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    the newblUe


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    Something rather unexpected has happened at IBM. Our people have worked hard in recent years to reinvent not just the mechanics of their work, but the soul of their company. T o be obsessed with customers. First to market. A revitalized engine of innovation, growth and profitability. T hey thought they were trans - forming an enterprise . It turns out their work is part of something much bigger. Information technology is changing every aspect of life . H ow we work, learn, and govern ourselves. H ow we think about communication and culture . H ow we think . IBM is at the center of this global revolution. It’s fueling our growth and inspiring our people in ways not seen in a generation. It’s happening all over the world, all over IBM. L ook inside . It starts here .


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    Louis V. Gerstner, Jr. Chairman and Chief Exec ut ive Offic er


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    letter to share ho lde rs Dear fellow investor, L A ST Y EAR I T O LD YO U T HAT O UR ST R AT EGIC VI S IO N WA S B EGI NNI NG TO TAKE HO LD , IN THE MAR KET P LACE AND IBM’s market valuation — the ultimate measure I NS I D E I B M. I SAI D W E P LANNE D T O STAY T H E of our performance — grew by $23 billion in 1997. CO UR S E — AND T O I NT E NS I FY O UR EX ECUT IO N . Our stock price surpassed its all-time high and My message this year is unchanged. We will continued to climb, rising 38 percent over the year. continue to implement a strategic plan that our Since our major restructuring in 1993 , our market- customers, business partners, investors and employees place worth has increased by more than $73 billion. understand and endorse. We expect to continue Last year we split the stock for the first time since 1979. delivering consistent revenue growth — as we now If you don’t read any further in this annual report, have for 14 straight quarters. We will continue to know that IBM’s comeback is on track and doesn’t improve the execution of our strategies to produce require a major course correction. marketplace wins, chiefly by strengthening and But I hope you will read on. A 40,000 -foot view leveraging IBM’s unique breadth of people, skills doesn’t really tell the story —where growth will come and technology — assets many of our competitors from and why, and how we plan to return IBM to are trying furiously to replicate. industry leadership. 3


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    W HAT D I D 1997 T E LL US ? in 1997). Notwithstanding these investments in the company and shareholder return, IBM finished the FIRST, it demonstrated that IBM remains on solid year with $7.6 billion in cash. financial ground. For the third straight year, we reported record revenue — $78.5 billion, up S ECO ND , 1997 revealed that there are powerful 3 percent. T hat’s 8 percent after you adjust for the growth engines underlying our overall numbers. effects of currency shifts. This was evident across most of our major businesses: Our earnings rose to $6.1 billion from $5.9 billion in 1996 (excluding a charge related to acquisitions in • Services revenue increased to $19.3 billion, the first quarter of 1996 ). Our earnings per common up 28 percent in constant currency, continuing share increased about 12 percent, to a record $6.18, an exceptionally strong growth story. Seven years from $5.53 in 1996. ago, with revenues of about $4 billion, we were We remain committed to maximizing shareholder barely visible in the marketplace. T oday, we are value, and to making productive use of our cash. the market leader, and IBM Global Services We increased our investment in the exploration has the highest customer satisfaction rating in and development of future technologies, investing the industry. T he total value of our services $5.5 billion in 1997 on research and development, business already booked for 1998 and years up $300 million from 1996. We invested nearly to come is more than $42 billion, and we are $7 billion during the year on capital expenditures growing faster than the industry. We continue to to strengthen existing businesses. We announced hire aggressively to fuel our growth — 15,000 plans to invest $700 million to build one of the people joined our services business in 1997. world’s most advanced semiconductor development facilities. We invested $663 million last year in • Software revenue grew 4 percent in constant the ongoing reengineering of IBM, resulting currency, and its gross profit margin grew by in greater manufacturing efficiencies, better 2 points. These are modest gains, but the key fact to customer service and reduced cycle time. We invested note here is that in distributed middleware — the $700 million to acquire leadership companies like fastest-growing part of the software industry — we Unison Software, which strengthens our systems are growing faster than the industry. Five years ago, management business, a majority stake in NetOb- only one out of ten dollars in IBM software rev- jects, a leader in website design software, and total enue was from distributed software; today, it’s near- ownership of Advantis, the U.S. data network services ly four of ten. Lotus Notes “ seats” doubled for the unit of the IBM Global Network. third straight year, to 20 million. And Tivoli’s sys- After all these investments, we still had substan- tems management products are growing twice as tial cash on hand to return to shareholders — directly, fast as those of the industry. We are also making a via dividends, and indirectly, via our ongoing stock strong run at first place in databases, helped by the buyback program (another $7.1 billion of IBM shares success of our new DB2 Universal Database. 4 IBM 1997 annualrepo rt


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    financial highlights Int ernat ional Business M ac hines Corp orat ion and Sub sid iary Comp anies ( Do llars in millio ns e x ce pt pe r share amo unts) 1997 1996 For the year: Revenue $ 78,508 $ 75,947 Earnings before income taxes $ 9,027 $ 8,587 Income taxes $ 2,934 $ 3,158 Net earnings $ 6,093 $ 5,429 Per share of common stock $ 6.18 $ 5.12 * Per share of common stock - assuming dilution $ 6.01 $ 5.01 * Cash dividends paid on common stock $ 763 $ 686 Per share of common stock $ .775 * $ .65 * Investment in plant, rental machines and other property $ 6,793 $ 5,883 Average number of common shares outstanding (in m illions) 983 1,057 At end of year: Total assets $ 81,499 $ 81,132 Net investment in plant, rental machines and other property $ 18,347 $ 17,407 Working capital $ 6,911 $ 6,695 Total debt $ 26,926 $ 22,829 Stockholders’ equity $ 19,816 $ 21,628 Number of employees in IBM / wholly owned subsidiaries 269,465 240,615 Number of common stock holders 623,537 622,594 * Ad just ed t o reflec t a t w o- for- one sp lit of t he c om m on st oc k effec t ive M ay 9, 1997 • Hardware grew 4 percent in constant currency. it gained further momentum by introducing a string Again, a closer look reveals important trends. In 1997 of leadership products and by growing revenue from we thoroughly reinvigorated our entire server line. hard-disk drives twice as fast as the industry. Our new System/ 390 G4 enterprise servers represent the complete conversion of our mainframes to • Our success in disk drives highlights another microprocessor technology. Overall, the System/ 390 important story: the growth in sales of IBM tech- line delivered 30 percent growth in shipments of nology and components to other companies, many processing capacity. We introduced Web-enabled of them our competitors. Five years ago, our OEM RS/ 6000s and AS/400 servers. Our new Netfinity PC revenue was only about $1 billion. In 1997 it was server line, which brings our high-end server exper- $5.6 billion, growing at double-digit rates, driven tise to bear on smaller-scale needs, has been eagerly mainly by OEM sales of disk drives and semicon- accepted by the market. Of particular note is our ductors. We’re also generating more than $1 billion storage business. Despite having invented magnetic annually by licensing IBM patents and other intel- disk storage four decades ago and having pioneered lectual property to technology companies. every significant development since then, IBM had fallen seriously behind the competition. T oday, • IBM’s commercial PC operations enjoyed a solid our storage business is winning again. Last year, year, helping our PC business maintain its 5


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    market share and grow revenues revenue straight year, IBM led all companies in by 7 percent in constant currency. ( $ in billio ns) U.S. patents — discoveries that are We remained the biggest seller of building a foundation that will support “ thin client” network computers. the company well into the future. More than 3,000 enterprise cus- IBM people are delivering major tomers purchased tens of thousands 78.5 technological breakthroughs and getting 75.9 71.9 of IBM Network Stations last year. them to market faster than ever before. 62.7 64.1 The award-winning IBM ThinkPad In 1997 alone: continued as the leader in mobile systems. And we introduced a • Deep Blue —a specially programmed new line of Microsoft Windows RS/ 6000 SP superco mputer — NT-based workstations in 1997, the redefined the way humanity under- IBM IntelliStation. stands its relationship to both machines and thinking itself. It also • We continued to expand rapidly showed the world an IBM energized in the world’s emerging markets — by tackling “ grand” challenges — though, like many other global 93 94 95 96 97 beginning with taking on the companies, we are being affected greatest grandmaster in chess by the financial turmoil in parts net earnings history, and now moving o n to of Asia. We announced plans to ( $ in billio ns) pharmaceuticals, financial modeling expand our global network of and weather forecasting. research laboratories by establishing a new one — our eighth — in India. • Our ViaVoice Gold continuous 6.1 In Hungary we pioneered a “ utility” 5.4 speech recognition product brought service for small- and medium-size 4.2 an exciting technology to a new level 3.0 businesses —selling computing power of user-friendliness. It also poten- and applications via networks in the tially opened the world of e-mail same way water and electricity are and the Internet to a quarter of the sold. We plan to roll it out in other planet, through Mandarin ViaVoice. markets around the world. • Lotus’s eSuite, introduced last fall, THIR D, we were reminded of the is an entirely new approach in 93 extraordinary resource we have in personal productivity applications 94 95 96 97 IBM scientists and technologists — a that takes advantage of network- community of expertise and inventive- based computing. Written entirely in ness no one can match. For the fifth (8.1) Java, eSuite applications, such as word 6 IBM 1997 annualrepo rt


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    processor and spreadsheet, flow to total expenses as a selling well), and consolidated AS/ 400 percentage of revenue users’ PCs or network computers and RS/ 6000 manufacturing, marketing ( afte r adjustme nts) over both private networks and and development to reduce cost and public networks like the Internet. improve market effectiveness. 39.7 • IBM’s breakthrough in copper FIFTH, 1997 reminded us that there will 32.0 microchips promises a significant always be factors beyond our control, 28.8 28.3 increase in the capacity and speed 27.5 macroeconomic factors that affect our of semiconductors, as well as near-term performance. We saw this in reductions in cost. IBM has more the striking negative impact of world than 50 issued and pending patents currencies and weakness in some relating to the use of copper in A sian markets. T hese conditions chips, and the first devic es will continued into the first quarter of appear this year. 1998, but at this writing we believe they are short-term effects. • We quadrupled the capacity of hard-disk drives through IBM’s 93 94 95 96 97 T H E FI NAL LE SSO N O F 1997 is how patented giant magnetoresistive much of our destiny we do control. (GMR) head technology, and pushed stock performance Because we are on the right strategic 1991- 97 the outer limit of future devices by path, and because the broad changes achieving a new world record in Ye a r - e n d c l o s i n g that are transforming the global economy p ric e s a djuste d storage density — packing more to re fle c t a tw o - play to IBM’s strengths, things are fo r- o ne sp lit o f than 10 billion bits (10 gigabits) per the co mmo n increasingly going our way. sto ck e ffe c tiv e square inch of disk surface. It wasn’t always like that. Just five Ma y 9 , 1 9 9 7 years ago, IBM was on the verge of FO UR T H , we can always do better. Our scattering its businesses to the four consumer PC business underperformed corners of the information technology the market in 1997. A nd we need to do world, to live — or die — within their a better job of strengthening and own industry sectors. We know now positioning our family of servers, with what a mistake that would have been. particular attention to our AS/ 400 and Our unique value proposition to RS/ 6000 lines. We are tackling these customers has been — and will continue $ 104.63 problems aggressively. We reorganized to be — precisely our ability to offer $ 44.50 $ 25.18 $ 28.25 $ 36.75 $ 45.69 $ 75.75 our consumer PC business, introduced integrated solutions that draw on new Aptiva offerings in the sub- $1,000 resources and strengths across IBM. 91 92 93 94 95 96 97 category (products that have been T oday, with the shift to a networked 7


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    world, our customers again need capital turn IBM into the world’s premier investments integrators. They need secure, reliable, knowledge management company. ( $ in billio ns) scalable technology — in other words, We believe very strongly that the IBM-style enterprise computing. And age-old levers of competition — labor, they need partners who understand how 6.8 capital and land —are being supplemented to apply technology to address basic 5.9 by knowledge, and that the most business issues — our heritage. successful companies in the future I believe IBM’s comeback is a direct 4.7 will be those that learn how to exploit result of our decision to swim against the knowledge —knowledge about customer tide, to stay together. 3.2 3.1 behavior, markets, economies, technology I think that became clear in 1997 — — faster and more effectively than their not just to us, but to the marketplace at competitors. They will use knowledge large. Last year, the idea of IBM began to adapt quickly — seizing opportunities to take hold. Our vision of a networked and improving products and services, world began to be accepted, not as a of course, but just as important, renewing corporate slogan, but as an insightful the way they define themselves, think view of how the world was really changing. 93 94 95 96 97 and operate. Wall Street, customers, business partners T o support the rapid movement of and industry consultants welcomed research ideas and knowledge acro ss IBM, and development our e-business campaign, which laid out investments we’re completing a more than $400 a compelling vision for our customers — ( $ in billio ns) million upgrade of our information compelling because it was real. IBM has technology infrastructure, including 7.5 led the industry in transforming the largest single- co mpany ro llo ut businesses into e-businesses, completing ever of groupware — to 240,000 Lotus 6.1 thousands of e-business customer Notes users. We have created new 5.5 engagements. And inside the company, 5.3 5.2 compensation and rewards systems we’ve been working to transform IBM that foster a high-performance culture itself into the world’s premier e-business. based on speed of execution and team- While I haven’t talked much in work. Our knowledge management the past about our work to transform work is also paying off in prosaic IBM — choosing instead to focus areas, such as procurement. Knowing my public comments on customer at all times the status of supply and and industry issues — behind the demand o f purchased go o ds has scenes we’ve been reengineering IBM allowed us to leverage our worldwide from top to bottom, with one goal: to volumes and negotiate more effectively, 93 94 95 96 97 foster a high-performance culture and saving IBM $4.2 billion since 1995. 8 IBM 1997 annualrepo rt


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    To become the world’s first truly knowledge-man- As you may know, I’ve committed to remain agement-based company, you need great technology, IBM’s chairman and CEO for at least another five but you also need lots of smart people. I’ve already years. I’ve done so for two reasons. discussed here some of our world-class technologies. First, the job I came here to do isn’t complete. What follow in this report are examples of the We’ve proved we could survive, when many had wonderful creativity of our nearly 270,000 people. written us off for dead. We’ve proved we could grow, This team’s job, of course, is not finished. We have when most believed growth would come only to the one more peak to scale: a return to industry leadership. small and fleet. And I believe we’re proving IBM is To be part of a true revolution is a rare privilege. relevant to the world of the future, when many saw us For many generations, no such opportunity ever arises. as an artifact of the past. Now, our task is to lead. For us, it has. When we started this journey five Second, I could not, frankly, think of anything years ago, we focused on what was required to bring else that would be nearly as much fun. If you love IBM back. We then came to realize that, in doing so, business — and I do — you want to be where the we were joining in the reinvention of the entire action is, where the marketplace is most dynamic, information technology industry. It’s only within the where the issues are the most urgent, where team past couple of years that the full scope of this revolution creativity is at its most intense. T he most important has become clear. development in the global economy at the dawn of The rise of a globally connected world is changing the 21 st century is going on right now, and IBM is at everything. It’s rewriting the basic assumptions of its epicenter. T his large, resourceful and vitally impor- business, the economy and global society — and the tant company is truly coming into its own. Where else new text reads like an IBM playbook. If IBM didn’t would anyone want to be? exist — if we had disintegrated it five years ago — * * * * * somebody would have to recreate us to lead this new I want to recognize one of our directors, who is retiring era. ( T hat’s just what some of our competitors are this year. Harold Brown has had an extraordinary trying to do.) association with IBM. He was a member of the Board We have a chance to imagine new ways for people from 1972 to 1977. After serving as U.S. Secretary of to interact, to govern themselves, to manage their Defense, he rejoined the Board in 1981. I would like businesses, to enhance their health, to teach their to thank Dr. Brown for his many years of support and children. And we have the resources to do something service to our company, and express my personal about it — to push the technology further and faster gratitude for helping me during my transition into IBM. than anyone else, and to turn it into real solutions, solutions that matter. Our customers and business partners are looking for someone to lead, and we intend to do it. The women and men of the new IBM aren’t daunted Louis V. Gerstner, Jr. by that prospect. They’re fired up by it. And so am I. Chairman and Chief Exec ut ive Offic er 9


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    Of course the world is changing. It never stops. T he technology. T he pace. T he players. What’s far more interesting is what incites change. Every revolution, Every school of philosophy, Every movement worth joining, Every defining enterprise starts the same way. Not with the grand or distant, but with something near and personal. It starts the same way. Every time. It starts here.


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    the new world economy IN 1997 , IB M UNVE I LE D CO NTINUO US SPEECH R ECO GNITIO N FO R MANDAR IN — a breakthrough from researchers in the Beijing research laboratory we opened in 1995. Letting Chi- nese-speaking people interact with a computer in the most natural way imaginable — by talking to it — our ViaVoice software extends the power of information technology to the world’s most populous country, with- out asking its people to shoehorn their language and its 6,700 written characters onto a Western-style keyboard. As IBM expands in the world’s emerging markets — China, Central and Eastern Europe, India, the nations of Southeast Asia — we of course hire locally and make local investments. But more important, we help an economy mature. We transfer skills — through long- term relationships with governments, alliances with universities and joint ventures with local businesses. And we create technologies like ViaVoice that reflect the needs of people and their local culture. It’s the difference between being in a market, and of a market. 12


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    starts here Qian Ying Wang researc h sc ient ist , IBM China Researc h Lab , Beijing 13


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    the buzz starts here a S A R ULE, WE D O N’ T LIKE T O I NJECT JAR GO N I NT O T H E LANGUAGE O F I NFO R - MAT IO N T ECH NO LO GY. But in 1997 we indulged our- With millions of potential customers coming through selves. We coined the phrase “e-business” to talk that cyber front door, our customers need heavy-duty about the value our customers derive from networked transaction and database software — another of our computing, to describe how they are reinventing their strong suits. To plan their e-business strategy, they business models around networked transactions of need expert assistance up front — the kind of solutions every kind — among employees, with suppliers, with consulting we specialize in. And to implement their trading partners, and of course, with customers. strategy fast and cost-effectively, they demand a range We’ve also found that e-business is a powerful, of services — like those from IBM Global Services, the unifying message for IBM itself. As a customer makes world’s leading information technology services provider. its website the front door to the enterprise, the action We completed thousands of e-business engagements shifts to powerful servers — the kind of industrial- last year, and we expect the number of our customers strength computing systems IBM has built for decades. doing e-business will double in 1998. 14


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    Le ft to right: To p r o w : Samir Arora, CEO, Net Ob jec t s; Keit h M c Call, Lot us Dom ino ap p lic at ions, and Doug Wilson, Lot us eSuit e d evelop m ent ; Jim Pert zb orn, AS/ 400 d evelop m ent ; Syd Jones, c orp orat e ad vert ising. M i d d l e r o w : Jennifer Kilian, e- b usiness w eb sit e; Oly Jimenez- Losad a, e- b usiness servic es; Sand esh Bhat and M aria Arb ust o, e- b usiness int ranet . B o t t o m r o w : Deb orah Drakeford , Net finit y servers, and Ed M erend a, RS/ 6000 net w ork c om p ut ing int egrat ion and c onsult ing; Dave Tryon, Syst em / 390 net w ork c om p ut ing, and Forrest Snow d en, sec ure elec t ronic t ransac t ions (SET). 15


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    US5704055 - DYNAMIC RECONFIGURATION OF MAIN STORAGE AND EXPANDED STORAGE BY MEANS OF A SERVICE CALL LOGICAL PROCESSOR - GEORGE JONEL; PLEASANT VALLEY, NY (US) GLASSEN STEVEN GARDNER; WALLKILL, N - SNAP CONTROL FOR RELOCATING ELEMENTS OF A GRAPHICAL USER INTERFACE - REDPATH SARAH D; CARY, NC (US) US5704041 - OBJECT INDEPENDENT SCOPING IN AN OPEN SYSTEM INTERCONNECTION SYSTEM - ALLEN WA LEADER RECOVERY IN A DISTRIBUTED COMPUTING ENVIRONMENT - BADOVINATZ PETER RICHARD; KINGSTON, NY (US) CHANDRA TUSHAR DEEPAK; ELMSFORD, NY (US) KIRBY ORVALLE THEODORE; PLEASANT VALLEY, NY (US) PER TING A VOICE SAMPLE TO A VOICE ACTIVATED DATA PROCESSING SYSTEM - CLINE TROY LEE; CEDAR PARK, TX (US) ISENSEE SCOTT HARLAN; GEORGETOWN, TX (US) POSTON RICKY LEE; AUSTIN, TX (US) WERNER JON HARALD; OC FOR MULTIPLE SPEED DATA COMMUNICATIONS SYSTEMS - BOGGS ANDREW KEITH; RALEIGH, NC (US) HOANG QUY N; RALEIGH, NC (US) JACOBS JOE; CHAPEL HILL, NC (US) MULLEN JOHN MARK; WAKE FOREST, NC (US) PURRINGT WAYNE FREDERICK; JERICHO, VT (US) HEDBERG ERIK LEIGH; ESSEX JUNCTION, VT (US) US5703769 - POWER SWITCH WITH INRUSH CURRENT CONTROL - MURRAY THOMAS P; QUEENSVILLE (CA) US5703734 - DISC DRIVE HAVING A JOHN S; WINCHESTER (GB) NEUBAUER JERRY LEE; STEWARTVILLE, MN (US) US5703684 - APPARATUS FOR OPTICAL DIFFERENTIAL MEASUREMENT OF GLIDE HEIGHT ABOVE A MAGNETIC DISK - LU HUIZONG; COCONUT CREEK, FL PETERS; COLCHESTER, VT (US) US5703582 - DAC WITH FEEDBACK CONTROL FOR CURRENT SOURCE BIAS DURING NON-DISPLAY PERIOD - KOYAMA SEIJI; YAMATO (JP) NOZAWA TOHRU; SAGAMIHARA (JP) SUZUKI YASUSUKE; KANA CT (US) XIAO PETER HONG; MOHEGAN LAKE, NY (US) US5703498 - PROGRAMMABLE ARRAY CLOCK/ RESET RESOURCE - FURTEK FREDERICK CURTIS; MENLO PARK, CA (US) GOULD SCOTT WHITNEY; SOUTH BURLINGTON, VT (US) KE THOMA ENDRE PHILIP; COLCHESTER, VT (US) US5703331 - CIRCUITIZED STRUCTURE INCLUDING FLEXIBLE CIRCUIT WITH ELASTOMERIC MEMBER BONDED THERETO - BRODSKY WILLIAM LOUIS; BINGHAMTON, NY (US) HERARD JA STRUCTURE AND FABRICATION - BERTIN CLAUDE LOUIS; SOUTH BURLINGTON, VT (US) HEDBERG ERIK LEIGH; ESSEX JUNCTION, VT (US) HOWELL WAYNE JOHN; SOUTH BURLINGTON, VT (US) KALTER HOWARD LEO; COLCHESTER, US5702087 - ASEISMIC SUPPORT STRUCTURE - SUZUKI AKIRA; OHMIHACHIMAN (JP) SUZUKI HIROSHI; OHMIHACHIMAN (JP) TSUKAMOTO TAKESHI; OHTSU (JP) US5701654 - PRECISION FLUID HEAD TRANSPORT - CANESTARO MICH LYNN; OSSINING, NY (US) US5701514 - SYSTEM PROVIDING USER DEFINABLE SELECTION OF DIFFERENT DATA TRANSMISSION MODES OF DRIVERS OF AN I/ O CONTROLLER TRANSMITTING TO PERIPHERALS WITH DIFFERENT DATA WITHIN A MULTIMEDIA PRESENTATION UTILIZING A DATA PROCESSING SYSTEM - JOHNSON WILLIAM J; FLOWER MOUND, TX (US) KELLER ROBERT SCOTT; GRAPEVINE, TX (US) MANTHURUTHIL GEORGE C; COPPELL, TX (US) WILLIA HANDLING APPARATUS ALIEN TO THE OPERATING SYSTEM - BAKER ERNEST DYSART; BOCA RATON, FL (US) DINWIDDIE JOHN MONROE JR; WEST PALM BEACH, FL (US) GRICE LONNIE EDWARD; BOCA RATON, FL (US) JOYCE JAMES M ONLINE PUBLICATIONS FORMATTED IN A BOOKMASTER FORMAT - GOACH KENNETH EDMUND JR; AUSTIN, TX (US) MEYER GREGORY PHILLIP; AUSTIN, TX (US) SIMS JEFFREY SCOTT; AUSTIN, TX (US) US5701495 - SCALABLE SYSTEM YOUNGS AMY MAY; AUSTIN, TX (US) US5701489 - SYSTEM FOR PARTIAL IN-LINE EXPANSION OF PROCEDURE CALLS DURING PROGRAM COMPILATION - BATES CARY LEE; ROCHESTER, MN (US) WYMAN BLAIR; ROCHESTER, MN (US) FOR PERFORMING DATA COMPRESSION BASED ON A LIU-ZEMPEL ALGORITHM - BENAYOUN ALAIN; CAGNES SUR MER (FR) FIESCHI JACQUES; SAINT LAURENT DU VAR (FR) LEPENNEC JEAN-FRANCOIS; NICE (FR) MICHEL PATRICK; L RY LYNN; ROUND ROCK, TX (US) STEPHENS ALAN PALMER; AUSTIN, TX (US) US5701458 - SYSTEM AND METHOD FOR MANAGING ARBITRARY SUBSETS OF ACCESS CONTROL LISTS IN A COMPUTER NETWORK - BSAIBES MOUNIR E SAN JOSE, CA (US) PAYTON BRIAN GERRIT; SAN JOSE, CA (US) SIWEK HOWARD ALEXANDER; SAN JOSE, CA (US) US5701455 - METHOD AND APPARATUS FOR REORDERING COMPLEX SQL QUERIES USING A MODIFIED GENERALIZED ALIZED INFERENCE PROPAGATION AND GENERALIZED TRANSITIVE CLOSURE - BHARGAVA GAUTAM; CUPERTINO, CA (US) GOEL PIYUSH; MONTE SERENO, CA (US) IYER BALAKRISHNA RAGMAVENDRA; SAN JOSE, CA (US) US5701451 - IN COMPUTER SYSTEMS - ABALI BULENT; NEW YORK, NY (US) MRAZ RONALD; MILLWOOD, NY (US) US5701430 - CROSS-CACHE-LINE COMPOUNDING ALGORITHM FOR SCISM PROCESSORS - BLANER BARTHOLOMEW; NEWARK VAL VALE, CA (US) MICHOD CAROL S; TUCSON, AZ (US) NG CHAN YIU; SAN JOSE, CA (US) SHERMAN WILLIAM G II; TUCSON, AZ (US) STEFFAN JEFFREY R; SAN JOSE, CA (US) VAN GUNDY STEVEN R; GILROY, CA (US) US5701415 - METHOD TX (US) US5701408 - METHOD FOR TESTING COMPUTER OPERATING OR APPLICATION PROGRAMMING INTERFACES - CORNELL JULIE EILEEN; FORT LAUDERDALE, FL (US) DIAZ JORGE LAZARO; THE WOODLANDS, TX (US) HO DERE LET GUY; MONTPELLIER (FR) STEIMLE ANDRE; EVRY (FR) US5701223 - SPIN VALVE MAGNETORESISTIVE SENSOR WITH ANTIPARALLEL PINNED LAYER AND IMPROVED EXCHANGE BIAS LAYER, AND MAGNETIC RECORDING SYSTEM U CA (US) WILHOIT DENNIS RICHARD; MORGAN HILL, CA (US) US5701222 - SPIN VALVE SENSOR WITH ANTIPARALLEL MAGNETIZATION OF PINNED LAYERS - GILL HARDAYAL SINGH; PORTOLA VALLEY, CA (US) GURNEY BRUCE A; SAN FOAMED POLYMER - HEDRICK JAMES LUPTON; PLEASANTON, CA (US) HEDRICK JEFFREY CURTIS; PARK RIDGE, NJ (US) LIAO YUN-HSIN; W. NYACK, NY (US) MILLER ROBERT DENNIS; SAN JOSE, CA (US) SHIH DA-YUAN; POUGHKEEP G; HOPEWELL JUNCTION, NY (US) US5700549 - STRUCTURE TO REDUCE STRESS IN MULTILAYER CERAMIC SUBSTRATES - GARANT JOHN J; HOPEWELL JUNCTION, NY (US) INDYK RICHARD F; WAPPINGERS FALLS, NY (US) US57003 NY (US) PURUSHOTHAMAN SAMPATH; YORKTOWN HEIGHTS, NY (US) ROLDAN JUDITH MARIE; OSSINING, NY (US) SARAF RAVI F; BRIARCLIFF MANOR, NY (US) SHAW JANE MARGARET; RIDGEFIELD, CT (US) VIEHBECK ALFRED; FISHK PLATE - GOTH GARY FRANKLIN; PLEASANT VALLEY, NY (US) KEMINK RANDALL GAIL; POUGHKEEPSIE, NY (US) LOPARCO JOHN JOSEPH; POUGHKEEPSIE, NY (US) SCHMIDT ROGER RAY; POUGHKEEPSIE, NY (US) US5699679 - CRYOGEN SION STACKED VIAS FOR A MULTIPLE LAYER CIRCUIT BOARD STRUCTURE - CHONG KU HO; ARLINGTON HEIGHTS, IL (US) CROCKETT CHARLES HAYDEN JR; AUSTIN, TX (US) DUNN STEPHEN ALAN DECEASED; LATE OF GEORGETOWN MULTIPROCESSOR - LE HUNG QUI; AUSTIN, TX (US) SO KIMMING; AUSTIN, TX (US) TRUONG BAO-BINH; AUSTIN, TX (US) US5699536 - COMPUTER PROCESSING SYSTEM EMPLOYING DYNAMIC INSTRUCTION FORMATTING - HOPKINS DISPLAY - AMRO HATIM YOUSEF; AUSTIN, TX (US) US5699534 - MULTIPLE DISPLAY POINTERS FOR COMPUTER GRAPHICAL USER INTERFACES - BARBER RONALD JASON; SAN JOSE, CA (US) FORD DANIEL ALEXANDER; SAN JOSE, C DITTO LOUIS FRANK; RALEIGH, NC (US) STAGG ARTHUR JAMES; RALEIGH, NC (US) WARD RAYMOND EDWARD; DURHAM, NC (US) US5699511 - SYSTEM AND METHOD FOR DYNAMICALLY VARYING LOW LEVEL FILE SYSTEM OPERATIO DY KRISHNA KISHORE; AUSTIN, TX (US) US5699502 - SYSTEM AND METHOD FOR MANAGING COMPUTER SYSTEM FAULTS - SWANBERG RANDAL CRAIG; ROUND ROCK, TX (US) WILLIAMS MICHAEL STEPHEN; AUSTIN, TX (US) US56 intellectual PLEASANT VALLEY, NY (US) PERSHING JOHN ARTHUR JR; BUCHANAN, NY (US) US5699427 - METHOD TO DETER DOCUMENT AND INTELLECTUAL PROPERTY PIRACY THROUGH INDIVIDUALIZATION - CHOW CHEE-SENG; BRIARCLIFF PETER; AUSTIN, TX (US) SINGH RAJINDER PAUL; AUSTIN, TX (US) US5699266 - METHOD AND APPARATUS FOR AUTOMATICALLY RECOGNIZING REPEATED SHAPES FOR DATA COMPACTION - CHUNG VIRGINIA M; PLEASANT VALLEY, N TANAIK SURYA; SAN JOSE, CA (US) SIMMONS RANDALL GEORGE; SAN JOSE, CA (US) US5699160 - OPTICAL APPARATUS FOR INSPECTING LASER TEXTURE - BARENBOIM MICHAEL; BOCA RATON, FL (US) BAUMGART PETER MICHAEL BOYNTON BEACH, FL (US) LU HUIZONG; COCONUT CREEK, FL (US) PENA LANPHUONG THI; FORT LAUDERDALE, FL (US) SEING HONG S; BOCA RATON, FL (US) TAHERI ALI REZA; BOCA RATON, FL (US) TAM ANDREW CHING; SARATOG LOCAL PARITY - WIDMER ALBERT X; KATONAH, NY (US) US5696985 - VIDEO PROCESSOR - CRUMP DWAYNE T; APEX, NC (US) PANCOAST STEVE T; RALEIGH, NC (US) US5696974 - METHODS TO SUPPORT MULTIMETHOD FUNCTION OV PORTING MULTIMETHOD FUNCTION OVERLOADING WITH COMPILE-TIME TYPE CHECKING AND RUN-TIME DISPATCH - AGRAWAL RAKESH; SAN JOSE, CA (US) DEMICHIEL LINDA GAIL; LOS ALTOS, CA (US) LINDSAY BRUCE GILBERT; SA MONTE SERENO, CA (US) IYER BALAKRISHNA R; SAN JOSE, CA (US) US5696947 - TWO DIMENSIONAL FRAME BUFFER MEMORY INTERFACE SYSTEM AND METHOD OF OPERATION THEREOF - JOHNS CHARLES R; AUSTIN, TX (US) RO METHOD OF MANAGING MARKER ENTITIES WITHIN A DOCUMENT DATA STREAM - BARKER BARBARA A; ROUND ROCK, TX (US) EDEL THOMAS R; AUSTIN, TX (US) STARK JEFFREY A; GRAPEVINE, TX (US) US5696905 - SYSTEM AND M GRAM PRODUCT FOR GROUP LEADER RECOVERY IN A DISTRIBUTED COMPUTING ENVIRONMENT - BADOVINATZ PETER RICHARD; KINGSTON, NY (US) CHANDRA TUSHAR DEEPAK; ELMSFORD, NY (US) KIRBY ORVALLE THEODORE; PL - HEKMATPOUR AMIR; BURLINGTON, VT (US) US5696879 - METHOD AND APPARATUS FOR IMPROVED VOICE TRANSMISSION - CLINE TROY LEE; CEDAR PARK, TX (US) ISENSEE SCOTT HARLAN; GEORGETOWN, TX (US) PARKE FREDER ING DESIRED ACCURACY - KOVACS LINDA ANNE; MAINE, NY (US) US5696709 - PROGRAM CONTROLLED ROUNDING MODES - SMITH RONALD MORTON SR; WAPPINGERS FALLS, NY (US) US5696656 - HIGHLY SENSITIVE ORTHOGONA GLAS JOHNSON; FREMONT, CA (US) US5696654 - DUAL ELEMENT MAGNETORESISTIVE SENSOR WITH ANTIPARALLEL MAGNETIZATION DIRECTIONS FOR MAGNETIC STATE STABILITY - GILL HARDAYAL SINGH; PORTOLA VALLEY, CA (U OWATONNA, MN (US) US5696643 - DISK DRIVE APPARATUS AND READ ERROR RECOVERY METHOD IN A DISK DRIVE APPARATUS - HARAKO FUJIO; FUJISAWA (JP) NAKAJIMA MICHIO; SAGAMIHARA (JP) OGASAWARA KENJI; FUJISAWA SELKER EDWIN JOSEPH; PALO ALTO, CA (US) US5696030 - INTEGRATED CIRCUIT CONTACTS HAVING IMPROVED ELECTROMIGRATION CHARACTERISTICS AND FABRICATION METHODS THEREFOR - CRONIN JOHN EDWARD; MILTON, TIN FRANK JOHN; NORTH KELVINSIDE (GB) US5695500 - SYSTEM FOR MANIPULATING MOVEMENT OF A SURGICAL INSTRUMENT WITH COMPUTER CONTROLLED BRAKE - KIM YONG-YIL; SEOUL (KR) TAYLOR RUSSELL HIGHSMITH; OS MO (US) EASTON JANET RHEA; WOODSTOCK, NY (US) FARRELL MARK STEVEN; PLEASANT VALLEY, NY (US) WEBB CHARLES FRANKLIN; POUGHKEEPSIE, NY (US) US5694616 - METHOD AND SYSTEM FOR PRIORITIZATION OF EMAIL I TIMED INTERFACE FOR A NETWORK OF COMPUTER PROCESSORS INTERCONNECTED IN PARALLEL - CAPOWSKI ROBERT STANLEY; VERBANK, NY (US) CASPER DANIEL FRANCIS; POUGHKEEPSIE, NY (US) DESNOYERS CHRISTINE MAR - METHOD AND SYSTEM FOR OPTIMIZING ACCESS TO A DATASTORE - CANTIN GUYLAINE; TORONTO (CA) COPELAND GEORGE P; AUSTIN, TX (US) GHEITH AHMED M; ROUND ROCK, TX (US) SESSIONS ROGER H; AUSTIN, TX (US) US5 INSTRUCTIONS FOR TEST PSW VALIDITY, LOAD WITH ACCESS TEST, AND CHARACTER TRANSLATION ASSIST - CHECK MARK ANTHONY; HOPEWELL JUNCTION, NY (US) FARRELL MARK STEVEN; PLEASANT VALLEY, NY (US) LIPTAY JO ROBERT; APEX, NC (US) NUECHTERLEIN DAVID WILLIAM; DURHAM, NC (US) US5694583 - BIOS EMULATION PARAMETER PRESERVATION ACROSS COM PUTER BOOTSTRAPPING - DART CHARLES R II; BOCA RATON, FL (US) MERKIN ST NOBUYUKI; SENDAI (JP) SHIMIZU SHIGENORI; KAWASAKI (JP) US5694573 - SHARED L2 SUPPORT FOR INCLUSION PROPERTY IN SPLIT L1 DATA AND INSTRUCTION CACHES - CHEONG HOICHI; TRAVIS COUNTY, TX (US) HICKS DWAIN CAMERON; TUCSON, AZ (US) CANDELARIA SUSAN KAY; TUCSON, AZ (US) CORD JOEL HARVEY; TUCSON, AZ (US) HARTUNG MICHAEL HOWARD; TUCSON, AZ (US) HYDE JOSEPH SMITH; TUCSON, AZ (US) MCCAULEY JOHN NORBERT JR - KAHLE JAMES A; AUSTIN, TX (US) LOPER ALBERT J; CEDAR PARK, TX (US) MALLICK SOUMMYA; AUSTIN, TX (US) OGDEN AUBREY D; ROUND ROCK, TX (US) US5694556 - DATA PROCESSING SYSTEM INCLUDING BUFFERING MECHA ING MULTIMEDIA QUALITY OF SERVICE SESSIONS IN A COMMUNICATIONS NETWORK - BAUGHER MARK JOHN; AUSTIN, TX (US) VAN HORN ISABEL BERDEEN; AUSTIN, TX (US) US5694443 - APPARATUS FOR COUNTING ELECTRONIC CO M; ROCHESTER, MN (US) ZELINSKI MICHAEL J; ROCHESTER, MN (US) US5694407 - METHOD AND AN APPARATUS FOR MODIFYING A FCS - GLAISE RENE; NICE (FR) US5694400 - CHECKING DATA INTEGRITY IN BUFFERED DATA TRAN GEN (DE) US5694362 - METHOD AND APPARATUS FOR HIGH SPEED COMPARISON - LATTIMORE GEORGE MCNEIL; AUSTIN, TX (US) LEASURE TERRY LEE; GEORGETOWN, TX (US) ZHANG KEVIN XIAOQIANG; AUSTIN, TX (US) US569434 MICHAEL PATRICK; ENDICOTT, NY (US) US5694310 - THREE PHASE INPUT BOOST CONVERTER - MALIK RANDHIR SINGH; COLCHESTER, VT (US) WUNDERLICH RONNIE ARNO; ENDICOTT, NY (US) US5694170 - VIDEO COMPRESSION US SHIRE (GB) KNOX ANDREW; KILBIRNIE (GB) US5694123 - KEYBOARD WITH INTEGRATED POINTING DEVICE AND CLICK BUTTONS WITH LOCK DOWN FOR DRAG OPERATION IN A COMPUTER SYSTEM WITH A GRAPHICAL USER INTERFA - FERRAIOLO FRANK D; ESSEX JUNCTION, VT (US) GERSBACH JOHN E; BURLINGTON, VT (US) HAYASHI MASAYUKI; WILLISTON, VT (US) MASENAS CHARLES J JR; ESSEX JUNCTION, VT (US) NOVOF ILYA I; ESSEX JUNCTION, VT (US) US MASENAS CHARLES J JR; ESSEX JUNCTION, VT (US) US5693928 - METHOD FOR PRODUCING A DIFFUSION BARRIER AND POLYMERIC ARTICLE HAVING A DIFFUSION BARRIER - EGITTO FRANK DANIEL; BINGHAMTON, NY (US) MATIEN (US) US5692218 - SYSTEM FOR TRANSFERRING DATA BETWEEN INPUT/ OUTPUT DEVICES HAVING SEPARATE ADDRESS SPACES IN ACCORDANCE WITH INITIALIZING INFORMATION IN ADDRESS PACKAGES (METHOD IN A DATA PROC FLICT RESOLUTION APPARATUS - MEANEY PATRICK J; POUGHKEEPSIE, NY (US) SEIGLER ADRIAN E; POUGHKEEPSIE, NY (US) US5692207 - DIGITAL SIGNAL PROCESSING SYSTEM WITH DUAL MEMORY STRUCTURES FOR PERFORMIN BEACH, FL (US) US5692205 - METHOD AND SYSTEM FOR INTEGRATION OF MULTIMEDIA PRESENTATIONS WITHIN AN OBJECT ORIENTED USER INTERFACE (METHOD WITHIN A DATA PROCESSING SYSTEM) - BERRY RICHARD E; GEOR JR; WEST PALM BEACH, FL (US) US5692195 - PARENT CLASS SHADOWING (COMPUTER PROGRAM PRODUCT) - CONNER MIKE HADEN; AUSTIN, TX (US) MARTIN ANDREW RICHARD; AUSTIN, TX (US) RAPER LARRY KEITH; AUSTIN, TX ( - BIOS EMULATION OF A HARD FILE IMAGE AS A DISKETTE (DATA PROCESSING SYSTEM) - WILLIAMS DONALD D; BOCA RATON, FL (US) US5692182 - BUFFERPOOL COHERENCY FOR IDENTIFYING AND RETRIEVING VERSIONS OF WORK ALLEN; SAN JOSE, CA (US) US5692180 - OBJECT-ORIENTED CELL DIRECTORY DATABASE FOR A DISTRIBUTED COMPUTING ENVIRONMENT - LEE HENRY; AUSTIN, TX (US) US5692174 - QUERY PARALLELISM IN A SHARED DATA DBM S BY NOW, IT ’ S B ECO ME SO MEW HAT PR EDICTAB LE. this roster isn’t a monument to irrelevant brilliance. The U.S. Patent Office announces the company that We understand that capitalizing on our intellectual received the most new patent awards, and IBM’s tech- property is as important as creating it, and we do that in nical community takes a bow. In 1997, it happened again several ways. Fully one- third of last year’s patented — for the fifth straight year. These pages contain some technologies have already been incorporated into IBM of the names of the technologies and the technologists products. We also enter into cross-patent agreements behind some of our patent awards in 1997. (We received that give us access to additional technologies and 1,724 of them, so we have had to use small print.) But strengthen our total solutions capability. Finally, 16


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    Y (US) KIM MOON JU; WAPPINGERS FALLS, NY (US) KRYGOWSKI MATTHEW ANTHONY; HOPEWELL JUNCTION, NY (US) PRESTON ALLEN HERMAN; POUGHKEEPSIE, NY (US) STUCKI DAVID EMMETT; POUGHKEEPSIE, NY (US) US5704050 DE C; DURHAM, NC (US) GOODWIN JEREMY PHILIP; RALEIGH, NC (US) NIELSEN ROBERT LOUIS; ZUMIKON (CH) REDER PAUL JOSEPH; DURHAM, NC (US) TOLTZMAN DOUGLAS; HUBERT, NC (US) US5704032 - METHOD FOR GROUP SHING JOHN ARTHUR JR; BUCHANAN, NY (US) US5704012 - ADAPTIVE RESOURCE ALLOCATION USING NEURAL NETWORKS - BIGUS JOSEPH PHILLIP; ROCHESTER, MN (US) US5704009 - METHOD AND APPARATUS FOR TRANSMIT- EANSIDE, CA (US) US5703878 - METHOD OF TRANSFERRING STRUCTURED DATA OF CONSTANT BIT RATE TRAFFIC IN AN ATM NETWORK - DUAULT MAURICE; SAINT LAURENT DU VAR (FR) US5703872 - INTELLIGENT CONCENTRATOR ON CHALLIS; RALEIGH, NC (US) WEAVER LAURA A; DURHAM, NC (US) US5703823 - MEMORY DEVICE WITH PROGRAMMABLE SELF-REFRESHING AND TESTING METHODS THEREFORE - DOUSE DAVID ELSON; JERICHO, VT (US) ELLIS INTEGRAL GASKET AND CONTINUOUS OUTER PERIMETER SHOCK BUMPER - BERBERICH JAMES WILLIAM; SAN JOSE, CA (US) BERG LOWELL JAMES; ROCHESTER, MN (US) BOUTAGHOU ZINE-EDDINE; ROCHESTER, MN (US) HEATH (US) TAHERI ALI REZA; BOCA RATON, FL (US) US5703622 - METHOD FOR IDENTIFYING VIDEO PIXEL DATA FORMAT IN A MIXED FORMAT DATA STREAM - EVANS EDWARD KELLEY; ESSEX JUNCTION, VT (US) WEST RODERICK MICHAEL GAWA-KEN (JP) TERUKINA ASAO; YAMATO (JP) US5703578 - FOLDING KEYBOARD - ALLISON JEFFERY DANIEL; SEATTLE, WA (US) US5703532 - FULLY DIFFERENTIAL SELF-BIASED SIGNAL RECEIVER - SHIN HYUN JONG; RIDGEFIELD, YSER FRANK RAY III; COLCHESTER, VT (US) WORTH BRIAN A; MILTON, VT (US) ZITTRITSCH TERRANCE JOHN; WILLISTON, VT (US) US5703495 - DATA OUTPUT IMPEDANCE CONTROL - SARTWELL ALFRED LEONARD; JERICHO, VT (US) MES DANIEL; VESTAL, NY (US) MACEK THOMAS GEORGE; ENDICOTT, NY (US) SHARP TIMOTHY LEE; BERKSHIRE, NY (US) SHOVLOWSKY GEORGE JOSEPH; OWEGO, NY (US) US5702984 - INTEGRATED MULITCHIP MEMORY MODULE, VT (US) KELLEY GORDON ARTHUR JR; ESSEX JUNCTION, VT (US) US5702756 - PROCESS FOR MAKING A THIN FILM MAGNETIC HEAD - MCKEAN DENNIS RICHARD; CUPERTINO, CA (US) RENALDO ALFRED FLOYD; SAN JOSE, CA (US) AEL JAMES; ENDICOTT, NY (US) US5701647 - METHOD FOR MAKING AN ISOLATED SIDEWALL CAPACITOR HAVING A COMPOUND PLATE ELECTRODE - KOTECKI DAVID EDWARD; HOPEWELL JUNCTION, NY (US) SAENGER KATHERINE TRANSMISSION RATE - KEENER DON STEVEN; BOCA RATON, FL (US) MOORE GREGORY JAMES; BOCA RATON, FL (US) US5701510 - METHOD AND SYSTEM FOR EFFICIENT DESIGNATION AND RETRIEVAL OF PARTICULAR SEGMENTS MS MARVIN L; LEWISVILLE, TX (US) US5701502 - ISOLATING A CENTRAL PROCESSING UNIT FROM THE OPERATING SYSTEM CONTROLLING SAID UNIT AND ITS ASSOCIATED HARDWARE FOR INTERACTION OF THE UNIT WITH DATA AURICE; BOCA RATON, FL (US) LOFFREDO JOHN MARIO; DEERFIELD BEACH, FL (US) SANDERSON KENNETH RUSSELL; WEST PALM BEACH, FL (US) US5701498 - METHOD AND APPARATUS FOR A STRUCTURED ASCII BROWSER FOR INTERRUPT STRUCTURE FOR A MULTI-PROCESSING SYSTEM - ARNDT RICHARD LOUIS; AUSTIN, TX (US) NICHOLSON JAMES OTTO; AUSTIN, TX (US) SILHA EDWARD JOHN; AUSTIN, TX (US) THURBER STEVEN MARK; AUSTIN, TX (US) US5701486 - TRACING TECHNIQUE FOR APPLICATION PROGRAMS USING PROTECT MODE ADDRESSING - GILBERTSEN TODD ANDREW; ROCHESTER, MN (US) KNIGHT STEPHEN ARTHUR; ROCHESTER, MN (US) US5701468 - SYSTEM AGAUDE (FR) US5701465 - METHOD AND APPARATUS FOR RESERVING SYSTEM RESOURCES TO ASSURE QUALITY OF SERVICE - BAUGHER MARK JOHN; AUSTIN, TX (US) CHANG PHILIP YEN-TANG; AUSTIN, TX (US) MORRIS GREGO- MILE; AUSTIN, TX (US) KELLS TIMOTHY ROGER; ROUND ROCK, TX (US) US5701456 - SYSTEM AND METHOD FOR INTERACTIVELY FORMULATING DATABASE QUERIES USING GRAPHICAL REPRESENTATIONS - JACOPI TOM WILLIAM; OUTER JOIN OPERATOR - BHARGAVA GAUTAM; CUPERTINO, CA (US) GOEL PIYUSH; MONTE SERENO, CA (US) IYER BALAKRISHNA RAGMAVENDRA; SAN JOSE, CA (US) US5701454 - SIMPLIFICATION OF SQL QUERIES USING GENER- METHOD FOR FULFILLING REQUESTS OF A WEB BROWSER - LAGARDE KONRAD CHARLES; MILFORD, CT (US) ROGERS RICHARD MICHAEL; BEACON, NY (US) US5701446 - METHOD FOR FINE GRAIN ADJUSTMENTS TO SYSTEM TIME LEY, NY (US) JEREMIAH THOMAS LEO; ENDWELL, NY (US) US5701429 - METHOD AND SYSTEM FOR MAINTAINING CONCURRENT DATA ACCESS DURING DEVICE UPGRADE - LEGVOLD VERNON J; TUCSON, AZ (US) LIU JULIA; SUNNY- FOR CREATING STUB FILE SUPPORTING REMOTE PROCEDURE CALLS BY GENERATING COMMON CODE INCLUDING CODE UTILIZED BY STUB PROCEDURES TO INVOKE PLURALITY OF SERVICE PROCEDURES - WEI YI-HSIU; AUSTIN, K WAN HOK; MIAMI, FL (US) NGUYEN SON DUC; BOYNTON BEACH, FL (US) TRAN CUONG HUU; BOCA RATON, FL (US) US5701397 - CIRCUIT FOR PRE-CHARGING A FREE NEURON CIRCUIT - LOUIS DIDIER; FONTAINEBLEAU (FR) PAIL- ING THE SENSOR - FONTANA ROBERT EDWARD JR; SAN JOSE, CA (US) GURNEY BRUCE ALVIN; SANTA CLARA, CA (US) LIN TSANN; SARATOGA, CA (US) SPERIOSU VIRGIL SIMON; SAN JOSE, CA (US) TSANG CHING HWA; SUNNYVALE, TA CLARA, CA (US) US5701219 - SPACER FOR PROVIDING SUPPORT AND A TRANSDUCER PARKING STRUCTURE IN A DISK DRIVE ASSEMBLY - SHAFE’ MATHEW KAYHAN; CAMPBELL, CA (US) US5700844 - PROCESS FOR MAKING A SIE, NY (US) US5700581 - SOLVENT-FREE EPOXY BASED ADHESIVES FOR SEMICONDUCTOR CHIP ATTACHMENT AND PROCESS - BERGER MICHAEL; GARDINER, NY (US) CHACE MARK S; POUGHKEEPSIE, NY (US) SACHDEV KRISHNA 98 - COMPOSITION CONTAINING A POLYMER AND CONDUCTIVE FILLER AND USE THEREOF - ANGELOPOULOS MARIE; CORTLANDT MANOR, NY (US) BRUSIC VLASTA A; AMAWALK, NY (US) GRAHAM TERESITA ORDONEZ; IRVINGTON, ILL, NY (US) US5700380 - SIMPLIFIED METHOD OF MAKING VIAS FOR MERGED MR HEAD - KROUNBI MOHAMAD TOWFIK; SAN JOSE, CA (US) LEE JAMES HSI-TANG; SAN JOSE, CA (US) US5699853 - COMBINED HEAT SINK AND SINK IC AEROSOL SEPARATOR - CAVALIERE WILLIAM ALBERT; VERBANK, NY (US) NORUM JAMES PATRICK; MILLWOOD, NY (US) SCHMITZ STEFAN; PLEASANT VALLEY, NY (US) WU JIN JWANG; OSSINING, NY (US) US5699613 - FINE DIMEN- , TX (US) HOEBENER KARL GRANT; GEORGETOWN, TX (US) MCMASTER MICHAEL GEORGE; VERNONIA, OR (US) US5699538 - EFFICIENT FIRM CONSISTENCY SUPPORT MECHANISMS IN AN OUT-OF-ORDER EXECUTION SUPERSCALER MARTIN EDWARD; CHAPPAQUA, NY (US) NAIR RAVINDRA K; BRIARCLIFF MANOR, NY (US) US5699535 - METHOD, MEMORY AND APPARATUS FOR AUTOMATICALLY RESIZING A PLURALITY OF WINDOWS DISPLAYED ON A COMPUTER Capitalism (US) SELKER EDWIN JOSEPH; PALO ALTO, CA (US) US5699532 - DYNAMIC MULTIPATH CHANNEL INTERFACE FOR INPUT/ OUTPUT CHANNELS - BARRETT LINDA; RALEIGH, NC (US) LONG LYNN DOUGLAS; CHAPEL HILL, NC (US) MEN- N TIMEOUT PARAMETERS IN NETWORK SYSTEMS OF VARIABLE BANDWIDTH - PORCARO THOMAS JOSEPH; AUSTIN, TX (US) WALDRON THEODORE CLAYTON III; AUSTIN, TX (US) WARD RICHARD BYRON; AUSTIN, TX (US) YELLEPED- 99501 - SYSTEM FOR GROUP LEADER RECOVERY IN A DISTRIBUTED COMPUTING ENVIRONMENT - BADOVINATZ PETER RICHARD; KINGSTON, NY (US) CHANDRA TUSHAR DEEPAK; ELMSFORD, NY (US) KIRBY ORVALLE THEODORE; MANOR, NY (US) KUTTEN SHAY; ROCKAWAY, NJ (US) YUNG MARCELL MORDECHAY; NEW YORK, NY (US) US5699288 - COMPARE CIRCUIT FOR CONTENT-ADDRESSABLE MEMORIES - KIM SONG CHIN; TEMPLE, TX (US) LIU PEICHUN Y (US) STUART JAMES E; HOPEWELL JUNCTION, NY (US) US5699212 - METHOD OF ELECTROSTATIC DISCHARGE PROTECTION OF MAGNETIC HEADS IN A MAGNETIC STORAGE SYSTEM - ERPELDING A DAVID; SAN JOSE, CA (US) PAT- ; SAN JOSE, CA (US) CHRUSCH PETER P; BOYNTON BEACH, FL (US) HARPER BENNY MICHAEL; BOCA RATON, FL (US) KARNI BENJAMIN; SAN JOSE, CA (US) KERSTENS PIETER J M; BOCA RATON, FL (US) LISANKE MICHAEL GERARD; A, CA (US) US5699082 - ENHANCED PROGRAM ACCESS IN A GRAPHICAL USER INTERFACE - MARKS RONALD FRANKLIN; SAN JOSE, CA (US) SELKER EDWIN JOSEPH; PALO ALTO, CA (US) US5699062 - TRANSMISSION CODE HAVING ERLOADING WITH COMPILE-TIME TYPE CHECKING - AGRAWAL RAKESH; SAN JOSE, CA (US) DE MICHIEL LINDA GAIL; LOS ALTOS, CA (US) LINDSAY BRUCE GILBERT; SAN JOSE, CA (US) US5696973 - INDEX-BASED METHOD FOR SUP- N JOSE, CA (US) US5696960 - COMPUTER PROGRAM PRODUCT FOR ENABLING A COMPUTER TO GENERATE UNIQUENESS INFORMATION FOR OPTIMIZING AN SQL QUERY - BHARGAVA GAUTAM; CUPERTINO, CA (US) GOEL PIYUSH; BERSON JOHN T; AUSTIN, TX (US) US5696932 - METHOD AND SYSTEM FOR ESTIMATING MINUMUM REQUIREMENTS ON A CACHE IN A COMPUTER BASED STORAGE SYSTEM - SMITH KEVIN FRANK; SAN JOSE, CA (US) US5696918 - ETHOD FOR PROVIDING MERCHANT INFORMATION AND ESTABLISHING LINKS TO MERCHANTS WHILE PRESENTING A MOVIE - REIMER JAMES A; MORGAN HILL, CA (US) REINSCH ROGER A; CUPERTINO, CA (US) US5696896 - PRO- EASANT VALLEY, NY (US) PERSHING JOHN ARTHUR JR; BUCHANAN, NY (US) US5696885 - EXPERT SYSTEM AND METHOD EMPLOYING HIERARCHICAL KNOWLEDGE BASE, AND INTERACTIVE MULTIMEDIA/ HYPERMEDIA APPLICATIONS IC IRA; AUSTIN, TX (US) POSTON RICKY LEE; AUSTIN, TX (US) ROGERS GREGORY SCOTT; AUSTIN, TX (US) WERNER JON HARALD; AUSTIN, TX (US) US5696713 - METHOD FOR FASTER DIVISION BY KNOWN DIVISOR WHILE MAINTAIN- L SPIN VALVE READ HEAD - GILL HARDAYAL SINGH; PORTOLA VALLEY, CA (US) GURNEY BRUCE A; SANTA CLARA, CA (US) SMYTH JOSEPH FRANCIS; LOS ALTOS, CA (US) SPERIOSU VIRGIL SIMON; SAN JOSE, CA (US) WERNER DOU- S) PINARBASI MUSTAFA; MORGAN HILL, CA (US) US5696649 - ELASTIC INSERT SHROUD TO PROVIDE MAXIMUM EFFECTIVE SHROUDING SHOCK MITIGATION AND FILTERING IN HIGH SPEED DISK DRIVES - BOUTAGHOU ZINE-EDDINE; (JP) SUDA KATSUMI; SAGAMIHARA (JP) TSUWAKO KAZUSHI; MACHIDA (JP) YONEDA ISAO; YOKOHAMA (JP) US5696535 - GRAPHICS DISPLAY POINTER WITH INTEGRATED SELECTION - RUTLEDGE JOSEPH DELA; MAHOPAC, NY (US) VT (US) US5695864 - ELECTRONIC DEVICE USING MAGNETIC COMPONENTS - SLONCZEWSKI JOHN CASIMIR; KATONAH, NY (US) US5695582 - METHOD AND APPARATUS FOR BONDING - BEETESON JOHN S; SKELMORLIE (GB) MAR- SINING, NY (US) US5694617 - SYSTEM FOR PRIORITIZING QUIESCE REQUESTS AND RECOVERING FROM A QUIESCENT STATE IN A MULTIPROCESSING SYSTEM WITH A MILLI-MODE OPERATION - CHEUNG MING H; CAPE GIRARDEAU, TEMS BY SELECTIVELY ASSOCIATING PRIORITY ATTRIBUTE WITH AT LEAST ONE AND FEWER THAN ALL OF THE RECIPIENTS - JOHNSON WILLIAM J; FLOWER MOUND, TX (US) WEBER OWEN W; COPPELL, TX (US) US5694612 - SELF- IE; PINE BUSH, NY (US) FERRAIOLO FRANK DAVID; NEW WINDSOR, NY (US) GARMIRE DERRICK LEROY; KINGSTON, NY (US) HALMA MARTEN JAN; POUGHQUAG, NY (US) STUCKE ROBERT FREDERICK; SAUGERTIES, NY (US) US5694597 694595 - REMOTE USER PROFILE MANAGEMENT ADMINISTRATION IN A COMPUTER NETWORK - IBANEZ JESUS GERARDO; AUSTIN, TX (US) JACOBS DWAYNE CHARLES; BOCA RATON, FL (US) US5694587 - SPECIALIZED MILLICODE HN STEPHEN; RHINEBECK, NY (US) WEBB CHARLES FRANKLIN; POUGHKEEPSIE, NY (US) US5694585 - PROGRAMMABLE MEMORY CONTROLLER AND DATA TERMINAL EQUIPMENT - DWIN DAVID; CARRBORO, NC (US) LEE WILLIAM ANLEY L; LAKEWORTH, FL (US) WILLIAMS DONALD D; BOCA RATON, FL (US) US5694575 - DIRECT I/ O CONTROL SYSTEM WITH PROCESSOR, MAIN MEMORY, AND CACHE EMPLOYING DATA CONSISTENCY RETAINING SCHEME - OBA A; TRAVIS COUNTY, TX (US) SO KIMMING; TRAVIS COUNTY, TX (US) US5694570 - METHOD AND SYSTEM OF BUFFERING DATA WRITTEN TO DIRECT ACCESS STORAGE DEVICES IN DATA PROCESSING SYSTEMS - BEARDSLEY BRENT ; TUCSON, AZ (US) US5694565 - METHOD AND DEVICE FOR EARLY DEALLOCATION OF RESOURCES DURING LOAD/ STORE MULTIPLE OPERATIONS TO ALLOW SIMULTANEOUS DISPATCH/ EXECUTION OF SUBSEQUENT INSTRUCTIONS NISM FOR INBOUND AND OUTBOUND READS AND POSTED WRITES - NEAL DAN M; ROUND ROCK, TX (US) SILHA EDWARD J; AUSTIN, TX (US) THURBER STEVEN M; AUSTIN, TX (US) US5694548 - SYSTEM AND METHOD FOR PROVID- MPONENTS - BROWN CHAR L; ROCHESTER, MN (US) FOSTER TONY D; ROCHESTER, MN (US) IHRKE JAMES H; ROCHESTER, MN (US) SIMON GERALD F; ORONOCO, MN (US) STONE JEFFREY L; ROCHESTER, MN (US) WAPPES THOMAS SMISSION - GERVAIS GILLES; AUSTIN, TX (US) HOLM INGEMAR; STUTTGART (DE) KOEHLER THOMAS; HOLZGERLINGEN (DE) KOHLER HELMUT; MOENSHEIM (DE) SCHUMACHER NORBERT; NEUHAUSEN (DE) ZILLES GERHARD; JETTIN- - INTEGRATED CIRCUIT INCLUDING FULLY TESTABLE SMALL SCALE READ ONLY MEMORY CONSTRUCTED OF LEVEL SENSITIVE SCAN DEVICE SHIFT REGISTER LATCHES - MILANO LOUIS CHRISTOPHER; ENDICOTT, NY (US) VACHON ING MULTIPLE COMPUTING AGENTS - TIWARI PRASOON; CROTON-ON-HUDSON, NY (US) VISCITO ERIC; SAN FRANCISCO, CA (US) US5694154 - TOUCH SENSOR INPUT SYSTEM FOR A COMPUTER DISPLAY - BEETESON JOHN S; AYR- CE - SELKER EDWIN JOSEPH; PALO ALTO, CA (US) SUZUKI MICHIO; YOKOHAMA (JP) TAKAHASKI TOMOYUKI; FUJISAWA (JP) UCHIYAMA YOSHIHARU; ISEHARA (JP) US5694087 - ANTI-LATCHING MECHANISM FOR PHASE LOCK LOOPS 5694057 - SYSTEM FOR ENHANCED DRIVE IN PROGRAMMABLE GATE ARRAYS - GOULD SCOTT WHITNEY; BURLINGTON, VT (US) US5694032 - BAND GAP CURRENT REFERENCE CIRCUIT - GERSBACH JOHN E; BURLINGTON, VT (US) ZO LUIS JESUS; ENDICOTT, NY (US) MORRISON BRUCE OTHO JR; VESTAL, NY (US) US5692281 - METHOD FOR MAKING A DUAL TRENCH CAPACITOR STRUCTURE - RAJEEVAKUMAR THEKKEMADATHIL VELAYUDHAN; SCARSDALE, NY ESSING SYSTEM) - ALLEN MICHAEL SCOTT; AUSTIN, TX (US) GARCIA MICHAEL JULIO; AUSTIN, TX (US) MOORE CHARLES ROBERTS; AUSTIN, TX (US) REESE ROBERT JAMES; AUSTIN, TX (US) US5692209 - SYSTEM RESOURCE CON- G SIMPLEX OPERATIONS IN PARALLEL - HO-LUNG MICHAEL GEORGE; BOCA RATON, FL (US) LINGER JUDITH MARIE; DELRAY BEACH, FL (US) MANDALIA BAIJU DHIRAJLAL; BOCA RATON, FL (US) SINIBALDI JOHN CLAUDE; POMPANO GETOWN, TX (US) RICHARDS THOMAS NEIL; RALEIGH, NC (US) US5692204 - METHOD AND APPARATUS FOR COMPUTER SYSTEM POWER MANAGEMENT - RAWSON ANDREW RADCLIFFE; CEDAR PARK, TX (US) SOTOMAYOR GUY GIL starts US) US5692191 - ADDRESS SPACE UTILIZATION IN A DISTRIBUTED DATA PROCESSING SYSTEM - ANTHIAS TAF; AMPFIELD (GB) HALLIWELL HARRY; WINCHESTER (GB) MINSHULL JOHN FRANCIS; KINGS SOMBOURNE (GB) US5692190 FILE DATA USING A PRODUCING DBMS AND A CONSUMING DBMS - DESAI PARAMESH SAMPATRAI; SAN JOSE, CA (US) SMITH BRYAN FREDERICK; MORGAN HILL, CA (US) TENG JAMES ZU-CHIA; SAN JOSE, CA (US) YANG KOU HORNG SYSTEM - BIRELEY WILLIAM ROBERT; MORGAN HILL, CA (US) DANG TAMMIE; SAN JOSE, CA (US) DESAI PARAMESH SAMPATRAI; SAN JOSE, CA (US) HADERLE DONALD JAMES; LOS GATOS, CA (US) LIN FEN-LING; SAN JOSE, CA (US) where it makes sense, our experts in intellectual here property license our innovations to other communica- tions and computer companies, propagating IBM technologies broadly across this open, networked, universally connected world. That licensing business quietly generates upwards of $1 billion annually. A nice piece of intellectual capital. JoAnn Kealy Croc kat t senior at t orney, Int ellec t ual Prop ert y Law


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    overnight suc c ess starts here 18 Le ft to right: Bijan Davari, Cyp rian Uzoh, Lisa Su, John Heid enreic h m em b ers of t he c op p er c hip t eam


  • Page 21

    PAR T O F T H E FUN I N T H E I NFO R MAT IO N T ECH NO LO GY I ND UST RY I S WAIT I NG FO R T H E NEXT MET EO R — the hot startup that rockets the tiny, tiny wires inside computer microchips. from obscurity behind a new piece of hardware or Last fall, IBM scientists won the race — if a genera- some hot software. They’re fun to watch, and you can tion-long journey can be called that. Perhaps just sometimes observe their entire life cycle before the as astounding was our schedule to bring copper seasons change. It takes a bit more patience to track chips from the lab into production and to the solutions to the industry’s biggest challenges — in market by this summer. artificial intelligence, materials science, mathematics, With this breakthrough, semiconductor devices complex algorithms for language recognition. These like microprocessors and memory chips can be made are challenges only the deepest, most committed, more powerful, less expensive, smaller and more talented and, yes, stubborn teams take on. energy efficient. For nearly 30 years, the entire semiconductor Only a handful of companies have the staying industry looked for ways to gain the perfor- power to lay siege to challenges like this one. Only mance advantages of using copper (which conducts one could turn the solution into overnight success. electricity 40 percent faster than aluminum) in Hundreds of PowerPC microprocessors are etched into this silicon wafer, which incorporates IBM’s patented copper circuitry technology. 19


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    20


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    world records start here L I KE MO ST ST UNNI NG T ECH NO LO GICAL FEAT S , O UR S UCCE SS I N HAR D - D I S K D R IVE S B EGI NS W IT H GE NI US ;in this case, scientists and engineers whose ship and global teamwork: researchers in California; special gift is knowing how to pack information into engineers in Japan and the United States (who integrate ever-smaller physical spaces. In 1997 they delivered the components in lightweight, rugged packaging); the world’s highest-capacity hard drives — compact and the efficiency of high-volume manufacturing units about the size of an audiocassette — and sur- teams around the world, who produce low-cost, passed their own world record for hard-disk drive high-quality drives that we sell to more than 60 other capacity, cramming each square inch of disk space companies, many of them our competitors. with the equivalent of an 18-story-high stack of double- Today, two in five laptop computers in the world spaced typed pages. contain an IBM hard-disk drive. That’s one reason As striking as the technology leadership is, why this business grew roughly twice as fast as the there’s an even bigger story of marketplace leader- rest of the disk drive industry last year. Rep resent at ives of IBM ’s st orage b usiness: researc h, d evelop ment , manufac t uring, op erat ions, OEM market ing, sales and sup p ort from San Jose, California, and Fujisaw a, Jap an 21


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    Jav a d i d n ’ t start h e re THAT ’ S O K. Occasionally, you’ve got to be big enough to tip your cap to a competitor, and smart enough to build on something that can reshape the way software is developed and shared. So we didn’t do Java first. But IBM and Lotus are doing plenty of firsts with Java. Lotus’s new eSuite “applets” are redefining personal productivity appli- cations like word processors and spreadsheets. With 22


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    Enterprise JavaBeans, IBM and Lotus are taking Java Our people are busy right now, in more than 20 into the world of high-volume transaction processing. locations in 13 countries, including China, Latvia, And more than 200 software developers are working Belarus, India, Canada, the United States and the with IBM to create Java frameworks for general United Kingdom. Because Java represents a revo- ledger, order entry and other business functions as a lution. And we’ve taken a stand. part of IBM’s “San Francisco” project. Two years ago, IBM had two Java professionals. Today, nearly 2,500, more than any other company. IBM Java p rofessionals from Aust in, Texas, and Hursley, Unit ed Kingd om 23


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    IT’S O N E T H I NG T O E NV I - S I O N A N I N F O R MAT I O N T E CH NO LO GY ST R AT E GY. It’s another to identify the technology components of that strategy. But without the ability to implement — quickly, cost-effectively, and with minimal complexity — what have you got? Piece parts and a plan. Customer demand for help with the hard work of implementation drives the fastest-growing part of the information technology industry, and not coincidentally, it’s our fastest- growing business. It describes a way of working with customers that’s an enduring strength of IBM. In a word, service. Everything from computer installation and testing to the work of command centers like this one, where we monitor performance across scores of customer networks and head off problems before anyone knows about them. IBM Global Services is now a $19 billion franchise — one that’s grown in double digits every quarter for five straight years. In 1997 alone, we hired 15,000 people for this business. And as we enjoy this explosive growth, we also take pride in the fact that our customers rate the quality of our service the best in the industry. the finish line starts 24


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    here Charles Beauman op erat ions analyst , 25 IBM Glob al Servic es Command Cent er, Bould er, Colorad o


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    the end o f the computer starts here LO O K P R ET T Y CLUN KY c O M P UT E R S US E D — nondescript boxes, lots of TO wires, plenty of beige. They used to look like, well... computers. No more. From the acclaimed Aptiva home PC, to the geometric grace of the ThinkPad — already displayed in New York’s Museum of Modern Art — IBM designers create products that are as aesthetically pleasing — and comfortable to live with — as they are powerful. And in collaboration with IBM researchers, they’re drafting the concept designs that could be the icons of tomorrow. 26 Bob St einb ugler p rod uc t d esigner


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    ( fa r le ft) ( le ft) ( right) ( right be lo w ) ThinkPad companion. With detach- Personal electronic newspapers. Portable Digital Video. From our Two-in-one. This prototype integrates able stereo speakers this light- This concept network device allows design lab in Japan comes a concept a network computer with a flat panel weight, portable CD-ROM drive you to receive customized news, for a portable entertainment center display — a full-function desktop supports multimedia computing and e-mail and other content from the based on Digital Video Disk (DVD) system that relies on the Net for appli- plays stereo audio discs. Net loaded into lightweight tablets — technology. Two stereo speakers cations and processing power. one for each person in your house- swing away to reveal an LCD screen, hold. Update content and recharge and the two top “ antennae” are batteries by placing the tablets back removable microphones, for those in the docking station. impromptu karaoke sessions. There’s more going on here than black paint and rounded edges. Microchips are becoming so inexpen- sive they can be embedded in virtually everything — so common, some people call them “jelly beans.” We’ll cook with this “embedded intelligence.” We’ll wear it, drive it (and drive over it), talk to it, sleep on it. All man- ner of consumer items will join the web of interconnect- ed computing devices — but soon, no one will sit down at “the computer” anymore. Won’t that be wonderful? 27


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    TH E R E I S T H E LANGUAGE O F I NFO R MAT IO N T ECH NO LO GY :Java, parallelism, representing about 70 percent of our 1997 revenue. areal densities, polymorphism in object- oriented At their fingertips are the resources of the world’s programming. And there is the language of business: greatest information technology research and devel- return on investment, supply chain management, opment organization. customer care. A company that wants to hold its own Our client and research teams have developed in any important conversation about business and more than 250 industry-specific solutions — many of information technology strategy has to speak both. them built as “first of a kind” projects — working The IBM people who have these conversations with directly with our customers. our largest customers are members of what we call It’s not easy amassing a cadre of business experts. Industry Solution Units. Each one of the 11 industries Nor can just anyone build world-class R&D capability. we serve is represented by one of the client executives To start the conversation, you need the former. To on these pages. They’re among 17,000 IBM experts complete that conversation, you need both. responsible for our business with 20,000 customers, the conversation starts h ere here h ere here h ere IBM ind ust ry sp ec ialist s ( l e f t t o r i g h t ) : Robert Barthelmes Ed uc at ion; Paul Grys M anufac t uring; Françoise LeGoues Ut ilit ies & Energy; Jeffry Ullman Travel & Transp ort at ion; Nallu Reddy Telec ommunic at ions & M ed ia; Robert Durot Proc ess & Pet roleum; John Wilson Wholesale/ Dist rib ut ion; James Pintar Insuranc e; Gail Gulinson Healt hc are; Jim M artin Government ; Nelson Eng Banking, Financ e & Sec urit ies; p ic t ured in M anhat t an, New York


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    h ere here here h ere here here 29


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    everything startshere 30 IBM 1997 annualrepo rt


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    co rpo rate initiatives s US A N C R AY N E IS AN I B M R E S E A R C H S C I E NT I ST W I T H A S I N G U L A R PA S S I O N FO R THE F UT U R E . It starts small. and donations to nonprofit organizations and At home. With the little 4 -year-old wonder you see educational institutions in the communities where here — Sara Crayne- Dedrick. we work and raise our families. Each year IBM While Susan’s passion starts with something provides several million dollars’ worth of new very personal and private, it encompasses the entire technology to more than 1,600 U.S. nonprofit health world of children. Susan and more than a dozen and human services organizations through the Unit- fellow IBM researchers develop technologies as part ed Way’s network of agencies. We also gave of an IBM grant program called R einventing Educa- of ourselves. IBM employees volunteered nearly tion. T he $35 million initiative is dedicated 4 million hours of service. to helping children reach world-class academic IBM grants are allowing millions of people to standards through innovative technology solutions. enjoy the treasures of the State Hermitage Museum IBM’s work in education is one emblem of a in St. Petersburg and the Vatican Library, where g powerful intangible that attracts good people to our priceless but perishable collections are being preserved company — a sense of social responsibility, the desire through the power of information technology. to work for a company with the resources and the In Peru, a partnership with the Pontifical Catholic will to make the world a better place. University developed a computer-aided reconstruction In a region of South Africa labeled an “ educa- system to restore ancient Moche figures on the tional disaster area” in 1996 by Deputy President ceiling of an aging temple. T habo Mbeki, IBM R einventing Education grants We’re a company committed to a culture of helped equip schools and train teachers on how tech- inclusion, a workforce as diverse as the cultures, nology can help them develop innovative curricula. perspectives and human characteristics in the more So far, 237 teachers have trained there, improving than 160 countries where we do business. educational opportunities for some 6,300 students. O ur longstanding commitment to workforce Nine hundred IBM PCs are in use in the schools — diversity was recognized recently in a ceremony at and after hours they’re available for adult education the U.S. White House, when IBM received the first and to small business owners. We’ve launched simi- annual R on Brown Award for Corporate Leadership. lar R einventing Education initiatives in Brazil and Of course, IBM exists to deliver solid financial will start others like it in Ireland, India and Vietnam. results, and healthy returns to our investors. But it’s In 1997 , IBM gave more than $100 million not all we do, or all we are. In a world too frequently to programs for people in need, including corporate beset by intolerance, fear, hunger and illiteracy, some contributions and donations from the IBM Interna- of us are in a position to help. We count ourselves tional Foundation. Individual employees among the fortunate — not only able to help, but gave another $30 million in matching grants having the responsibility and the desire to help. l e f t : Sara Crayne- Ded ric k d aught er of IBM researc her Susan Crayne 31


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    97 startshere May 8 IBM announces plans to become sole proprietor of Advantis — the U.S. data network services arm of March 19 the IBM Global Network, one of the world’s largest data networks — IBM announces its intent to by buying Sears’ 30 percent equity purchase a majority interest interest for $450 million. January 9 in NetObjects, the Silicon Valley- based company that developed IBM launches a free U.S. Patent the award-winning NetObjects Search website (www.ibm.com/patents) May 9 Fusion software for designing that provides access to more than and building websites. IBM's common stock splits, entitling 2 million patents issued by the U.S. Patent and Trademark Office from March 18 each shareholder to receive one 1974 to present. additional share for each share held. IBM introduces IntelliStation, a line of Microsoft Windows NT-based workstations for commercial users. The new family complements IBM’s April 29 May 13 RS/ 6000 line of UNIX workstations IBM’s Board of Directors approves and servers. a quarterly dividend increase of 14 IBM’s stock price reaches 177 1/ 8 percent and the repurchase of $3.5 (pre-split), passing the previous billion in shares. all-time intraday high of 176 1/ 8 on August 20, 1987. IBM’s stock price closes at $76.62 (split-adjusted) the first business day of 1997. jan13 may11 For the fourth consecutive year, IBM surpasses its own record mar10 In a six-game match that captures for U.S. patents. In 1996, IBM was the imagination of the world, a IBM announces Magic 3D issued 1,867 patents from the U.S. chess-playing IBM computer known Coloring Book, the first in a Patent and Trademark Office — 326 as Deep Blue defeats chess grand- series of award-winning Crayola more than the closest company. master Garry Kasparov — the first interactive multimedia products that inspire creativity and time a reigning world champion learning among young children. loses a match to a computer I B M U.S. Pa te nts opponent in tournament play. Deep 1,867 Blue is an IBM RS/6000 SP super- 1,383 computer capable of calculating 1,298 1,085 200,000,000 chess positions per second. Its watershed win touches off debate, commentary and serious thinking about the relationship 93 94 95 96 between people and machines, and about the very nature of thought. 32


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    May 19 August 14 The Space Shuttle carries 11 IBM ThinkPads into orbit. Combined, the A survey by the National Society ThinkPads can process more than June 24 of Black Engineers finds IBM the half a billion instructions per second. IBM receives the Golden Ladder employer most preferred. Award from We magazine for being the “No.1 Employer in America for People with Disabilities.” June 16 Three IBM scientists — Robert Dennard, Mark Dean and September 4 Dennis Moeller — are inducted into IBM introduces ViaVoice continuous the National Inventors Hall of Fame, speech recognition technology for joining the ranks of Thomas Edison, August 18 Mandarin Chinese. In developing the Henry Ford, Louis Pasteur and IBM product, researchers identified and IBM introduces the AS/400e — Nobel laureates Heinrich Rohrer classified thousands of vocal tones a new series of AS/400 servers and Gerd Binnig. To date, only 137 and homonyms, created an algorithm optimized to help customers take individuals have been so honored. July 22 advantage of business opportunities that deconstructs syllables into parts, IBM announces a $25 million on the Internet. The AS/400e can and developed a new language model investment to establish a research run Java and Microsoft Windows NT to transform spoken words into the center — its eighth in the world — applications, provide Internet right combination drawn from 6,700 in Delhi, India. The center will focus security, and support thousands of Chinese characters. initially on weather forecasting, Lotus Domino users while running e-business and distance learning, other applications. and will foster joint research projects with India’s leading universities. mars 0010919001288 - 10 june 9 IBM completes one of the most july4 july25 important product transitions in IBM, Telstra and Lend Lease Cor- the company’s history with the NASA’s Pathfinder, equipped poration form an information tech- debut of a new generation of Sys- with IBM RS/ 6000 technology for nology and communications tem/ 390 servers, all powered by its onboard flight computer, lands alliance, signing Australia’s largest advanced microprocessors. on Mars. The flight computer is information technology outsourcing The microprocessor “ engines” responsible for more than 100 pyro deal and establishing a new network help make the S/ 390 Parallel (explosive) events, including services company called Advantra. Enterprise Server - Generation 4 deploying the parachutes, inflating As part of the agreement, IBM more powerful and less costly to the airbags, and firing the retro Global Services Australia will take produce and maintain than previ- rockets that allow Pathfinder to responsibility for Telstra’s data cen- ous models, which used bipolar land safely on Mars. ter operations, creating the largest processor technology. data processing center in the South- A n n u a l Wo rl d w i d e ern Hemisphere. S /3 9 0 C a p a c i t y Shipme nts % 44 + = te ra th ow gr u nd po m co 93 94 95 96 97 33


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    September 22 IBM scientists announce a break- through semiconductor manufacturing process that uses copper instead of aluminum to link transistors in chips, the culmination of 30 years of exper- September 30 imentation and inquiry. With copper, IBM's Edmark educational software October 13 September 10 which conducts electricity 40 per- subsidiary ships Let's Go Read! An IBM’s Tokyo Research Laboratory cent more efficiently than aluminum, Island Adventure, the first in a new unveils software that reads aloud The U.S. Environmental Protection semiconductor devices like micro- series to help children build reading Agency recognizes IBM for out- information displayed on the processors and memory chips can skills. computer screen. The software standing contributions in protecting be more powerful, smaller and more the earth’s ozone layer. Since 1993, allows the visually impaired to energy efficient. access and use the Internet. IBM has completely eliminated the annual use of more than 12 million September 30 pounds of CFCs and 3 million Lotus Domino becomes available for pounds of methyl chloroform from September 26 System/ 390 mainframe servers, pro- October 13 its products and processes. IBM begins shipments of DB2 Uni- viding the industry’s leading group- IBM expands its Business Comput- versal Database, the industry’s ware solution on the industry’s most ing Utility service offering first fully scalable, Web-ready data- powerful and secure server. to Prague. First established in base management system. Called Budapest, this unique e-business universal because it can store and service gives small- and medium- query alphanumeric data — as well October 7 sized businesses access to business September 15 as text documents, images, audio, management applications running video and other complex objects — IBM launches worldwide e-business IBM’s Tivoli Systems subsidiary on IBM servers at IBM data centers, it can perform a wide range of tasks marketing campaign — covering announces plans to acquire Unison 24 hours a day, seven days a week. from decision support to business television, print and direct marketing. Software, Inc., a leading developer of transactions. It can also run the “e-business” describes for customers workload management software for same software across desktops, IBM’s view of the value and benefits distributed computing environments. workgroups and enterprises. of a networked world. sep 15 IBM unveils the ScrollPoint mouse sep 18 — the latest ease-of-use innovation for PC users. It supports one-touch, IBM dedicates its new, state-of-the-art sep 22 360-degree scrolling for easy Inter- corporate headquarters in Armonk, New York. Although smaller than the IBM introduces Netfinity, net surfing and document previous headquarters, the new 280,000 a new line of Intel-processor- navigation. square-foot facility has an open office based servers supporting the design and many more meeting areas Microsoft Windows NT computing environment. Netfinity servers for team and customer interaction. The range from entry-level models building is equipped with a high-speed to high-capacity symmetric wire and wireless communication multiprocessing machines, network, and a technology gallery that and all come with integrated features IBM products and innovations IBM service and support. throughout the company’s history. 34


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    December 19 IBM’s Tivoli Systems subsidiary announces plans to acquire Soft- IBM’s stock price ware Artistry, Inc., a leading provider closes at $104.63 of consolidated service desk and on the last business November 17 customer relationship management day of 1997. IBM announces plans to invest software. $700 million to build one of the world’s most advanced microchip October 23 development facilities at IBM’s site in East Fishkill, New York. The facility December 22 IBM provides $10 million in new will be among the first to produce Daiwa Bank and IBM Japan agree Reinventing Education grants to chips on 12-inch silicon wafers, to establish a joint venture that will December 30 12 U.S. school districts and state and will use IBM’s unique copper offer information technology services IBM Research sets a new education departments, bringing manufacturing process and advanced to financial institutions. It will be the world record for disk drive the total to $35 million since the X-ray lithography technology. largest such outsourcing deal in storage density — 10 gigabits program was established in Japan, and one of the largest in the per square inch, equivalent to 1994. Each grant recipient will worldwide financial industry. 1,450 average-length novels. work closely with IBM to provide November 24 better instructional tools in math, science and reading, increase IBM ships Network Station Series parental involvement and 1000, the industry’s first network improve the flow of information computer to run Java applications, among home, school and teachers including Lotus’ eSuite. with the help of technology. 98 startshere nov10 nov3 IBM announces the world’s highest- dec 31 capacity desktop PC disk drive. The IBM ships 4 million Notes seats With the introduction of eSuite, 16.8-gigabyte drive incorporates break- in the fourth quarter of 1997 — Lotus becomes the first company through technology called giant the largest quarter ever of unit to offer a complete set of business magnetoresistive (GMR) heads. No volumes for Notes. Total installed productivity software written in bigger than the head of a pin, the GMR base reaches 20 million, up from Java for the network computing head is the world’s most sensitive 2.2 million when Lotus joined IBM environment. Included in eSuite sensor for reading and writing computer in 1995. are e-mail, calendar, address book, data on magnetic disks. word processing, spreadsheet, presentation graphics and project scheduling applications. Unlike Wo rl d w i d e L o t u s Magne tic Hard-Disk Drive No te s Se a ts traditional productivity software, Industry Price pe r Me gaby te Evo lutio n (IN MILLIONS) 20.0 the bulk of eSuite’s software code resides and executes on servers in $ 100 a network, instead of on an 9.3 10 individual PC. p ric e / m e gab yte , 1 4.5 1.35 0.1 d o llars 0.01 85 89 93 97 94 95 96 97 35


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    co mpany de scriptio n At IBM, we strive to lead in the creation, development and manufacture of the industry’s most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide. It never stopshere. 36


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    financial report Report of Management 38 Report of Independent Accountants 39 Management Discussion 40 Consolidated Financial Statements 50 Earnings Financial Position Cash Flows Stockholders’ Equity Notes to Consolidated Financial Statements 54 A Significant Accounting Policies 54 B Accounting Changes 55 C Common Stock Split 56 D Inventories 56 E Plant, Rental Machines and Other Property 57 F Investments and Sundry Assets 57 G Debt 58 H Interest on Debt 59 I Lines of Credit 59 J Financial Instruments 59 K Sale and Securitization of Receivables 61 L Other Liabilities and Environmental 61 M Contingencies 61 N Taxes 62 O Selling and Advertising 64 P Research, Development and Engineering 64 Q Global Financing 65 R Net Earnings Per Share of Common Stock 67 S Rental Expense and Lease Commitments 68 T Stock-Based Compensation Plans 68 U Stock Repurchases 70 V Employee Benefits Trust 71 W Retirement Plans 71 X Nonpension Postretirement Benefits 73 Y Segment Information 75 Z Geographic Areas 76 Five-Year Comparison of Selected Financial Data 78 Selected Quarterly Data 78 Stockholder Information 79 Board of Directors and IBM Management 80 37


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    report of management International Business Machines Corporation and Subsidiary Companies Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with IBM management. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required. IBM maintains an effective internal control structure. It consists, in part, of organizational arrangements with clearly defined lines of responsibility and delegation of authority, and comprehensive systems and control procedures. We believe this structure provides reasonable assurance that transactions are executed in accordance with management authorization, and that they are appropriately recorded, in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. An important element of the control environment is an ongoing internal audit program. To assure the effective administration of internal control, we carefully select and train our employees, develop and disseminate written policies and procedures, provide appropriate communication channels, and foster an environment conducive to the effective functioning of controls. We believe that it is essential for the company to conduct its business affairs in accordance with the highest ethical standards, as set forth in the IBM Business Conduct Guidelines. These guidelines, translated into numerous languages, are distributed to employees throughout the world, and reemphasized through internal programs to assure that they are understood and followed. Price Waterhouse LLP, independent accountants, is retained to examine IBM’s financial statements. Its accompanying report is based on an examination conducted in accordance with generally accepted auditing standards, including a review of the internal control structure and tests of accounting procedures and records. The Audit Committee of the Board of Directors is composed solely of outside directors, and is responsible for recommending to the Board the independent accounting firm to be retained for the coming year, subject to stockholder approval. The Audit Committee meets periodically and privately with the independent accountants, with our internal auditors, as well as with IBM management, to review accounting, auditing, internal control structure and financial reporting matters. Louis V. Gerstner, Jr. Lawrence R. Ricciardi Chairman of the Board Senior Vice President, General Counsel and Chief Executive Officer and Chief Financial Officer 38


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    report of independent accountants International Business Machines Corporation and Subsidiary Companies To the Stockholders and Board of Directors of International Business Machines Corporation: In our opinion, the accompanying consolidated financial statements, appearing on pages 50 through 77, present fairly, in all material respects, the financial position of International Business Machines Corporation and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP 1177 Avenue of the Americas New York, NY 10036 January 19, 1998 39


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    management discussion International Business Machines Corporation and Subsidiary Companies Overview Results of Operations IBM’s financial results in 1997 increasingly reflect the ( D o l l a r s i n m i l l i o n s ex c e p t p e r s h a r e a m o u n t s ) successful implementation of the company’s strategic 1997 1996 1995 priorities: revenue growth, stable net income margins and leveraged growth in earnings per share. Revenue $ 78,508 $ 75,947 $ 71,940 Cost _________________ 47,899 __________________ 45,408 __________________ 41,573 The company reported revenue of $78.5 billion—a record Gross profit 30,609 30,539 30,367 for the third consecutive year; while net earnings of Gross profit margin 39.0% 40.2% 42.2% $6.1 billion yielded a record $6.18 earnings per share of Total expense _________________ 21,582 __________________ 21,952 __________________ 22,554 common stock. Strategic spending continued in 1997 as Net earnings before the company funded investments of approximately income taxes $ 9,027 $ 8,587 $ 7,813 $20 billion in its high-growth and advanced technology Net earnings $ 6,093 $ 5,429 $ 4,178 businesses, research and development, and repurchases Net earnings of its common stock. per share The growth in revenue reflects the continued shift toward of common stock $ 6.18 $ 5.12 $ 3.61 the company’s high-growth businesses. Revenue from Net earnings both services and storage products grew strongly year per share of over year. While shipments of System/390 products were common stock– higher by 30 percent when measured in computing power, assuming dilution $ 6.01 $ 5.01 $ 3.53 revenue was down slightly as a result of continued price reductions and the effects of currencies. Overall, the Revenue in 1997 grew 3.4 percent as reported and weight of the adverse currency movements lowered year- 8.3 percent when currency impacts are removed. This to-year revenue growth from approximately 8 percent to increase was primarily driven by the high-growth areas the “as reported” 3 percent. of the company’s product portfolio: services, hard disk drive (HDD) storage products and distributed software offerings including those from Tivoli Systems, Inc. (Tivoli). Challenges The following table provides the company’s percent of While excellent progress was made in 1997, there are a revenue by category: number of challenges facing the company in 1998. The continued adverse effects of a strong dollar on our non- 1997 1996 1995 U.S. results, weakness in some Asian markets and the Hardware sales 46.1% 47.8% 49.5% continued price pressures in the information technology Services 24.6 20.9 17.7 marketplace all contribute to this challenge. The company Software 16.4 17.2 17.6 is prepared to meet its objectives—and to grow revenue— Maintenance 8.1 9.2 10.3 in this difficult environment. The breadth of the company’s Rentals and financing ___________ 4.8 ___________ 4.9 ___________ 4.9 geographic presence, its portfolio of products and Total 100.0% 100.0% 100.0% services, and its ability to work with customers of all sizes to help integrate information technology into their The overall gross profit margin at 39.0 percent decreased business strategies will provide the basis for success in 1.2 points from 1996, following a 2.0 point decrease in the coming year. 1996 over 1995. The declines were primarily the result of the company’s continued shift to the higher growth Forward-looking and Cautionary Statements sources of revenue, most notably, services in 1997 and services and personal computers in 1996. These busi- Certain statements contained in this Annual Report may nesses have lower gross profit margins than the constitute forward-looking statements within the meaning company’s high-end hardware offerings (System/390 and of the Private Securities Litigation Reform Act of 1995. AS/400), which declined as a percent of total revenue. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully elsewhere in this Annual Report and in the company’s filings with the Securities and Exchange Commission, including the company’s Form 8-K filed on July 21, 1997, and the company’s 1997 Form 10-K to be filed on or about March 23, 1998. 40


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    management discussion International Business Machines Corporation and Subsidiary Companies Net earnings per share of common stock were $6.18, flat in 1997, commercial personal computer revenue grew, $5.12 and $3.61 in 1997, 1996 and 1995, respectively. as did general-purpose monitors. These increases were offset by lower revenue associated with consumer The following information, which is provided for infor- personal computers and RS/6000 products. The 1996 mational purposes only, excludes the effects of a increase over 1995 was driven by higher revenue from $435 million non-tax deductible charge for purchased personal computers, especially consumer products, in-process research and development in connection with partially offset by lower revenue from RS/6000. the Tivoli and Object Technology International, Inc. acquisitions in March 1996. The 1995 results exclude the Revenue from servers decreased 4.5 percent from 1996, effects of the third quarter charge of $1,840 million for following a decrease of 1.4 percent in 1996 versus 1995. purchased in-process research and development in The 1997 decrease was primarily driven by lower revenue connection with the Lotus Development Company from System/390, AS/400 and RS/6000 servers. While (Lotus) acquisition. System/390 revenue declined, total delivery of mainframe computing power increased 30 percent as measured in ( D o l l a r s i n m i l l i o n s ex c e p t p e r s h a r e a m o u n t s ) MIPS (millions of instructions per second) versus last 1997 1996 1995 year. AS/400 and RS/6000 revenue was impacted by a Adjusted net major product transition during the year, as new models earnings $ 6,093 $ 5,864 $ 6,018 of these products were announced late in the third quarter Adjusted net earnings of 1997. These decreases were partially offset by higher per share of revenue from personal computer servers and large-scale common stock $ 6.18 $ 5.53 $ 5.23 systems (SP) servers. The decrease in 1996 from 1995 Adjusted net earnings was driven by lower revenue from System/390 servers, per share of partially offset by higher revenue from AS/400, RS/6000 common stock– and personal computer servers. assuming dilution $ 6.01 $ 5.41 $ 5.10 Storage products revenue decreased 1.9 percent versus 1996, following a decline of 15.9 percent in 1996 from Hardware Sales 1995. The declines were driven by lower revenue from Information on revenue by classes of similar products high-end storage products, due to continuing price or services is included in note Y, “Segment Information,” competition, partially offset by revenue growth from tape on page 75. The product trends addressed in this products. discussion and in that disclosure are indicative, in all Original Equipment Manufacturer (OEM) hardware material respects, of hardware sales activity. revenue increased 22.9 percent over 1996, following a 1.3 percent increase in 1996 versus 1995. The 1997 (Dollars in millions) increase resulted from strong growth in HDD storage 1997 1996 1995 products and custom logic products, partially offset by Revenue $ 36,229 $ 36,316 $ 35,600 continuing lower DRAM revenue, due to industry-wide Cost _________________ 23,538 __________________ 23,396 __________________ 21,862 pricing pressures. Gross profit $ 12,691 $ 12,920 $ 13,738 The decrease in the 1997 hardware sales gross profit Gross profit margin 35.0% 35.6% 38.6% dollars was driven by the continued shift in the company’s mix of revenue to lower gross profit products, Revenue from hardware sales was essentially flat (up such as personal computers and OEM semiconductors, about 4 percent in constant currency) from 1996, following partially offset by higher margins for System/390 servers an increase of 2.0 percent in 1996 from 1995. Gross profit and storage products. The overall hardware sales margin dollars from hardware sales decreased 1.8 percent from continues to be adversely impacted by pricing pressures 1996, following a decrease of 6.0 percent in 1996 from across all products. 1995. Client revenue was flat versus 1996, following an increase of 9.8 percent in 1996 over 1995. Although revenue was 41


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    management discussion International Business Machines Corporation and Subsidiary Companies Services 1996 from 1995. The improvement in gross profit dollars (Dollars in millions) was the result of more software development spending 1997 1996 1995 being expensed in the period incurred and less being Revenue $ 19,302 $ 15,873 $ 12,714 capitalized in relation to prior historical levels, which in Cost __________________ 15,281 _________________ _________________ 12,647 10,042 turn yielded less amortization of previously deferred Gross profit $ 4,021 $ 3,226 $ 2,672 costs. These lower amortization costs were partially Gross profit margin 20.8% 20.3% 21.0% offset by higher vendor royalty costs. Services revenue increased 21.6 percent in 1997 (up Maintenance about 28 percent in constant currency) from 1996 and (Dollars in millions) 24.8 percent in 1996 over 1995. The increases were driven 1997 1996 1995 by continued strong growth in professional services, Revenue $ 6,402 $ 6,981 $ 7,409 which includes managed operation of systems, as well as systems integration design and development. Network Cost __________________ 3,394 __________________ 3,659 __________________ 3,651 Gross profit $ 3,008 $ 3,322 $ 3,758 services, which includes managed operation of networks, Gross profit margin 47.0% 47.6% 50.7% and product support services continued to experience good growth in revenue year over year. In 1997, the Maintenance revenue decreased 8.3 percent in 1997 company signed service contracts worth $24 billion. The (down about 3 percent in constant currency) from 1996, company continued to meet this growing demand for its following a decrease of 5.8 percent in 1996 versus 1995. services business by hiring over 15,000 employees in Gross profit dollars decreased 9.5 percent, following a both 1997 and 1996, while maintaining a consistent gross decrease of 11.6 percent in 1996 from 1995. Revenue and profit margin. gross profit dollars continue to be affected by price reductions on maintenance offerings. Software (Dollars in millions) Rentals and Financing 1997 1996 1995 (Dollars in millions) Revenue $ 12,844 $ 13,052 $ 12,657 1997 1996 1995 Cost __________________ 3,784 _________________ 4,082 _________________ 4,428 Revenue $ 3,731 $ 3,725 $ 3,560 Gross profit $ 9,060 $ 8,970 $ 8,229 Gross profit margin 70.5% 68.7% 65.0% Cost __________________ __________________ __________________ 1,902 1,624 1,590 Gross profit $ 1,829 $ 2,101 $ 1,970 Gross profit margin 49.0% 56.4% 55.4% Software revenue decreased 1.6 percent in 1997 (up about 4 percent in constant currency) from 1996, following an Rentals and financing revenue was essentially flat (up increase of 3.1 percent in 1996 over 1995. The revenue about 4 percent in constant currency) in 1997 versus decrease in 1997 was a result of lower host-based 1996, following an increase of 4.6 percent in 1996 from computer software revenue primarily associated with 1995. Although revenue was essentially flat versus 1996, System/390 products. This decrease was offset by revenue operating lease activity grew, but was offset by growth for systems management software from Tivoli. lower dealer financing. Gross profit dollars decreased While down for the year, software revenue performance 12.9 percent from 1996, following an increase of strengthened over the course of the year with fourth 6.6 percent in 1996 from 1995. The decrease was primarily quarter 1997 revenue increasing 1.4 percent versus the a result of a trend towards financing a greater volume of fourth quarter of 1996. The increase in 1996 revenue was low-end products and faster growth in the more driven by distributed software offerings from Lotus and competitive U.S. market. The increase in 1996 over 1995 software products from Tivoli, partially offset by lower was primarily a result of higher margins on operating host-based computer software revenue from System/390 leases and lower interest rates. The financing results are and AS/400. discussed in more detail in note Q, “Global Financing,” on Software gross profit dollars increased 1.0 percent in pages 65 and 66. 1997 from 1996, following an increase of 9.0 percent in 42


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    management discussion International Business Machines Corporation and Subsidiary Companies Operating Expenses Purchased in-process research and development expense (Dollars in millions) in 1996 and 1995 was primarily associated with the Tivoli 1997 1996 1995 and Lotus acquisitions, respectively. Selling, general and On a constant currency basis, SG&A expense would have administrative $ 16,634 $ 16,854 $ 16,766 increased approximately 2.7 percent in 1997 versus 1996, Percentage of revenue 21.2% 22.2% 23.3% and research, development and engineering expense would have increased approximately 5.9 percent. Research, development and engineering $ 4,877 $ 4,654 $ 4,170 Percentage of revenue 6.2% 6.1% 5.8% Provision for Income Taxes The provision for income taxes resulted in an effective Purchased in-process tax rate of 33 percent for 1997, as compared to the 1996 research and effective tax rate of 37 percent and a 1995 effective tax rate development $ – $ 435 $ 1,840 of 47 percent. Adjusting for purchased in-process research and development which had no corresponding tax effect, Selling, general and administrative (SG&A) expense the 1996 and 1995 effective tax rates would have been declined 1.3 percent in 1997 versus 1996 and remained 35 percent and 38 percent, respectively. The reduction in essentially flat in 1996 compared to 1995. The company the 1997 tax rate reflects the company’s continued continued its focus on reducing fixed infrastructure costs, expansion into markets with lower effective tax rates. while increasing its investments in advertising, business The reduction in the 1996 tax rate was also due to the partner programs and emerging markets. These actions company’s continued expansion into markets with lower yielded a 1.0 percentage point improvement in the effective tax rates, as well as the use of foreign tax credits expense-to-revenue ratio in 1997 and a 1.1 percentage to offset the tax effect of dividend repatriation from non- point improvement in 1996. U.S. affiliates. The company continues to focus on productivity, expense The company accounts for income taxes under Statement controls and prioritization of spending in order to achieve of Financial Accounting Standards (SFAS) 109, “Accounting a more competitive expense-to-revenue level. for Income Taxes,” which provides that a valuation Research, development and engineering expense allowance should be recognized to reduce the deferred increased 4.8 percent in 1997 from 1996, following an tax asset to the amount that is more likely than not to be increase of 11.6 percent in 1996 from 1995. The increases realized. In assessing the likelihood of realization, reflect the company’s continued investments in high- management considered estimates of future taxable growth opportunities like Java, network computing and income, which are based primarily on recent financial e-business, as well as the impact of additional expenses performance. associated with new acquisitions. Also, ongoing activities of Lotus and Tivoli are included in 1996 and 1997 results, Fourth Quarter as compared to 1995, which only included Lotus activity between July and December 1995. For the quarter ended December 31, 1997, the company had revenue of $23.7 billion, a 2.5 percent increase over The benefits of the company’s ongoing research and the same period of 1996. Net earnings in the fourth quarter development have resulted in the company being granted were $2,093 million ($2.16 per common share), compared 1,724 patents in 1997, placing it number one in the U.S. with net earnings of $2,023 million ($1.97 per common for the fifth consecutive year. The application of these share) in the fourth quarter of 1996. technological advances has enabled the company to transform this research and development into several Fourth-quarter revenue from the United States was significant new product breakthroughs that will be found $9.5 billion, an increase of 8.9 percent from the same in products beginning in 1998. Examples of these efforts period of 1996. Asia Pacific revenue was essentially flat are the use of copper in place of aluminum in the making at $4.4 billion, while revenue from the company’s Europe, of integrated circuits and the manufacturing of HDDs Middle East and Africa units declined 4.4 percent to using giant magnetoresistive head technology that $7.7 billion. Revenue in Latin America was $1.2 billion, delivers a maximum areal density of about 2.6 billion bits an increase of 4.4 percent and revenue from Canada per square inch. increased 14.2 percent to $.9 billion. 43


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    management discussion International Business Machines Corporation and Subsidiary Companies Currency had an approximately 6 percentage point Financial Condition negative impact on the company’s revenue results in the During 1997, the company continued to make significant fourth quarter. At constant currency in the fourth quarter investments to fund future growth and increase of 1997, Asia Pacific revenue would have increased about shareholder value, expending $6.8 billion for plant, rental 10 percent, European revenue would have grown machines and other property, $5.5 billion for research, approximately 5 percent and revenue from Canada would development and engineering, and $7.1 billion for the have increased about 19 percent. repurchase of the company’s common shares. The Total hardware sales declined 1.3 percent year over year company had $7.6 billion in cash, cash equivalents and to $11.5 billion. RS/6000, storage and semiconductor marketable securities on hand at December 31, 1997. revenue increased, while overall personal computer, The company has access to global funding sources. AS/400 and System/390 revenue declined. On a constant During 1997, the company issued debt in a variety of currency basis, hardware sales increased in all key geographies to a diverse set of investors. Significant hardware lines, except for System/390 and consumer funding was issued in the United States, Japan and personal computers. Europe. Funding was obtained across the range of debt Services revenue totaled $5.9 billion, a 17.5 percent maturities, from short-term commercial paper to long- increase compared to the year-earlier period. Approx- term debt. More information about company debt is imately $8.5 billion in new services contracts was signed provided in note G, “Debt,” on page 58. in the quarter. Services margins were essentially flat year In December 1993, the company entered into a $10 billion over year at 22.5 percent. committed global credit facility to enhance the liquidity Overall software revenue was $3.8 billion, an increase of of funds. This facility was amended in February 1997, 1.4 percent compared with the fourth quarter of 1996. and extended to February 2002. As of December 31, 1997, Maintenance revenue declined 9.2 percent to $1.6 billion $9.2 billion was unused and available. in the fourth quarter when compared with the year- At year-end 1997, the company had an outstanding earlier period, and rentals and financing fell 3.5 percent balance of $.9 billion of assets under management from to $1.0 billion. the securitization of loans, leases and trade receivables, The company’s overall gross profit margin in the fourth compared to the year-end 1996 level of $1.1 billion. The quarter was 40.1 percent, compared to 40.3 percent in company has access to additional funds through securi- the year-earlier period. tization, as discussed in note K, “Sale and Securitization of Receivables,” on page 61. Total fourth-quarter 1997 expenses increased 1.1 percent year over year. The expense-to-revenue ratio in the fourth The rating agencies continued their review of the company’s quarter of 1997 was 27.4 percent compared to 27.8 percent financial condition. In January 1997, Standard and Poor’s in the year-earlier period. revised its outlook on the company and its rated sub- sidiaries to positive from stable and affirmed its ratings of The company’s tax rate was 30.5 percent in the fourth senior debt as A, commercial paper as A-1, and preferred quarter, compared to 29.9 percent in the fourth quarter stock as A-. of 1996. Moody’s Investors Service rates the senior long-term The company spent approximately $2 billion on share debt of the company and its rated subsidiaries as A1, repurchases in the fourth quarter. The average number of the commercial paper as Prime-1, and the company’s shares outstanding in the fourth quarter of 1997 was preferred stock as “a1.” 964.8 million, compared to 1,026.8 million in the year- earlier period. Fitch Investors Service rates the company and its rated subsidiaries’ senior long-term debt as AA-, commercial paper as F-1+, and preferred stock as A+. Duff & Phelps rates the company and its rated subsidiaries’ senior long-term debt as A+, commercial paper as Duff 1, and the company’s preferred stock as A. 44


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    management discussion International Business Machines Corporation and Subsidiary Companies Cash Flows In addition to software development expenses included in research, development and engineering, the company The company’s cash flows from operating, investing and capitalized $.3 billion of software costs during 1997 and financing activities as prescribed by generally accepted 1996. Amortization of capitalized software costs amounted accounting principles and reflected in the Consolidated to $1.0 billion for 1997, a decrease of $.4 billion from 1996. Statement of Cash Flows on page 52, are summarized in the following table: Investments and sundry assets were $21.9 billion at the end of 1997, an increase of $.3 billion from 1996, and (Dollars in millions) were primarily the result of increases in prepaid pension 1997 1996 1995 assets and noncurrent sales type leases, offset by Net cash provided decreases in other investments and sundry assets. See from (used in): note F, “Investments and Sundry Assets,” on page 57 for Operating activities $ 8,865 $ 10,275 $ 10,708 additional information. Investing activities (6,155) (5,723) (5,052) Financing activities (3,090) (3,952) (6,384) Debt and Equity Effect of exchange (Dollars in millions) rate changes on cash 1997 1996 and cash equivalents _________________ (201) _________________ (172) _________________ 65 Net change in cash “Core” debt $ 3,102 $ 2,202 and cash equivalents $ (581) $ 428 $ (663) Global financing debt __________________ 23,824 ___________________ 20,627 Total debt $ 26,926 $ 22,829 Working Capital (Dollars in millions) Stockholders’ equity $ 19,816 $ 21,628 At December 31: 1997 1996 Debt/capitalization 57.6% 51.4% Current assets $ 40,418 $ 40,695 “Core” debt/capitalization 16.1% 10.7% Current liabilities _________________ 33,507 _________________ 34,000 Global financing debt/equity 6.5:1 6.3:1 Working capital $ 6,911 $ 6,695 Total debt increased $4.1 billion from year-end 1996, Current ratio 1.21:1 1.20:1 driven by an increase of $3.2 billion in debt to support the growth in global financing assets and $.9 billion in Current assets decreased slightly due primarily to “core” debt. The company’s balance sheet is leveraged aggressive inventory management. The company’s overall with a “core” debt to capitalization of 16.1 percent and net inventories declined $.7 billion driven substantially by global financing debt to equity at 6.5 to 1. inventory management process improvements, partic- ularly in personal computers. At December 31, 1997, the Stockholders’ equity declined $1.8 billion to $19.8 billion company’s inventories stood at $5.1 billion, their lowest at December 31, 1997. The company’s ongoing stock level since year-end 1983. repurchasing program (see note U, “Stock Repurchases,” on page 70) and the creation of an Employee Benefits Current liabilities were lower primarily due to a decrease Trust (see note V, “Employee Benefits Trust,” on page 71) in taxes payable and liabilities for prior restructuring offset the $6.1 billion of net earnings for the year. The actions. translation effect of the stronger dollar on the company’s non-U.S. net assets contributed $1.6 billion to the year- Investments to-year decline. The company’s investments for plant, rental machines and other property were $6.8 billion for 1997, an increase of $.9 billion from 1996. The increase reflects continued investment in the company’s rapidly growing services business, principally in the management of customers’ information technology, and manufacturing capacity for hard disk drives and microelectronics. 45


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    management discussion International Business Machines Corporation and Subsidiary Companies Currency Rate Fluctuations For purposes of specific risk analysis, the company uses sensitivity analysis to determine the impacts that market Since approximately 81 percent of the company’s non- risk exposures may have on the fair values of the U.S. revenue was derived from affiliates operating in company’s debt and financial instruments. local currency environments, the company’s results are affected by changes in the relative values of non-U.S. The financial instruments included in the sensitivity currencies to the U.S. dollar. Most worldwide currencies analysis consist of all of the company’s cash and cash weakened versus the U.S. dollar in 1997, which resulted equivalents, marketable securities, long-term non-lease in assets and liabilities denominated in local currencies receivables, investments, long-term and short-term debt being translated into fewer dollars. The currency rate and all derivative financial instruments. Interest rate changes also resulted in an unfavorable impact on swaps, interest rate options, foreign currency swaps, revenue of approximately 5 percent and 3 percent, forward contracts and foreign currency option contracts respectively, in 1997 and 1996, compared to a favorable constitute the company’s portfolio of derivative financial impact in 1995 of 4 percent. instruments. In high-inflation environments, primarily parts of Latin To perform sensitivity analysis, the company assesses America, translation adjustments are reflected in period the risk of loss in fair values from the impact of income, as required by SFAS 52, “Foreign Currency hypothetical changes in interest rates and foreign currency Translation.” Generally, the company limits currency risk exchange rates on market sensitive instruments. The in these countries by linking prices and contracts to U.S. market values for interest and foreign currency exchange dollars, by financing operations locally and through foreign risk are computed based on the present value of future currency hedge contracts. cash flows as impacted by the changes in the rates attributable to the market risk being measured. The The company uses a variety of financial hedging discount rates used for the present value computations instruments to limit specific currency risks related to were selected based on market interest and foreign global financing transactions and the repatriation of currency exchange rates in effect at December 31, 1997. dividends and royalties. Further discussion on currency The market values that result from these computations and hedging appears in note J, “Financial Instruments,” are compared with the market values of these financial on pages 59 through 61. instruments at December 31, 1997. The differences in this comparison are the hypothetical gains or losses Market Risk associated with each type of risk. In the normal course of business, the financial position The results of the sensitivity analysis at December 31, 1997, of the company is routinely subjected to a variety of are as follows: risks. In addition to the market risk associated with Interest Rate Risk: interest and currency rate movements on outstanding debt and non-U.S. dollar denominated assets and A 10 percent decrease in the levels of interest rates with liabilities, other examples of risk include collectibility of all other variables held constant would result in a decrease accounts receivable and recoverability of residual values in the fair value of the company’s financial instruments by on leased assets. $369 million. A 10 percent increase in the levels of interest rates with all other variables held constant would result The company regularly assesses these risks and has in an increase in the fair value of the company’s financial established policies and business practices to protect instruments by $341 million. against the adverse effects of these and other potential exposures. As a result, the company does not anticipate Foreign Currency Exchange Rate Risk: any material losses in these areas. A 10 percent movement in the levels of foreign currency The company’s debt in support of the global financing exchange rates against the U.S. dollar with all other business (see note Q, “Global Financing,” on pages 65 variables held constant would result in a decrease in the and 66) and the geographic breadth of the company’s fair value of the company’s financial instruments by operations contain an element of market risk from changes $809 million or an increase in the fair value of the in interest and currency rates. The company manages company’s financial instruments by $981 million. this risk, in part, through the use of a variety of financial instruments including derivatives, as explained in note J, “Financial Instruments,” on pages 59 through 61. 46


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    management discussion International Business Machines Corporation and Subsidiary Companies Financing Risks Global financing is an integral part of the company’s total worldwide offerings. Financial results of global financing can be found in note Q, “Global Financing,” on pages 65 and 66. Inherent in global financing are certain risks, including credit, interest rate, currency and residual value. The company manages credit risk through comprehensive credit evaluations and pricing practices. To manage the risks associated with an uncertain interest rate environment, the company pursues a funding strategy of substantially matching the terms of its debt with the terms of its assets. Currency risks are managed by denominating liabilities in the same currency as the assets. Residual value risk is managed by developing projections of future equipment values at lease inception, reevaluating these projections periodically, and effectively deploying remarketing capabilities to recover residual values and potentially earn a profit. In 1997, 1996 and 1995, the remarketing effort generated profits. The following table depicts an approximation of the unguaranteed residual value maturities for the company’s sales-type leases, as well as a projection of net book value of operating leases at the end of the lease terms as of December 31, 1995, 1996 and 1997. The following table excludes approximately $49 million of estimated residual value associated with non-information technology equipment. Total Run Out of 1997 Residual Value Balance (Dollars in millions) 2001 and 1995 1996 1997 1998 1999 2000 beyond Sales-type leases $ 470 $ 471 $ 563 $ 120 $ 205 $ 205 $ 33 Operating leases ______________ 295 _______________ 480 _______________ 701 ______________ 247 _____________ 266 _______________ 166 ______________ 22 Total residual value $ 765 $ 951 $ 1,264 $ 367 $ 471 $ 371 $ 55 Acquisitions On April 16, 1997, IBM and NetObjects, Inc. announced ($2.9 billion in net cash). The company engaged a nationally that IBM had purchased a majority interest in NetObjects, recognized, independent appraisal firm to express an a leading provider of website development tools for opinion on the fair market value of the assets of each of the designers and intranet developers. In September 1997, acquisitions to serve as a basis for allocation of the the company acquired the 30 percent equity interest held purchase price to the various classes of assets. The by Sears in Advantis, the U.S. network services arm of company allocated the total purchase prices as follows: the IBM Global Network. Advantis is now 100 percent 1996 1995 owned by IBM. In December 1997, the company acquired (Dollars in millions) Tivoli Lotus Eastman Kodak’s share of Technology Service Solutions (TSS), which was formed in 1994 by IBM and Eastman Tangible and intangible Kodak. TSS is now a wholly owned subsidiary of IBM, net assets $ 140 $ 1,157 offering comprehensive services solutions to its customers. Purchased in-process In addition, the company acquired Unison Software, Inc., research and development 417 1,840 a leading developer of workload management software, Goodwill 280 540 and announced plans to acquire Software Artistry, Inc., Deferred tax liabilities related a leading provider of both consolidated service desk and to identifiable intangible customer relationship management solutions for distrib- assets __________________ (37) __________________ (291) uted enterprise environments. Total $ 800 $ 3,246 On March 1, 1996, the company acquired all outstanding shares of Tivoli for approximately $800 million ($716 million Purchased in-process research and development in net cash). On July 5, 1995, the company acquired all represents the value of software products still in the outstanding shares of Lotus for approximately $3.2 billion development stage and not considered to have reached technological feasibility. 47


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    management discussion International Business Machines Corporation and Subsidiary Companies In addition, the acquisition of Object Technology International, Inc. in 1996 resulted in a valuation of purchased in-process research and development amounting to $18 million, bringing the total amount of purchased in-process research and development in 1996 to $435 million. In accordance with applicable accounting rules, the $435 million was expensed upon acquisition in the first quarter of 1996, and the $1,840 million was expensed upon acquisition in the third quarter of 1995. Employees Percentage Changes 1997 1996 1995 1997-96 1996-95 IBM/wholly owned subsidiaries 269,465 240,615 225,347 12.0 6.8 Less than wholly owned subsidiaries 20,751 28,033 26,868 (26.0) 4.3 Complementary 43,000 37,000 38,000 16.2 (2.6) As of December 31, 1997, employees of IBM and its The decline in employees in less than wholly owned wholly owned subsidiaries increased 28,850 from 1996, subsidiaries reflects the acquisition of the minority mainly from hiring in high-growth areas of the business— interests in Advantis and TSS, offset by growth in the services, storage, Tivoli and Lotus, as well as from company’s rapidly expanding global services business, as continued expansion in emerging geographic markets well as in emerging geographic markets, such as China. and acquisition of business entities, such as Unison The company’s complementary work force is an Software. In 1997, Advantis, with approximately 5,000 approximation of equivalent full-time employees hired employees, and Technology Service Solutions, with under temporary, part-time and limited-term employment approximately 5,100 employees, previously less than arrangements to meet specific business needs in a flexible wholly owned subsidiaries, were acquired from Sears and cost-effective manner. and Eastman Kodak, respectively. 48

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