Bartlett - Established 1884 in New York City

Mary Sitter

As you know, 2004 was a good year for IBM. We delivered record revenue of $96.3 billion and double-digit earnings-per-share growth. We gained share across our major businesses, generated strong cash flow, and we returned a record $8.3 billion to you, our shareholders, through dividends and share repurchases.

Importantly, we continued to make progress in transforming IBM for leadership in a rapidly changing information technology industry.

It was just three years ago -- in the midst of the downturn and soon after the dot-coms had imploded -- that we started talking about a major industry shift. We believed that powerful developments -- the arrival of a networked world, new advanced technologies, the adoption of open industry standards, and changes in client requirements -- were converging.

We believed that as this happened, client demand would shift. They would look to companies to help them combine leading technology with new kinds of business designs. And this would open up new opportunities for the industry, and for IBM.

Paul Sitter

Our confidence in this industry shift to on demand business, and IBM's ability to capture this opportunity, grows every day.

Of course, even as we pursue these new growth markets, we must execute and deliver every day, as well. As you saw in our results a few weeks ago, we were not able to sustain the momentum of last year's record fourth quarter through the first quarter of 2005.

We had a good January and February. Then we had difficulty closing transactions in the last two weeks of the quarter, particularly in countries with soft economic conditions. These included Japan, Germany, France and Italy.



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