FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

International Business Machines Corporation
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One Old Orchard Road
Armonk, NY 10504
(914) 765-1900
http://www.ibm.com

UNION CITY, Ca., January 23, 1997/FOOLWIRE/ --- IBM released their fourth quarter and year end results for 1996 on Tuesday after the market close. The company announced record fourth quarter revenues of $23.1 billion, an increase of 6% over last year's fourth quarter. Fourth quarter net earnings were $2.0 billion, or $3.93 per share, compared with $1.7 billion or $3.09 per share in the year ago period. For the full year, revenues were $75.9 billion, an increase of 6% from 1995's $71.9 billion. Net earnings for the full year were $5.9 billion or $11.06 per share, excluding a charge associated with R&D related to acquisitions in Q1 1996. This compares with 1995 net earnings of $6.0 billion or $10.46 per share, excluding a charge associated with R&D related to the Lotus acquisition. Net earnings in 1996 including the R&D charge were $5.4 billion or $10.24 per share compared with net earnings in 1995 or $4.2 billion or $7.23 per share, including that year's R&D charges.

GENERAL TRENDS. The company felt that they had a strong 1996 and the fourth quarter carried through many of those elements of strengths. They feel they have aggressively moved all their product lines to support their customers' implementation of network computing. Secondly, they moved through their product transitions in most of their product lines, particularly 390s and AS/400s. In fact, they are getting better and better at cycle times, their product milestone days, etc. Third, they improved their time to market and have tended to make their internal development dates better than they've ever done before. They also think they have maintained the business leadership they had before and improved their competitive position in the businesses where they trail such as PCs. Most importantly, throughout the company they are clearly recognized by their customers as being much more relevant to their issues and their problems. This is supported by data from research they do regularly with their customers. So, they think as they come out of 1996, this considerably reaffirms the correctness of the decisions they have made to move their company to focus on customer solutions as opposed to individual technologies. Along with these improvements, it's also important to note that 1996 has also been riddled with challenges and disappointments. They have seen an accelerated decline in DRAM prices, which has hurt their economics as a company. They have seen continued strength in the dollar which has had currency impacts. And, they have also seen ongoing business weaknesses in Europe.

FOURTH QUARTER RESULTS OVERVIEW. IBM continued to have good revenue growth. This was driven principally by their services business and by PCs and, geographically, by performance in North America and Asia Pacific. This was in the face of continued weaknesses in Europe and some product issues. Their profit margins were generally good in each of their businesses. The hardware gross profit margin declined primarily due to mix. When you grow a PC business and a services business, those tend to impact the mix and that's what is occurring, not margin decline within different businesses. They also had the continued impact of DRAM price erosion. On the other hand they had good stories in the PC business and the hard disk drive business. Their services gross margins improved from the third quarter and returned to the same level as the fourth quarter last year. Their software margins also improved. Both expense-to-revenue and their tax rates improved. Their balance sheet and cash flow remained extremely strong. Their cash position was high, in fact even too high. They invested about $1.9 billion this quarter to buy back about 14 million shares of stock. So, at the end of the year the shares outstanding were 508 million and they had about $3.8 billion of their share authorization left to exercise.

FINANCIAL RESULTS FOR Q4. Revenue grew 6% as reported, which is about 8% at constant currency. This is slightly below the 4-year growth rate of about 9% for constant currency. This annual constant currency growth rate of 9% is the highest constant currency growth rate they have had at IBM since 1985. So, they feel this is a good annual result. They use constant currency because they feel, for a global company like themselves, it is the best measure of business momentum to compare and contrast a period.

Their gross profit margin at 40.3% was just a bit up from the third quarter and down about 1.5% from last year. Expense to revenue improved about 2.2%, which more than offset the gross profit decline. And, the tax rate of 30% for the quarter pulls the full year tax rate down to about 35%. The tax rate benefitted from some one-tme help along with some ongoing actions. Their net income of about $2 billion grew at 18% and their net income margins improved about a point in the quarter to about 8.7%. Their pace of share repurchase increased to about $1.9 billion in the quarter, slightly faster than the first three quarters when they averaged about $1.3 billion per quarter. Thus, their average shares outstanding were 513 million for the quarter, about 7% less than a year ago.

Earnings per share for the quarter were $3.93, up $0.84 per share or 27% from the fourth quarter of last year. Currency weighed against them in the fourth quarter a bit more than they had thought with the continuing strength of the dollar which occurred pretty late in the quarter. They do a lot of shifting in December. So, EPS for the quarter was reduced by about $0.18 per share because of currency. And, for the full year on $11.06 per share, it was reduced by about $0.62 per share due to currency.

GROWTH BY DIVISION. Their hardware grew by about 2% as reported and 4% at constant currency. There are a number of good results in here and also a couple of disappointments. Their services revenue continued its very strong pace. It grew at 22% as reported and about 25% at constant currency. Software revenue grew 4%, or 7% at constant currrency, and again they are pleased with that improvement. Their maintenance revenue continued to decline and was about 6% reported and 3% in constant currency. Their finance and rental business improved and continued its stronger pace, growing about 9% as reported and 11% at constant currency.

SERVER LINE. Their server business had generally good performance in the fourth quarter against very tough comparisons. In the fourth quarter a year ago, they had a very strong quarter, partly aided by the fact that they had some product delays in the third quarter that flowed into the fourth quarter. They also had some good product transitions and they have seen very good demand for their server products across most of their product line.

SYSTEM 390. They think System 390 made continued progress in both its hardware and software conditions. Demand remained very strong. In the fourth quarter, shipments to all channels were more than 80% higher than in the third quarter and more than twice the average rate of the first three quarters, so they saw a good increase in the run rate. The MIPs grew at about 35%, which is lower than a number of the analysts thought. On the other hand, averaging the third and fourth quarter numbers, the MIPs growth is about at 50%. With the comparisons they had last year, that is the run rate that a number of analysts forecast. In the fourth quarter last year, their MIPs grew at about 80%. Importantly, they are seeing that a strong majority of new shipments were driven by new applications or expansion of existing applications, they are not simply replacing old inventory. Secondly, their pricing is improving because the bipolar mix in their 390 is an increasingly smaller share so that a small portion of the total mix of System 390 shipped in the fourth quarter was bipolar. So, the pricing is holding up because of that mix improvement. Thus, the average year-to-year decline in price per MIP was much more moderate so that even though their MIPs growth in the quarter on a year over year basis was lower than in the third quarter, the rate of hardware decline was still about the same, so they're seeing a little more stability there. They think the most important measure is the annual growth in the installed base. This was at about 24% for the fourth quarter and still at a pace that is well above even the 14% growth they saw even a couple years ago and the 18% they saw last year.

TRANSITIONS. This is a very complex business in which the transitions take place at a fairly slow rate. There is a hardware transition and also a software transition. The software transition is even slower than the hardware transition. The most important software transition is the transition to their Parallel Sys-Plex software. There again they made a lot of progress. The percentage of their largest customers who are now enabled is now up to about 60%. The number of their customers who are actually running Parallel Sys-Plex in production, which is a much more hands-on usage, grew from just a handful in the first quarter to almost 350 today. 350 customers isn't a lot within the PC company, but is a lot when you're talking about 390s and customers that spend hundreds of millions of dollars per year the way these kind of customers do. Netting all that out, IBM felt they had pretty good performance for the 390 and it's pretty much on track.

AS/400. This system just keeps moving along with very decent revenues, growth, and margins. The value proposition appears to be continuing to roll along the marketplace. They know there are a lot of companies that want integrated server solutions supported either by IBM or their business partners and there is a wealth of applications for this product. It has loyal customers, high win rates, and all the things they've talked about in the past and it just keeps rolling right along.

RS6000. The RS6000 announced its new line of products in October and started shipping during the quarter. So far, the results are mixed -- very high growth in the high end in the product line. The rest of the server line declined slightly. They made some progress here, but there's a lot to do. The workstations remained weak for the quarter, but it's also true that they could not meet demand for their new Tiger models that started shipping only toward the end of December. So, part of the weakness is just their inability to get their production up to the scale they wanted and part of it is ongoing issues they deal with as they get into their 64-bit transition in the product line. So, while results have been mixed, they think there is another point they should make here. The RS6000 division has made terrific improvements this year in improving its profitability. It is very difficult to grow volumes and profitability at the same time. They are going through a lot of things to make it more profitable. RS6000 has improved in that regard very much.

PC SERVERS. On the low-end of their server family, their PC servers had very good growth in both year-to-year growth and product area growth. They think there is more they can do there, but they feel very good about the growth in the PC server business.

THE PC COMPANY. The PC Company had another best quarter. The last couple quarters they made some comparisons of IBM's performance versus Compaq. They couldn't do that this time because Compaq hadn't reported yet. The comparisons they made were unit volumes, revenue growth, gross profit margins, expense to revenue, and inventory turns and they felt they would win a number of those comparisons again this quarter and closing the gap once again on the gross profit margin, which was the major area in which Compaq was ahead over a period of time. In all the other comparisons, IBM has been pretty close to Compaq or ahead of them over the last few quarters. So, The PC Company continued to improve in all these dimensions. Turns were better, volumes were good, revenue growth was good, the profit margins were higher than they have been either a year ago or sequentially. They are continuing progress in their PC business.

OEM BUSINESS. They continue to suffer from DRAM prices and that's hurt their hardware revenue growth and their gross profit margins in terms of year to year growth. This is undoubtedly going to continue for the first quarter.

STORAGE DIVISION. One other hardware business they don't discuss much is their storage division. Storage had a terrific quarter, in fact it is probably their most improved division at IBM in 1996. Their storage division offers a full array of products and people tend to know it for high-end DASD. And, high-end DASD is probably the business it is doing the least well at now for a series of reasons. But they are doing very well in the HDD business and very well in the Open/UNIX and tape businesses. Almost half of their storage revenues today comes from the hard disk drive business and it is growing very rapidly and is now substantially larger than their high-end DASD business.

R&D AND PRODUCTION INVESTMENTS FOR STORAGE DIVISION. They are investing heavily in that capacity. In 1996 they received authorization from the board to invest $1.3 billion in expansion for HDD in Singapore, Thailand, Hungary, and Ireland shortly. Their magneto-resistor head technology is industry leading and means they can put a lot more memory in a small space. And the capabilities have been extended. Three weeks ago their research division announced the first demonstration of their product level components working together at three times the density of the most advanced disk drive available today. This is an example of where their technology is leadership, they've brought it to market effectively, built the plants effectively, got their yields up much faster than they thought they could, and focused using the technology on parts of the business which are most relevant. Obviously if you can put a lot of memory in a small space, it's very relevant to the notebook business as opposed to the more commodity-like desktop business and that's where they focused. There's more relevance to the server business and that again is where they focused. They realized gross profit margin which is substantially above other competitors in that business.

HARDWARE DISAPPOINTMENTS. They mentioned DRAM and high-end DASD where they didn't have the revenue growth they would have liked. With high-end DASD they saw improved profit margins, but they think that is primarily a question of product transitions. They believe this is more of a one-quarter phenomenon, with a lot more good things to come. Also, Europe was a bit slower. Finally, they faced a difficult comparison against last year.

SERVICES BUSINESS. This continues to be a very strong business for them. Revenue grew at 22% or 25% in constant currency. This was the 16th consecutive quarter that they have grown more than 20%. At some point it gets so big that's hard to do. They aren't sure how long they can do it. Their backlog continues to grow and is now over $38 billion and have signed about $6 billion of new business during the quarter. Twenty large engagements took place in the quarter. They declined to compete in about 8 of them for price and other reasons. But, of the 12 they decided to compete in, they won 10 of them. And, these include such names as Federated Department Stores, Washington Mutual Bank, General Accident, Lyonnaise des Eaux, and some others. They also signed a letter of intent for British Steel which is not included in the numbers released. At least one of their competitors is asserting that IBM is buying business in this space. IBM said that this is not the case. The fact that they are declining to compete in some cases and their gross profit margins came up this quarter were cited as indications that they are not buying the business. They are in the business where it makes sense economically and where it doesn't, they don't get in. In 1996 they hired about 15,000 people to put into this business. Finding the right skills continues to be the biggest constraint. They think, looking ahead, they are going to have to hire roughly the same number of people again if they want to keep that growth rate up and that continues to be a big issue looking ahead.

SOFTWARE. They were very pleased with their software business this quarter. Constant currency growth rate of about 7% means that it grew at about the same rate as the first half, but the Lotus revenue was not in the base period in the first half so the comparison is easier. They are starting to see some good growth and it's coming between both their host and their distributors in good trends. Their host-based software consists of System 390 and AS/400 products. This revenue was about 75 to 80% of their total, which is mostly monthly license charge revenue from the installed base of 390s and one-time charge revenue associated with AS/400s. There is a dynamic taking place in the market that resolves around their charging for Parallel Sys-Plex at lower rates than they previously charged, which obviously hurts the pricing. On the other hand, as the Parallel Sys-Plex grows and the growth of the installed base increases that volume goes up. They speculated last quarter that they might have been near the low point of the curve, and they very well may be turning the quarter. Again, the transitions are slow, so they don't want anyone to think that every quarter it's necessarily going to move. But, they feel that enough of their customers have made the one-time transition to Parallel Sys-Plex that this growth in the installed base is really begining to show in the revenue of software and that's what's driving the percentage growth in revenue for host-based software from the -6% last quarter to -3% this quarter. They also talked about the need to continue to grow the distributed software. And, they are continuing to do that in all of their businesses, but they wanted to talk particularly about Lotus and Tivoli because both of them had absolutely outstanding quarters.

LOTUS. They shipped 1.5 million seats in the fourth quarter and about 4.5 million in total. That means they doubled the installed base this year to about 9 million seats. For cc:Mail, they now have about a 12 million seat installed base. So, the whole Lotus family has about a 21 million seat installed base, very sizeable. They are continuing to have very good competitive wins in the marketplace. In fact they are even having a number of win-backs from people who went with other software and are now coming back to IBM. Finally, the Notes 4.5 with Domino has just started shipping in December, but it's getting a fantastic reaction.

TIVOLI. While they were pleased with their progress in Lotus, they think Tivoli had an even more outstanding quarter. The fourth quarter revenue for TME systems management products was greater for the quarter than the whole year of 1995. They are beginning to see some very good growth. Tivoli's total revenue growth rate accelerated each quarter of the year, and they are now at levels that frankly aren't sustainable because they are in triple digits for the fourth quarter, but illustrate the level of demand they are seeing out there. And they had a lot of good wins. They won at Wal-Mart, Fannie Mae, Barnett Bank, and at Renault. When they compete they are winning about 9 out of 10 of the technical benchmarks. Finally, they saw some very good growth in Europe. One of the things they thought they could bring to Tivoli was a lot of synergy by bringing the IBM distribution to their product line because it was essentially a US product line when IBM bought them. And, they are seeing some very strong growth in Europe and that is proving to be one of the synergy elements that they play to. They also added more business partners in the last 6 months than in the prior 6 years and these now stand at about 250 business partners.

GEOGRAPHIC REVENUES. This is pretty much what they've been saying for the past two quarters. There is strong and continuing growth in North America. Europe remained weak at about 3% constant currency growth. Asia Pacific had its highest growth rate and was at 14% constant currency but fell back slightly, and Latin America declined to about 4%. The economies are clearly weak in Europe. Furthermore, it's troubling to anyone who cares about European prosperity that in general Europe is today only investing in capital goods including information technology at only about half the rate that you see occuring in the United States and Asia. So, that doesn't look very positive for the future. On the other hand, all the interest rates in Europe remain very low and a lot of the forecasts talk about higher growth in Europe in 1997 and IBM certainly hopes that's true. In the meantime, they have revamped their organization to improve productivity, to improve their industry focus, and to continue the hard fight of reducing their infrastructure in Europe. So that's something that's ongoing. As always, the global market has its mix of strengths and weaknesses and with that the mix change that occurs.

CURRENCY. The impact from currency is a little more than they thought in the fourth quarter, about $0.18 per share. That is the result of the dollar strengthening, particularly the strengthening in December. There has been a continued dollar strengthening against the continental currencies throughout the period. The pound sterling has bounced around but strengthened in the most recent period. And there has been a consistent devaluation of the yen since the second quarter. It devalued 27% that quarter, but has been relatively consistent since then. In the first quarter last year, currency hurt them by $0.02 per share, in the second quarter by $0.33, in the third quarter by $0.08, and in the fourth quarter $0.18 for a total of $0.52. So, the impact is very asymmetrical. Looking at Q1 1997 spot rates, they are pretty close to the Q4 1996 spot rates.

GROSS PROFIT. They think the gross profit story is relatively simple. They projected that on a year to year basis, that gross profit margins are doing to decline at least a point due to change in mix. And that is sort of what happened in the course of the year. They got some improvements in PCs, in hard drives, and other hardware. On the other hand, they got a hit by lower DRAM margins. The services margins returned to last year's levels and software margins held steady to a higher level. So the basic underlying all this is a mix change of different businesses going different ways. There is no major change in the business. For the software numbers, they had decided to expense a lot of their R&D and to capitalize less of it and that was a hit that would occur in the latter part of 1995 and throughout much of 1996. About 3 of the 4 margin improvements in software results from the fact that they had a lower capitalization rate than they had before so that fundamentally, for 3 quarters they had improvement that is just due to that change. Their R&D expenses are higher than they will be in the future, which is the other part of that.

EXPENSES. IBM is working hard to improve their performance on both expenses and taxes and they think they made good progress. Last quarter there was concern that total expense had grown about 9% and this quarter total expense declined 2%. The R&D number, 7% growth in R&D, if you take account of the fact that 8% of the growth occurred because they are now expensing software rather than capitalizing it, the R&D number would be down rather than up. This quarter, total expense declined too, not counting that change. They are operating under the theory that they want to put expense in line with revenue and that they want to be sure that these investments have variable and pretty traceable payback, and they are doing that. Their small/medium size business initiatives are examples of that. Secondly, they are continuing to cut back on infrastructure and low-yield programs. That also occured in the quarter. Thirdly, in a business as large and as complex as this one, they are constantly making trade-offs between investments of a large variety. The most important thing to think about in measuring their expense performance is measuring how expenses grow to revenue over time. Over time they plan to drive that down. In any given quarter or time period, there is likely to be shortfalls and overruns.

EUROPE AND INFRASTRUCTURE REDUCTION GOALS. For example, in Europe once again, they were unable to achieve the success they wanted in their volunteer reduction program. They aimed to reduce the infrastructure in the quarter between $300-400 million. And they reduced it only by a little more than $200 million. For the full year, they said they would do about $750-800 million, and in fact they did about $720 million. So, to put this in perspective, this $80 million difference for the year is about 0.1% of their revenues. So, it is important to keep it in the context of a business of their scale. It has been very difficult for them to actually estimate quarterly what these primarily voluntary programs in Europe are going to turn out to be. So, accordingly they decided to review this part of their expenses on an annual basis, not quarterly.

TAXES. In the quarter, the tax rate was about 30%, which was low enough to bring the full-year tax rate down to 35%, 2.5% below the tax rate of 1995. There are two main reasons for that. The most important reason is that they have done much better, particularly in the fourth quarter, in getting their plants in Singapore, Thailand and their other tax-advantaged locations up to production speed faster than they anticipated. They had the plants, the most important thing was getting the production yields up to the levels they wanted. Their production yields have gone up much faster than budget and that shows up in the income of the storage unit and the hard drive business, but also in their tax rate. They also had some other tax effects which occured, but there is a one-time effect in Brazil once again at the end of the year. This year the Brazilians have decided to allow the tax deductibility of severance payments, which they had not been previously, and they allowed IBM to do this back over several years. So, they had a one-time effect in Brazil in the fourth quarter which moved the tax rate to a certain degree. Always in the tax structure there is a whole issue of business mix. To a certain degree, when the businesses in Asia Pacific, Australia, and Japan slow down a little bit as they did this quarter, that also means that you have a little less weighting of their high tax rates. But, the most important thing was the improvements they made in their new manufacturing locations and they are excited about that because they think that taxes should be viewed as an expense like any other expense that you attack aggressively.

CASH FLOW AND THE BALANCE SHEET. Cash from operations was very strong. In the full year, they are basically going to produce about $5.6 billion cash from operations. During the year they invested about $6 billion in capital expenditures, a little more than $1 billion in acquisitions, and about $5.8 billion in share buybacks. And even without that, they end up with $8.1 billion in cash, even after they did all that. They had a pretty good income quarter, but they are continuing to push hard on working capital. Their receivable days went from 45 to 41 for the quarter and they improved inventory turns. That's getting harder. Just a couple of years ago, they were turning inventory as a company a little bit more than 2 times. So, when you're turning inventory at 2 times and the industry is at 4-5, it's pretty easy to improve. They're getting to the industry level, so the improvements are going to be harder to come by, but they're getting them, and they're committed to getting them. But, the rate of improvement on working capital is going to be a little harder in the future than it's been in the past. With all this cash, they ended up with very conservative debt ratios. Their core debt to total capital is about 11% and their customer financing debt-to-equity was about 6.3. They think they've ended the year with a very strong balance sheet with a lot of cash.

PUTTING THE NUMBERS IN CONTEXT. In terms of long-term objectives, IBM wants first of all to have a return to their growth of the topline revenue growth. Secondly they want to maintain stable after-tax margins around the current leve. Third, they want to make very disciplined use of their strong cash flow for investment and growth and enhance shareholder value. And fourth, they want one of these investments to be the repurchase of their common stock.

RETURN TO TOPLINE GROWTH. This was their first objective and IBM has improved from no constant currency growth in 1993 to 5% in 1994, to 8% in 1995, and now 9% in 1996. And this 9% growth rate is the highest constant currency growth rate they have had since 1985. This high single-digit growth is clearly improved performance. Going at this rate is clearly not without its challenges, in part because of their business mix. In 1993, 46% of IBM's revenues came from higher growth businesses, but in 1996 this is up to 64%, with the 1996 fourth quarter at 66%. So they are moving into the higher growth segments of the market faster than the industry as a whole. Last year they increased their higher growth revenue percentage by 7 points in a single year, whereas the industry grew by about 2 points. They are still not as strong as the industry which is at about 83% of revenue from rapid growth segments to 17% slow growth segments, but this gap is closing steadily. A simple example that illustrates the effect of all of this: In 1996, had they simply held share in all of their businesses, their revenue would have grown on a constant currency basis by only 5% rather than the 9% it did grow at. So, in fact, they gained share in many sectors (services, PCs, and others) to bring their forward growth to 9%, 4% over what their constant share number would have been. So, the continued growth of the industry and their continually improving mix has been the engine behind this growth for the past several years.

OPERATIONAL NET INCOME MARGIN. Their second longer term objective is to maintain stable net income margins at approximately the current level. The faster growing businesses such as services or PCs tend to have financial models with lower gross profit margins and more expense to revenue numbers. They are still attractive business propositions, they're just different business propositions. As businesses with these financial characteristics become a larger proportion of the industry as a whole, gross margins for the industry will decline, they think at least a point per year and they think there is some evidence that this is happening. Also, expense to revenue in the industry will decline as a consequence of more infrastructure, the mix impact, and to some degree the increased use of indirect channels. You are going to see those same trends occur within IBM because they have a broad breadth of these businesses. Plus, IBM has added a third element, which is occuring in IBM and maybe not as much in the industry. They are very collectively working to reduce their tax rates and have seen some real progress on that. So, at the bottom line, hold net income constant or relatively constant, they have to offset this gross margin decline with lower expense to revenue numbers and lower tax performance over a period of time. After getting up to 8% in 1995 from break-even in 1993, they held about steady at just under 8% in 1996. In any given quarter, there are going to be a lot of variations. But, they are striving to have very stable after-tax margins.

CASH FLOW FROM OPERATIONS. IBM generates a tremendous amount of cash. On their cash flow charts each quarter, there is a line called Net Cash/Operations which is a little bit like free cash flow. It is the cash flow after internal investments such as capital expenditures or small acquisitions, but before financing dividends or the really big acquisitions like Lotus. Over the past 3 years, the net cash from operations has been extraordinarily strong. And this cash also could be used to grow. They discussed 3 types of alternate investments they will be making: incremental investment in their base business, acquisitions, and share repurchase. They have become much more disciplined in their use of cash.

SHARE REPURCHASE. In 1993 and 1994, they repurchased no shares and their shares outstanding increased. In 1995 and 1996, the board of directors made 5 authorizations for share repurchases to total $13.5 billion. Through the end of December, they have invested $10.7 billion in repurchasing over 100 million shares and that has been an important contributor to growing their EPS over that timeframe.

SUMMARY. Again, these are their goals. Achievement is very much dependent on the business environment and execution. The share repurchase requires authorization from the board of directors. And technology is a business where product transitions occur and there are going to be variations in a given quarter. So a lot of things can happen. But, they think it is useful for people to understand what their intentions are and what they have done over the last couple of years. Considering the 1996 results, they may not have hit all pieces of the model right on the button, they probably never will, but in total they think they came out pretty well and this is starting to take shape.

LOOKING FORWARD TO 1997. They feel pretty good about 1997. They face what appears to be very strong product demand for almost all their product lines globally. They feel they are much better at executing and making their product transitions work for them. They have some specific issue with DRAM and other things, but their DRAM comparison becomes very tough in the first quarter particularly. And, obviously currency is a wildcard and will continue to go up and down. They can't make predictions about that. But, in general, they feel good about 1997.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.