1,617.2          1,560.5  1,635.2
 BASIC             1,513.2  1,591.3          1,538.6  1,607.9
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*  The company filed a Form 8-K with the U.S. SEC on June 13, 2006 to
reclassify its historical financial statements and related footnotes
to reflect changes to its management system in the first quarter of
2006.
*T

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

                                         At           At
(Dollars in millions)          September 30, December 31,  Percent
                                       2006         2005    Change
                               ------------  -----------   -------
ASSETS

 Cash, cash equivalents,
 and marketable securities          $10,900      $13,686    -20.4%

 Receivables - net, inventories,
 prepaid expenses                    29,768       31,975     -6.9%

 Plant, rental machines,
 and other property - net            14,059       13,756      2.2%

 Investments and other assets        49,428       46,331      6.7%
                                   --------     --------

TOTAL ASSETS                       $104,155     $105,748     -1.5%
                                   ========     ========


LIABILITIES AND STOCKHOLDERS' EQUITY

 Short-term debt                     $8,555       $7,216     18.6%
 Long-term debt                      13,436       15,425    -12.9%
                                   --------     --------
 Total debt                          21,991       22,641     -2.9%

 Accounts payable, taxes,
 and accruals                        26,374       27,936     -5.6%

 Other liabilities                   21,542       22,073     -2.4%
                                   --------     --------
TOTAL LIABILITIES                    69,907       72,650     -3.8%

STOCKHOLDERS' EQUITY                 34,248       33,098      3.5%
                                   --------     --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY               $104,155     $105,748     -1.5%
                                   ========     ========


               INTERNATIONAL BUSINESS MACHINES CORPORATION
                             SEGMENT DATA
                              (Unaudited)

                                    THIRD QUARTER 2006
                       ----------------------------------------------
                                                      Pre-tax
                                                       Income
                                                       (Loss)
                                                         From
(Dollars in millions)   -------- Revenue --------- Continuing  Pre-tax
                        External Internal    Total Operations   Margin
                        -------- --------  ------- ----------  -------
SEGMENTS

Global Technology
 Services                $8,058     $428    $8,486      $814      9.6%
  % change                  3.5%   -18.8%      2.1%     -6.4%

Global Business Services  3,959      337     4,295       405      9.4%
  % change                  1.2%     0.6%      1.2%     40.8%

Systems and Technology
Group                     5,466      255     5,721       413      7.2%
  % change                  9.6%    -5.0%      8.8%     13.1%

Software                  4,406      559     4,965     1,302     26.2%
  % change                  8.5%    15.1%      9.2%     15.2%

Global Financing            587      337       924       335     36.2%
  % change                 -2.1%    16.7%      4.0%     -7.9%

Personal Computing
Division                      0        0         0         0      0.0%

TOTAL REPORTABLE
 SEGMENTS                22,476    1,916    24,391     3,268     13.4%
  % change                  5.3%     0.6%      4.9%      8.4%

Eliminations / Other        141   (1,916)   (1,774)      (94)

TOTAL IBM CONSOLIDATED  $22,617       $0   $22,617    $3,174     14.0%
  % change                  5.1%               5.1%      8.9%


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

Global Technology
 Services                $7,787     $526    $8,313      $871     10.5%

Global Business Services  3,910      335     4,245       288      6.8%

Systems and Technology
Group                     4,988      268     5,256       365      6.9%

Software                  4,059      486     4,545     1,130     24.9%

Global Financing            599      289       888       363     40.9%

Personal Computing
Division                      0        0         0         0      0.0%

TOTAL REPORTABLE
 SEGMENTS                21,343    1,904    23,247     3,017     13.0%

Eliminations / Other        186   (1,904)   (1,719)     (101)

TOTAL IBM CONSOLIDATED  $21,529       $0   $21,529    $2,915     13.5%
*T

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* The company filed a Form 8-K with the U.S. SEC on June 13, 2006 to
reclassify its financial statements and related footnotes to reflect
changes to its management system effective as of the first quarter
of 2006, including the separation of the Global Services segment into
two new reportable segments: Global Technology Services and Global
Business Services, as well as the reclassification of Enterprise
Investments to other reportable segments.
*T

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              INTERNATIONAL BUSINESS MACHINES CORPORATION
                           SEGMENT DATA
                            (Unaudited)

                                      NINE MONTHS 2006
                        ----------------------------------------------
                                                      Pre-tax
                                                       Income
                                                        (Loss)
                                                         From
(Dollars in millions)   -------- Revenue --------- Continuing  Pre-tax
                        External Internal    Total Operations   Margin
                        -------- --------  ------- ----------  -------
SEGMENTS

Global Technology
 Services               $23,732   $1,328   $25,061    $2,445      9.8%
  % change                  1.1%   -18.8%     -0.2%     61.5%

Global Business Services 11,746    1,023    12,769     1,168      9.1%
  % change                 -1.5%    -0.8%     -1.5%    207.5%

Systems and Technology
Group                    14,900      807    15,706       582      3.7%
  % change                  5.4%     5.7%      5.4%    -13.7%

Software                 12,554    1,616    14,170     3,478     24.5%
  % change                  5.2%    13.6%      6.1%     22.3%

Global Financing          1,744    1,039     2,784     1,068     38.4%
  % change                 -3.0%     2.6%     -1.0%     -2.3%

Personal Computing
Division                      0        0         0         0      nm
  % change                   nm       nm        nm        nm

TOTAL REPORTABLE
  SEGMENTS               64,676    5,814    70,490     8,741     12.4%
  % change                 -2.2%    -1.5%     -2.2%     37.9%

Eliminations / Other        491   (5,814)   (5,323)     (239)

TOTAL IBM CONSOLIDATED  $65,166       $0   $65,166    $8,503     13.0%
  % change                 -2.3%              -2.3%     11.0%



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

Global Technology
 Services               $23,481   $1,636   $25,117    $1,514      6.0%

Global Business Services 11,926    1,032    12,958       380      2.9%

Systems and Technology
Group                    14,132      763    14,895       674      4.5%

Software                 11,930    1,423    13,353     2,844     21.3%

Global Financing          1,798    1,013     2,811     1,092     38.8%

Personal Computing
Division                  2,876       33     2,909      (165)     nm

TOTAL REPORTABLE
 SEGMENTS                66,143    5,899    72,042     6,340      8.8%

Eliminations / Other        565   (5,899)   (5,335)    1,319

TOTAL IBM CONSOLIDATED  $66,707       $0   $66,707    $7,658     11.5%
*T

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nm - not meaningful
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* The company filed a Form 8-K with the U.S. SEC on June 13, 2006 to
reclassify its financial statements and related footnotes to reflect
changes to its management system effective as of the first quarter
of 2006, including the separation of the Global Services segment into
two new reportable segments: Global Technology Services and Global
Business Services, as well as the reclassification of Enterprise
Investments to other reportable segments.
*T