## Applied Stringent Cost and Expense Controls

As a result, we have been able to minimize price increases on current products while offering new products with dramatically improved price/performance.

### New Products

In 1978, we introduced a variety of new products that enable both small and large customers to perform a broad range of information-processing tasks.

The new IBM 8100 information system allows users to distribute data processing economically throughout an organization.

Technology and programming innovations in the new IBM System/38 permit many advanced functions to be offered in an easy-to-use, low-cost system.

The power of the high-performance IBM 3033 and IBM 3031 processors can now be raised as much as 1.8 times through linkage or attachment of additional processors. Also, two new intermediate-scale processors, the IBM 4331 and IBM 4341, offer users significantly improved price/performance.

The versatile new IBM 3730 distributed office communication system and the new multi-function IBM electronic typewriters can help users shorten many time-consuming tasks.

### Manufacturing Buildup Continues

IBM is well into a substantial production buildup. We have two new manufacturing plants under construction—at Charlotte, N.C., and Tucson, Ariz.—and we are also increasing capacity at 26 other plants worldwide. During 1978 and 1977, we added approximately 14,000 employees to our worldwide manufacturing operations.

### Competition vs. Regulation

IBM believes that competition stimulates innovation and that it is better to rely on competition than government regulation to provide the marketplace with the best products at the lowest prices. Currently, the Federal Communications Commission is examining the extent to which it should regulate products and services of communications common carriers, many of which compete with IBM and others. Our position is that the only common carrier services the government should regulate are those transmission services that have the attributes of a natural monopoly.

We believe that all common carriers should be free to offer data processing services and equipment. However, these offerings should be made on an unregulated, competitive basis. We are convinced that this will provide the maximum opportunity for innovation and thereby best meet the needs of users.

### International Issues

During 1979, the U.S. Congress will be asked to approve new trade agreements negotiated in accordance with GATT (General Agreement on Tariffs and Trade). We strongly favor the agreements as a way to promote international trade, reduce tariff costs, and help avoid trade conflicts.

Among the restrictions we face overseas are national laws calling for local ownership. While it is our policy to comply with the law in each country where IBM does business, we continue to believe that the best way to manage an integrated, high-technology company such as IBM is with full ownership of worldwide operations. We think this benefits the host countries as well as IBM. We have 9 laboratories and 23 plants outside the U.S. and share our technical resources and know-how with IBM companies throughout the world. Our employment overseas consists almost entirely of nationals of the host countries.

Because of the mutual advantages for host countries and IBM, we believe IBM's business abroad will continue to expand, in both developing and industrialized countries. Such growth, in turn, translates into more jobs in the U.S. to meet a larger worldwide demand for IBM products.

### The Lawsuits

The U.S. Justice Department's antitrust suit against IBM went to trial in May, 1975, and after the government completed its case almost three years later, IBM immediately began its defense. Although we are attempting to move the proceedings along rapidly, we think the case will continue for a considerable period of time.

In August, 1978, after trial of antitrust charges brought by the Memorex Corporation against IBM, the Federal District Court ordered a directed verdict in favor of IBM. Memorex is appealing that decision.

Trial of an antitrust suit by Transamerica Computer Company is now in progress.

Further detail on these and other lawsuits is contained in the financial section of this report. Most of the issues in the antitrust cases have been tried over and over. The findings in the courts to date support our conviction that IBM has achieved its business success through fair and ethical competition.

## Four-for-One Stock Split

In December, 1978, the Board of Directors voted to recommend to the stockholders a four-for-one stock split. Stockholders will vote on the recommendation at the IBM Annual Meeting April 30, 1979. If approved, the split would be made effective through issuance of three additional shares for each share held on May 10, 1979, the tentative record date of the split. Certificates for these shares would be mailed to stockholders on or about May 31, 1979.

## A Promising Future

Our highly dynamic industry continues to show a large growth potential. The leading-edge technologies that flow from IBM laboratories and plants point to exciting long-term improvements in information processing for the benefit of people in all parts of the world.

Making such progress possible are the tremendous skills and experience of IBM people in many nations. Their talents and responsiveness give us confidence that we can take advantage of our expanding opportunities and share in what promises to be a bright future indeed for the IBM company.

January 30, 1979

by order of the Board of Directors

Frank T. Cary  
Chairman of the Board

John R. Opel  
President