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February 23, 1999

IBM SEES REVENUE, HARDWARE GROWTH IMPROVING

By CBR Staff Writer

IBM Corp has been bouncing around Wall Street this week talking up an improving revenue climate and growth in hardware sales after a disappointing last quarter. Merrill Lynch & Co believes it should be enough to refocus investors on IBM as an attractive software and services play rather than as a slow-moving ironmonger. The received impression is that IBM’s near-term single-digit revenue growth will accelerate to double digits. Gross margins are expected to decline at 1% a year – the rate is slowed by the improving revenue and IBM is expected to continue buying back its own shares at a rate of 3% to 4% of the outstanding number annually, using some $7bn a year. IBM still thinks it’s a good use of cash. Could it be better used making acquisitions or just sitting on the balance sheet? Merrill Lynch says IBM is negotiating large outsourcing deals with two Japanese banks which could lead to other Japanese institutions following suit.

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