IBM Investor Discussion

IBM Investor DiscussionPatricia Murphy, Vice President, Investor RelationsJune 20161

Certain comments made in this presentation may be characterized as forward-looking under the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements are based on the Company’scurrent assumptions regarding future business and financial performance. These statements by theirnature address matters that are uncertain to different degrees and involve a number of factors thatcould cause actual results to differ materially. Additional information concerning these factors iscontained in the Company’s filings with the SEC. Copies are available from the SEC, from the IBM website, or from IBM Investor Relations. Any forward-looking statement made in these presentationmaterials speaks only as of the date on which it is made. The Company assumes no obligation toupdate or revise any forward-looking statement. These charts and the associated remarks andcomments are integrally related, and they are intended to be presented and understood together.In an effort to provide additional and useful information regarding the Company’s financial results andother financial information as determined by generally accepted accounting principles (GAAP), thesematerials contain certain non-GAAP information including operating pre-tax income and margin,operating gross profit margin, revenue growth and strategic imperatives revenue growth, each atconstant currency and excluding divestitures, and other free cash flow financial measures. The rationalefor management’s use of this non-GAAP information, the reconciliation of that information to GAAP, andother related information are included in Attachment II to the Company’s Form 8-K dated January 19,2016 and the Non-GAAP Supplemental Materials in the Chief Financial Officer’s Financial OverviewPresentation, which is Attachment I to the Company’s Form 8-K dated February 25, 2016. Forreconciliation to GAAP and other information about FY 2010-2013 non-GAAP measures of free cashflow refer to page 66 of the Company’s 2014 Annual Report which is Exhibit 13 to the Form 10-Ksubmitted to the SEC on February 24, 2015.2

by the numbers1911Founded46Companies acquiredin the last 5 years#1in Enterprise IT 82B2015 Revenue1913First Dividend 7BAnnual revenuedivested in thelast 5 years 380KEmployees80%of 2015 revenuefrom clients withcross-brand solutions1915IPO70%of the world’sbusiness datamanaged 175Countries, 100Currencies 18B2015 OperatingPre-tax Income2015 Revenueby Geography2015 Revenueby Segment2015 Operating Pre-tax Incomeby Segment(excl OEM)Asia Pacific21%E/ME/A32%US 37%Canada/LA echnology Svcs& Cloud Platforms43%Systems& vices13%Technology Svcs& Cloud Platforms29%Systems& Financing21%Long-term financial model: Low single-digit revenue growth / Mid single-digit profit growth / High single-digit EPS growth Free cash flow realization in the 90’s3

Agenda010203IBM ContinuousTransformationIBM StrategyIBM Segments,Capital Deployment& Longer Term ModelIBM Continuous TransformationFinancial performance over the last 10 years4

IBM’s revenue and gross profit margin reflect continuous transformationof the businessKey Drivers 91B 82B51%Last 10 Years( 9B)(1%) CAGRDivestitures( 13B)( 1.5pts)Acquisitions 8B) 1ptCurrency( 5B)( 0.5pts)Last 5 Years( 16B)(4%) CAGRDivestitures( 7B)( 1.5pts)Acquisitions 4B 1pt( 10B)( 2pts)40%2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015RevenueGP%Currency2010-2015 Revenue from Continuing Operations2006-2015 Operating GP%, 2010-2015 from Continuing OperationsSignificant gross margin improvement driven by mix to higher valueand productivity 4pts 2pts( 1/2pt)51%Hardware /Otheras-a-Servicebuild out2015 5pts40%2005SoftwareServices2006-2015 Operating GP%, 2010-2015 from Continuing Operations5

Pre-tax Income reflects shift to higher value and repositioningof hardware businessKey Drivers 18B 13B22%14%Last 10 Years 5B)Software & Services 5B)Hardware( 1.5B)Currency 1B)Last 5 Years2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Pre-tax Income( 2.5B)Hardware( 1B)Currency( 1B)Margin %2005-2015 Operating PTI, 2010-2015 from Continuing OperationsCash Flow supports both reinvestment and return to shareholdersOver the last 10 years Cash from Operations: 186B Free Cash Flow: 144BReinvestment 17BCapital 42BNet Acquisitions 27BR&D (income statement) 58B 13BReturn to shareholdersDividendsShare count reduction 33B37%2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Cash from OperationsFree Cash FlowCash from Operations excludes Global Financing receivablesShare count reduction 2006-2015, reflects weighted average shares outstandingR&D 2010-2015 from Continuing Operations6

IBM has a broad set of capabilities, with 80% of IBM’s revenuefrom clients who have deployed cross-IBM solutionsCognitive, Analytics, DataSecurityWatson Internet of ThingsTechnology ServicesWatson HealthPartnershipsIndustry ServicesCloud / SystemsIBM Continuous Transformation Summary Significant IBM transformationover the last 10 yearsLonger-term financial model Low single-digit revenue growth Divested lower margin businesses Mid single-digit pre-tax income growth Invested for higher value High single-digit EPS growth withreturn to shareholders Free Cash Flow realization in the 90%’s Stable revenue performance Cash flow supports both reinvestmentand return to shareholders7

IBM StrategyEmerging as a Cognitive Solutions and Cloud Platform companyThree shifts are transforming IBM’s industry, clients, and the companySHIFT 1Data is becoming theworld’s new naturalresource, transformingindustries andprofessionsOUR POINT OF VIEWData is the new basisof competitive advantageSHIFT 2The emergence ofcloud is transformingIT and businessprocesses into digitalservicesOUR POINT OF VIEWCloud is the path to newbusiness modelsSHIFT 3Mobile and social aretransforming individualengagement –creating expectations ofsecurity, trust and value inreturn for personalinformationOUR POINT OF VIEWA systematic approachto engagement isnow requiredData, Cloud, Engagement à IBM’s Strategic Imperatives8

IBM is investing in its Strategic Imperatives to address these shifts.together they generated 29B of revenue in 20152015 RevenueOver the last 3 years 6B InvestmentAnalytics13 Acquisitions 7B InvestmentCloud15 Acquisitions 3B InvestmentEngagement6 Acquisitions200K Developers &1,500 Partners46 Cloud Datacenters1M Bluemix users 10K Mobile, Security,Social specialists 18B 10B 5.3B as-a-Serviceexit run rate 3B 2B 1BMobileSecuritySocialInvestment Development Capex Acquisition spendDevelopers include data scientistsStrategic Imperatives represented 35% of IBM’s revenue in 2015,with a higher gross margin than overall IBMStrategicImperativesrevenue wthYr/Yr2015Gross gic Imperatives201451%CoreContent:50%2015Total IBMCore ContentRevenue Yr/Yr @CC from Continuing Operations, excluding divested businessesOperating GP% from Continuing OperationsStrategic Imperatives and Core content margins are approximate9

IBM is becoming a Cloud Platform companyA new paradigmfor technologyPlatforms vs.ProductsHybrid, hybrid,hybrid Yes, cost efficient On-Premise but much more—innovation Public cloud Enabling clients to focus on higherbusiness value Private cloudIBM CloudBluemixScale through ognitiveplatformInternet ofThings (IoT)platformMobileplatformCloudSecurityIBM is becoming a Cognitive Solutions companyA new paradigm, not just a single productConfer “thinking-like” ability— sense, predict, inferLearned vs. programmedIlluminate dark data(80% of all)AUGMENT humanintelligence“born ion“emerging cognitive”WatsonHealthWatson IoTIndustry/Re-inventhealthcareBring data/analytics to the“physical world”Analytics SolnsFraud for banks,customer churnfor retail CommerceSolutionsApple/MobileSolutionsMobile payments,“Next Best Action,”merchandizing Airlinespassenger care,retail “Sales Assist” Built in a strong industry context10

Cognitive opens new opportunities beyond traditional ITOpportunity fordecision-makingsupportTraditional globalIT spend 2T2025Decision SupportData center systemsInfrastructureClient relationship managementProductivity 1.2T2016Process automationEnterprise resource planningSource GMV 1H16, McKinsey Global Institute May 2013IBM is building an innovation platform for Cognitive businessEcosystem st cognitive ecosystemDeep domain expertiseMost powerful and scalablecognitive rProvidedDataPrivateClientDataMost essential industry datasets11

Watson Health Cloud is a platform for innovationLife SciencesOncology /GenomicsImagingCare Management andPopulation HealthPaymentsand ValueIBM Watson Health CloudAnalytics / InsightsPlatform200M lives100M patient recordsImage Analytics30B imagesCognitive KnowledgePlatform1.2M medicalabstractsIBM Strategy SummaryIBM’s new capabilities are leadingand differentiated Cognitive SolutionsCloud PlatformIndustry FocusIBM’s core capabilities are atremendous asset ModernizeBridge clients to new eraSynergyCognitive Solutions&Cloud Platform “two sidesof the same coin”12

IBM Segments, Capital Deployment& Longer Term Model2015 StructureSoftware Key Branded MiddlewareOther MiddlewareOperating Systems Software valueshifting to new areas2016 StructureSoftwareCognitive SolutionsSolutions SoftwareTransaction Processing SoftwareIntegration SoftwareOperating Systems Solutions SoftwareTransaction Processing SoftwareGlobal Business ServicesGlobal Business ServicesGlobal Technology ServicesTechnology Services &Cloud PlatformsSystems HardwareGlobal Financing Integration Software Operating SystemsCognitive Solutions &Industry Services2016 segment structure reflects IBM’s management systemand is consistent with the company’s platform and solutions focusSystemsGlobal Financing13

Cognitive Solutions Segment2015 Performance2015Yr/YrRevenue 17.8(3%)Gross Margin85.1%(2 pts) 7.2(12%)36.1%(1 pt)PTIPTI MarginSegment Revenue Elements Cognitive capabilities significantly expandmarket opportunity Building platforms for Watson, Watson Healthand Watson Internet of Things2015 Strategic Imperatives RevenueSolutionsSoftwareFlat Yr/YrRevenueYr/Yr 11.04%Cloud 1.452%as-a-Service run rate 1.2 0.2Strategic ImperativesTransactionProcessingSoftware(8%) Yr/Yr in billionsRevenue Yr/Yr @CCGlobal Business Services Segment2015 Performance2015Yr/YrRevenue 17.2(4%)Gross Margin28.2%(2 pts) 2.6(22%)14.7%(2 pts)PTIPTI MarginSegment Revenue ElementsGlobal ProcessServices(7%) Yr/YrConsulting(8%) Yr/Yr Industry centric skills, depth of design thinkingdrives client value Lead with cognitive capabilities acrossofferings2015 Strategic Imperatives RevenueApplicationManagement 1% Yr/YrRevenueYr/YrStrategic Imperatives 7.744%Cloud 1.883%as-a-Service run rate 0.7 0.5 in billionsRevenue Yr/Yr @CC14

Technology Services & Cloud Platforms Segment2015 Performance2015Yr/YrRevenue 35.1FlatGross Margin42.7%(2 pts)PTIPTI Margin Transforming GTS model from systemsintegration to services integration 5.7(20%) Enabling clients digital transformation throughthe cloud – Hybrid, Private, Public15.8%(2 pts) Software enabled to integrate with cloud platformsSegment Revenue Elements2015 Strategic Imperatives RevenueRevenueYr/YrStrategic Imperatives 6.359%Cloud 4.059%as-a-Service run rate 3.5 1.1GTS 1%InfrastructureServices 1% Yr/YrIntegrationSoftware(2%) Yr/YrTechnicalSupport Services 1% Yr/Yr in billionsRevenue Yr/Yr @CC, excluding divested businessesSystems Segment2015 PerformanceRevenueGross MarginPTIPTI Margin2015Yr/Yr 9.54%55.8%7 pts 1.724%16.7%6 pts Transforming Systems for growth –IBM OpenPOWER, IBM FlashSystem,IBM Spectrum Storage, Object Storage for cloud New cognitive and cloud centric capabilitiesSegment Revenue ElementsOperating SystemsSoftware(8%) Yr/Yr2015 Strategic Imperatives RevenueSystemsHardware 8% Yr/Yrz Systems: 35% Yr/YrPower: 4% Yr/YrStorage: (7%) Yr/YrRevenueYr/YrStrategic Imperatives 4.041%Cloud 3.045% 0-as-a-Service run rate in billionsRevenue Yr/Yr @CC from Continuing Ops, excluding divested businesses15