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The New York Times

October 28, 1998

IBM Sets Yet Another Big Buyback of Its Shares

By Lawrence M. Fisher

FOR PERSONAL USE ONLY.

IBM Corp. said Tuesday that its board had authorized the repurchase of an additional $3.5 billion
worth of common shares.

Shares of IBM gained 62.5 cents, to $143.6875, on the announcement.

Like other companies, IBM regularly repurchases shares as a way to increase per-share earnings by reducing the number of shares outstanding. Although popular with selling shareholders -- typically large institutions that receive cash -- the practice is also controversial, particularly for technology companies and other so-called growth sectors.

Such companies are expected to create new products and services that should generate earnings growth, rather than buying growth by share repurchases.

IBM, which last week reported stronger-than-expected third-quarter earnings, said it planned to buy shares on the open market from time to time, depending on market conditions. The company has about
922.9 million shares outstanding. IBM announced a $3.5 billion buyback in April as well, and has authorized eight repurchases totaling $23 billion since the program started in 1994.

"This was pretty much expected because they had run down much of the last repurchase," said Steven Milunovich, an analyst with Merrill Lynch & Co. "I think it's a reasonable use of cash. How many
investment opportunities do they have that can return cost of capital? They should be investing up to that point, and beyond that they should return cash to the shareholders."

But Bob Djurdjevic, president of Annex Research, called the repurchase a "Wall Street perversion," that benefits selling institutions to society's detriment and artificially inflates current earnings and growth.

"IBM has already spent several small countries' GDPs on share repurchases -- $23 billion and counting -- without creating a single product or a single job," he said. "It's a signal they don't have the imagination or creativity to employ the capital more productively."

Last week IBM reported a quarterly profit of $1.49 billion, or $1.56 a diluted share, compared with $1.36 billion, or $1.35 a share, in the 1997 quarter. Revenue for the period increased 8 percent, to $20.1
billion. The results were slightly above analysts' expectations of $1.53 a share, according to First Call.

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