Patricia Murphy – VP, Investor Relations Mark Loughridge - SVP and CFO

Richard Gardner - Citigroup Toni Sacconaghi - Sanford C. Bernstein & Company Laura Conigliaro - Goldman Sachs Andrew Neff - Bear Stearns Chris Whitmore - Deutsche Bank Ben Reitzes - UBS Bill Shope – JP Morgan Richard Farmer - Merrill Lynch David Grossman - Thomas Weisel Partners Keith Bachman - Banc of America Securities

(Operator Instructions) Now I'll turn the meeting over to Ms. Patricia Murphy, Vice President of Investor Relations. Ma'am, you may begin.

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I'm here with Mark Loughridge, IBM's Senior Vice President and Chief Financial Officer. Thank you for joining our third quarter earnings presentation. By now the opening page of the presentation should have automatically loaded and you should be on the title page. Charts will automatically advance as we move through the presentation. If you prefer to manually control the charts at anytime, you can uncheck the synchronize button on the left of the presentation. Prepared remarks will be available in roughly an hour and a replay of this webcast will be posted to our investor relations website by this time tomorrow. Our presentation includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You'll find reconciliation charts at the end and in the Form 8-K to be submitted to the SEC. For those of you who are manually controlling the charts, please click on the next button for Chart 2. Certain comments made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM website or from us in investor relations. Now I'll turn the call over to Mark Loughridge.

Thanks, Patricia. We had a great quarter and our results demonstrate the balance and strength of our business model. For the quarter, we delivered $22.6 billion in revenue, which was up 5% as reported and 4% at constant currency. Our pre-tax income was up 9% to $3.2 billion, with a very solid profit margin of 14%. As reported, we delivered $1.45 of earnings per share, which was up 54% year-to-year. Excluding the one-time tax charge for the Homeland Repatriation activity from last year's results, IBM's earnings per share were up 15%. Our performance was very strong in many key areas. Software posted solid growth in revenue and pre-tax profit, and was the largest profit contributor. We believe our focus on building up our software capabilities is paying off. We had good results in many of our hardware brands, but our System Z performance was exceptional. Our hardware and software performance benefited from particularly good sales execution in September in closing key transactions for the quarter. From a geographic perspective, Asia Pacific improved significantly with a strong contribution from Japan. Productivity initiatives continue to drive higher margins and once again we had strong cash performance, with an increase in net cash from operations through September of $2 billion, excluding global financing receivables. Let me address what this means right upfront. Based on this performance, it is reasonable for you to roll through the $0.10 earnings per share over-achievement to your full year estimates. Given our year-to-date performance, we are on track to deliver earnings per share growth for 2006 in line with the IBM model. Let's get into the details, starting with revenue and gross profit by brand. Global services revenue was up 3% as reported and 2% at constant currency. The growth rate improved sequentially in both global technology services and global business services. Hardware revenue was up 9% as reported and up 8% at constant currency. As I mentioned, our System Z business performance was especially strong. System P and storage also posted solid growth, and microelectronics continued to benefit from a good demand for games processors. Software revenue was up 9% as reported and 7% at constant currency, led by good growth across our key middleware brands. For the first nine months of the year, our software revenue was up 5% as reported and 6% at constant currency, as customers leverage IBM's end-to-end middleware capabilities. Global financing revenue was down 2% and down 3% at constant currency, driven by lower levels of used equipment sales. Turning to gross profit margin, the year-to-year improvement resulted from a combination of improved margin from our ongoing productivity initiatives and a mix towards our higher margin businesses. Looking at our revenue by geography, I will focus my comments on the results at constant currency to provide the best view of the underlying business performance. The Americas revenue again increased 2% year-to-year. From a product perspective, the Americas growth was driven by software. By region, the best performance came from Latin America with double-digit revenue growth. The U.S. was also up, but Canada declined. Europe's revenue also increased 2% year-to-year, an improvement from the growth rate in the second quarter. Performance across the geography generally improved. Most of the major countries grew, including the U.K., France, Italy, Spain and the Netherlands; but Germany continued to decline. As I said earlier, the best performance came from Asia Pacific, with 6% revenue growth. The results reflect better execution by our team. A strong contribution to the improvement came from Japan, which declined through the first half of the year but improved to flat in the third quarter. Japan represents over half of the Asia Pacific revenue base. Each of the other four major regions posted double-digit growth. Across all of our geographies, the emerging countries of China, India, Brazil and Russia together grew 19%. India again posted the strongest growth, up 37%. China grew 27% and Brazil grew 13%, while Russia declined 7%. We continue to invest to build capabilities in these countries to address the fast-growing domestic market opportunities and to enhance IBM's globally integrated operations. Finally, our OEM growth was 24% in the third quarter, driven by strong game chip performance in our microelectronics business. Now, we'll move on to expense. Total expense and other income increased 8% in the quarter. Our expense to revenue ratio was 27.9%, up nine-tenths of a point year-to-year. The increase was driven by SG&A due to our ongoing investments in sales, skills, emerging markets and our strategic acquisitions. As in the past, to help investors understand the drivers of our operational performance, I will go through the road map of specific items that significantly impacted our profit growth. These items are reported in cost and expense. Other income benefited from a $52 million year-to-year increase to interest income, reflecting our strong cash balance and increasing interest rates. Continued work force rebalancing expense increased about $70 million year-to-year. We continued to be impacted by retirement-related plans, which again generated about $600 million of cost and expense in the quarter. This is an increase of about $70 million year-to-year. We expect these plans to cost approximately $2.4 billion for the full year, a $300 million year-over-year impact, excluding last year's one-time charges. Now let me comment on currency. IBM hedges its major cross-border cash flows and as a result, mitigates the effect of currency volatility in the year-over-year results. The impact of these hedging programs is principally reflected in other income and expense as well as cost of goods sold. I'm not going to predict future currency moves, but at current spot rates we would expect revenue growth to benefit from currency translation in the fourth quarter. The supplemental chart at the end of the presentation benchmarks currency's potential future impact on revenue, assuming Monday's exchange rates. Now let's turn to cash flow, Chart 7. Through the third quarter, we continued to have strong cash generation. This cash flow analysis chart has one primary difference from the FAS 95 format: it considers our global financing receivables as an investment to generate profit, not as working capital that should be minimized for efficiency. Year-to-date, net cash provided from operations, excluding the year-to-year change in global financing receivables, was $7.3 billion, an increase of $2 billion from last year. Excluding the significant pension funding activity in the U.S. and U.K. from both years, we generated over $1.3 billion more cash from operations year-to-year. Our year-to-date cash performance was driven primarily by growth in net income and continued focus on working capital and supply chain management. Let me comment on a couple of items within our investing activities. Global finance and receivables net of changes at global financing debt, generated less cash year-to-year as our strong performance in systems and software resulted in asset growth at the end of the quarter. Spending on acquisitions was down year-to-year. This activity will increase in the fourth quarter as we complete the acquisitions announced in the third quarter. We continue to drive very strong results to shareholders. Through the third quarter, we've returned over $7.9 billion to investors. $6.7 billion of this shareholder return was through share repurchase, consistent with our spending last year. We bought back 82 million shares. Average diluted shares are at 1.6 billion, down 4.6% from a year ago. We have approximately $2.4 billion remaining at the end of September from our last board authorization. Through the third quarter, we paid out over $1.2 billion in dividends, which is an increase of about $300 million year-to-year. Turning to the balance sheet, our cash on hand was $10.9 billion. 97% of our total debt of $22 billion was driven by our global financing business, and global financing was leveraged at an appropriate 6.9:1. The remaining non-financing debt level was $722 million and debt to capital was 2%. Our balance sheet obviously remains very strong. So now let's turn to our businesses. I'm going to start with software, as it was our largest profit contributor this quarter. Software revenue was $4.4 billion, up 9% as reported and 7% at constant currency. Key branded middleware grew 20% year-to-year, and 18% at constant currency. We saw strong demand for our entire product portfolio, coupled with good sales execution on key transactions. We grew in all five brands with double-digit growth in WebSphere, Information Management and Tivoli and also grew in all major geographies. We've been investing heavily in our software business for some time, both internally and through our targeted acquisitions. Our performance during 2006 underscores that our strategy is working. Now let me give you a few examples: First, an increasing number of our customers have embraced the integrated software portfolio. This improves our customers' efficiency and is reflected in the number of large transactions completed this quarter. Second, our investments are carrying us more deeply into targeted markets. For instance, our investments in systems management, including our Micromuse acquisition, have enabled us to offer unique capabilities to our communications customers and contributed to Tivoli's strong performance. Finally, our advanced new technologies, such as services oriented architecture and information on demand, are resonating well with customers. These technologies also form the underpinnings of more integrated solutions, incorporating IBM software, services and hardware. Turning to the key brands, the WebSphere family of software grew 30% and 28% at constant currency. WebSphere provides a foundation for Web-enabled applications and is a key product set in deploying a client's services oriented architecture. In 2006, WebSphere technology has accelerated the emergence and acceptance of services oriented architecture, contributing to double-digit revenue growth in WebSphere each quarter. IBM's lead in SOA is well-recognized and we're continuing to invest to extend our leadership position. Information management software helps companies integrate, manage and gain value from their business information. Information management was up 12% and 10% at constant currency. Our information on demand portfolio builds value around our core database business. It enables our customers to integrate, analyze and optimize disparate information across their enterprise. These offerings grew over 50% year-to-year. In July, we introduced DB2 Version 9, commonly referred to as Viper. With enhanced XML and data compression technologies, this new database is a key component of our SOA and information on demand strategies, and has proven to be particularly effective in SAP installations. Finally, just last week, we completed the acquisition of FileNet, which will enhance our content management capabilities. Tivoli software, which provides robust systems management capabilities, grew 44% and 42% at constant currency. The performance in Tivoli was broad-based with greater than 35% growth in each of the three key Tivoli segments: systems management, security and storage. Earlier this month, we closed our acquisition of MRO, which offers customers the seamless integration of enterprise and IT asset management. Lotus software was up 8% and 7% at constant currency. Lotus provides solutions to improve the user interaction with IT data and business processes. Our Lotus Domino products benefited from continued momentum in its collaboration products and strong customer loyalty. Rational software, which provides customers with tools that manage the business process of software and systems development, was up 2% and 1% at constant currency. Other middleware was down 1% and down 2% at constant currency. This segment includes more mature products which provide a stable flow of revenue and profit. Operating systems were down due to improved price performance in System Z and volume declines in System I. Overall, our software business had another strong quarter with revenue growth of 9%, pre-tax profit growth of 15% and a 1 point improvement in pre-tax margins to 26%. With these results, we believe we gained share in WebSphere, information management and Tivoli, and held share in Lotus and Rational. We believe we gained share overall. I will move on to services. Global services delivered revenue of $12 billion, up 3% as reported and 2% at constant currency. Signings for services this quarter were $10.5 billion at constant currency. Our shorter-term signings were up 9% year-to-year, a significant improvement over last quarter's growth rate. We fell short of our expectations for longer-term signings, which were down 15% year-to-year. This quarter, we signed 12 deals larger than $100 million and our backlog is estimated at $109 billion. Now let me address each of the services businesses. Global technology services delivered revenue of $8.1 billion, up 3% as reported and 2% at constant currency. Strategic outsourcing revenue was up 6% as reported and up 4% at constant currency. Signings were down 29% year-to-year, as a number of large opportunities slipped out of the quarter. Revenue growth is impacted by a combination of signings over the longer term, sales within our base accounts, and contract erosion. This quarter, while signings were down, revenue growth improved due to signings growth last year and a continued focus on sales into our existing accounts. Business transformation outsourcing revenue was up 5% as reported and 4% at constant currency. BTO signings were up over 150% year-to-year with signings across our key offerings, including human resources, finance and accounting, procurement and supply chain. Integrated technology services revenue was down 2% as reported and down 3% at constant currency. Over the last few quarters, we have been implementing changes to improve the integrated technology services business, including streamlining our offerings and aligning skills to address higher growth and higher value areas. Although it has taken longer than we anticipated to show meaningful improvement, we are seeing signs of progress. This quarter, signings were up 7% year-to-year with growth in Asia Pacific and Europe. These are also the geographies where we first implemented changes in the business. Turning to margins, Global technology services' pre-tax margin was 9.6%, down nine-tenths of a point year-to-year and up two-tenths quarter to quarter. We are continuing to invest in sales delivery and business development skills across our entire set of offerings, as well as investing in strategic outsourcing infrastructure and BTO capabilities. These investments are designed to drive revenue growth over time. Global business services revenue was up 1% year-to-year, a 5 point sequential improvement in the constant currency growth rate. Shorter-term signings were up 11% year-to-year, driven by our growth in the Americas and Asia Pacific and our longer-term signings were down 22%. Global Business Services pre-tax profit was up over 40% year-to-year, and the third quarter pre-tax margin improved 2.6 points to 9.4%. Over the past 18 months, we have been implementing a transformation of our operations designed to improve profitability. This transformation included the restructuring actions we took last year, the deployment of global resources management tools and end-to-end optimization of our sourcing models, as well as increased focus on deal selectivity. This has yielded consistent improvement in utilization, better contract quality and increased profit margins. We have made a lot of progress on the profitability of Global Business Services and are encouraged by the improved revenue and short-term signings growth. At the same time, we are still driving for better top line performance. We are continuing to invest in high value-added business solutions. For example, we're enhancing our global development center capabilities in China and India to leverage our Webify acquisition and to accelerate SOA within our industry solutions. We are also increasing our business development resources to drive pipeline and revenue growth in our application management services business, and we are continuing to invest in key industry skills and solutions specialists in selected countries. So to wrap up global services, while our results this quarter were mixed and we need to focus on converting our pipeline into long-term signings growth, we are encouraged by the improvement in our short-term businesses and our overall profitability. Systems and technology revenue of $5.5 billion increased 10% year-to-year and 8% at constant currency, led by double-digit growth in System Z, storage, microelectronics and retail store solutions. System Z revenue was up 25% year to year, 22% at constant currency. MIPS grew 16% and for the first time, the installed inventory has surpassed 10 million MIPS. This continued growth is supported by strong customer demand for traditional mainframe engines as well as specialty processors for Linux and Java workloads. Security, energy and cooling efficiency, virtualization and SOA, together with improved economics, continue to play to the strength of system Z. These features are attracting new mainframe customers to the platform. Let me give you a couple of examples. Belarus Bank, a new System Z customer, deployed the first SAP banking installation in Russia. The solution includes the midrange Z9 with a Java specialty processor along with IBM storage and System P. In another example, Nationwide began earlier this year to move critical Linux applications to a Z990. By choosing System Z, Nationwide is projecting savings of $15 million over the competitor's solution of hundreds of x86 servers. In the third quarter, they added System Z capacity and shared their story as a main tent speaker at Linux World. System Z performance in the third quarter also reflected good sales execution and we believe we grew market share. System I had a disappointing quarter as revenue declined 22% or 23% at constant currency. This compares to a particularly strong quarter last year, where we reported 25% revenue growth. System P UNIX revenue grew 10% in the quarter, 8% at constant currency. In the third quarter, we completed the transition to Power 5+, sustaining the price performance and virtualization leadership position that has made IBM the number one UNIX vendor worldwide. Our refreshed high-end systems delivered significant performance advantages compared to recently announced competitive Itanium-based offerings. System X servers grew 4% year-to-year, 3% at constant currency, in line with industry estimates. System X Blade, the fastest-growing segment of the x86 market, grew 24% this quarter. IBM BladeCenter offers customers unique power and cooling capabilities and the flexibility to efficiently handle various workloads. In addition to our System X blades, IBM offered Power Blades and blades utilizing the cell broadband engine. IBM's total blade growth was over 30%. We believe IBM maintained its market leadership in blades. System storage was up 12% year-to-year and 11% at constant currency while improving margins. This grows 14% with double-digit growth in both enterprise and midrange disk. The DS 8000 accelerated to almost 30% growth as we introduced Power 5+. Tape grew 8% as we saw good market acceptance of our new tape security offerings. Together with IBM software and services, this solution provides for the effective encryption and management of large volumes of digital information. We believe we have gained share in both disk and tape this quarter. Microelectronics revenue growth of 29% was driven by client demand for game processor and networking components. This is the fourth consecutive quarter of year-to-year growth over 25%. System and technology revenue growth of 10%, together with the exceptional performance from System Z, drove segment profit growth of 13% year-to-year. Now I will wrap up. IBM is a unique technology company with a broad portfolio of higher-value products and capabilities. Over the last several years, we have executed a series of portfolio actions to reshape the company, including the sale of several commoditizing businesses. At the same time, we've continued to invest both internally and through acquisitions to build capabilities in higher-value areas. The result is a balanced mix of industry-leading businesses with good profit contribution from hardware, software and services. Our customers value IBM's unique ability to integrate these offerings on a global basis to meet their needs. In the third quarter, our pre-tax profit growth of 9% and EPS growth of 15% reflect the strength of the business model, with good contribution from our high value, high margin businesses. The largest profit contributor was our software business. This quarter, our software results once again reflect strong demand for products deploying services-oriented architectures and information on demand, as well as the value of our systems management, security and storage offerings. We are continuing to invest both internally and to execute a targeted acquisition strategy. In the third quarter, we announced acquisitions that will continue to build our capabilities while contributing growth in cash flow. In hardware, we also posted solid results, led by our System Z business and good performance in System P, storage and microelectronics. Services revenue growth improved over the last two quarters though it is still not where it needs to be; but the bigger story here is the solid profit base this business provides and our continued profit improvement. On a geographic dimension, Asia Pacific had the strongest performance, helped by a recovery in Japan and our ongoing investment in our emerging countries continued to yield strong growth. Turning to the productivity and cash elements of our model, in hardware, software and services, our margins improved. We'll continue to drive productivity initiatives as we globally integrate IBM. Our strong cash generation and balance sheet position allowed us to continue to return value to shareholders through share buyback and dividends. This was a strong quarter for us, reflecting solid execution and a balanced contribution across our portfolio. We are confident in our strategy and in our objective to deliver double-digit earnings per share growth over the longer term. Now Patricia and I will take your questions. Patricia Murphy: Thanks, Mark. Before we go to the Q&A, let me comment on two items. First, we have a few supplemental charts at the end of the deck that complement Mark's prepared remarks. Second, I'd ask you to refrain from multi-part questions to allow us to take questions from more callers. Operator, please open it up for questions.

(Operator Instructions) Your first question comes from Richard Gardner - Citigroup. Richard Gardner - Citigroup: Okay. Thank you very much. Mark, after last quarter, you commented that you were fairly confident you could grow bookings for the services business year-over-year in Q3. You did talk about a shortfall in long-term signings. Can you give a little bit of color on the reason for the shortfall? Was it competitive losses, was it deferrals into Q4? Then maybe in connection with that, give us your view of the services pipeline heading into the fourth quarter?

You bet, Richard. A very good question. First of all, I wanted to point out that we did not grow our signings this quarter because we missed our objective in the longer-term businesses. We did grow BTO, however, 150% this quarter. On the short-term basis, we certainly did meet our objectives for short-term signings in the quarter. GBS short term was up 11% and GTS was up 7%. So we made substantial progress here but now we need to keep that momentum going as we move to the fourth quarter. If you look back at the third quarter, we did have a very good pipeline of deals coming into the third. So I for one -- and I think the team as well -- fully expected to grow our signings. We just didn't get the deals closed in time as a number of opportunities slipped out of the quarter. We haven't lost these deals, we're still working on them. So as I look forward to the fourth quarter, including the deal that slipped out of the third, we see plenty of opportunity and should have sufficient signings growth to have a good quarter. But as always, as you know, we have to execute and get those deals closed.

Your next question comes from Toni Sacconaghi - Sanford Bernstein. Toni Sacconaghi - Sanford Bernstein: Thank you. Mark, your SG&A was up about 10.5% year over year. Your R&D was up 8.6% year over year, relative to the growth rate of 5%. How do we think about that relative growth rate going forward? This quarter certainly your gross margins expanded more than enough to more than offset those improvements in OpEx. But how do we think about going forward about where you think OpEx should grow relative to revenue growth over the next several quarters? How should investors think about that?

Well, as you look at the third quarter, the increase was largely driven by SG&A, as you pointed out, it was up 11%. It reflected the investments that we made in the quarter, specifically strategic acquisitions in key growth areas like SOA; sales skills, particularly in our software group to help continue to drive the revenue and momentum that we have seen in this key business; our business development skills and solution design to help reaccelerate growth in our services business; as well as the investments that we have made in emerging markets like China, India, Russia and Brazil, where we again saw solid growth of 19% at constant currency in the third quarter. So we do continue to invest in research and development as well; that was up 7% to maintain the technological differentiation that supports our industry leadership. We also saw, I think a little more uniquely in the quarter, a $70 million increase in the year-to-year related to work force rebalancing. I look at that as just a part of our ongoing operational performance, but it was unique in the quarter. So our expense growth is clearly directed toward the substantial opportunities we see in the market. I think we are investing for growth. I will say, however, we do like to keep that growth in balance as we move forward.

Your next question comes from Laura Conigliaro - Goldman Sachs. Laura Conigliaro - Goldman Sachs: Thank you. Again on the services side, with services signings having had at least two difficult and below expectations quarters this year, and the trends in certain key parts of the services business toward smaller deals, how should we be looking at services revenue growth prospects for 2007? I think connected to that, also could you tell us how much of your services bookings were renewals this quarter and also year-to-date?

Well first of all, if you look at the performance in the quarter, once again, I want to point out that although our revenue growth for services was not at our objective, it was certainly a big improvement as we move from the second quarter to the third quarter. A lot of that improvement was on the improvement in signings we saw in our short-term businesses. So I think as we need to continue that momentum in short-term signings, and now book some of the large deals that we see in the fourth quarter. If we put a couple of these quarters together, I think we can stabilize that business at a more attractive growth rate. I do want to point out though, if you look at the services business overall, we had substantial improvements in profitability, specifically with GBS, where our profit was up 41%. So our objective there is to drive for very profitable growth. We're not going to sign deals that don't contribute to the bottom line. That 41% improvement was highly driven by the operational performance in that group. So this is, for us, a real opportunity for profit growth.

Your next question comes from Andrew Neff - Bear Stearns. Andrew Neff - Bear Stearns: Two things: as you look out at '07 and beyond, are you still comfortable with the model of mid single-digit revenue growth and low double-digit earnings growth? Is that still your target? You were asked a question about the signings a moment ago. I'm not sure you had a chance to fully answer that in terms of, can you put a number for the fourth quarter signings? Do you think it will be better than the 11.5 you did last year?

First of all, I'm not going to forecast a number for the fourth quarter. I think what I did say is if you look at the opportunity and pipeline, including the deals that have rolled from the third, I mean, I do believe we should have sufficient signings growth to have a good quarter in our services business. Now as far as the business model going forward, I mean boy, this was a very powerful quarter for us. So given the performance in the third quarter and you've got to look at year-to-date, we believe that we're well on track to deliver earnings per share growth for 2006 in line with the IBM model. We need to the look at this, I think, on a full-year basis now rolling through the $0.10 overachievement in the third. That now would produce growth, basing it off your estimates of 12%, that's the high end of our model of 10% to 12%. I think more than that, if you look at the longer-term performance over the last three years, our EPS has grown on a compounded basis by well over 16%. So we're quite committed to the model. I think the third quarter reemphasizes that performance and I think the long-term model is a good basis for looking forward to 2007 as well.

Your next question comes from Chris Whitmore - Deutsche Bank. Chris Whitmore - Deutsche Bank: Thanks, two questions, please. First I would like to get more color on the underlying organic growth rate in the software business and how you see that tracking over the next six to 12 months. Secondly, hoping to understand what kind of competitive dynamics you're seeing on the pricing side for contract signings and services? And to what extent would IBM be willing to trade off recent profitability gains to accelerate growth in long-term bookings? Thanks a lot.

You bet. First of all on the software side, you look at the third quarter the software business had another strong quarter; revenue growth of 9%, 7% at constant currency. Underneath that 7%, 2% came from acquisitions. So, 5% organic growth in our software business, which we are pretty encouraged by. I think more importantly, let's look underneath that. WebSphere family of software grew 30% and 28% at constant currency. As you all know, WebSphere provides a foundation for web-enabled applications and is a key product set in deploying a client's services oriented architecture, which is a key investment for us. Information management was up 12% and 10% at constant currency. Tivoli software grew 44% and 42% at constant currency. Key middleware in the third quarter, in addition, is more than half of our total software base. So I thought it was a very encouraging quarter on the software side and I think it indicates a continued momentum in that group as well.

Your next question comes from Ben Reitzes - UBS. Ben Reitzes - UBS: Good afternoon. Mark, could you talk about acquisitions, what was their impact in the quarter? With the acquisitions that are closing, what will the impact be in the fourth quarter? Maybe long-term, just on the software side, is it safe to say that 3 to 4 points of growth is still your target from acquisitions in terms of inorganic growth?

Well as I said earlier, the acquisition contribution to the 7 points of software growth was 2 points. If you look at that on an IBM basis, it is about a half a point. So we had pretty good organic performance in the quarter. As you look at the four acquisitions that we closed in the quarter, we expect them to contribute revenue contribution of about a point of growth in the fourth quarter. I would also say that we expect these acquisitions will negatively impact EPS by about $0.05 per share in the fourth, with almost half of that coming from non-cash impact of amortization of intangibles. So really, the acquisition content for us is key and directed towards investments that we're making to complement our own development expertise; highly scalable that takes advantage of our globalized platform. If you remember back to the data set that we reviewed in India that's also available on the web, what was engaging about that was if you look on a two-year basis, those kind of acquisitions and that kind of a template almost doubled over a two-year period. Why is that? Because they took advantage of the very logical synergy in IBM to scale quickly in a globalized platform. So from a CFO perspective, I have got to step back and say, why wouldn't I invest in those kinds of acquisitions to complement our own organic performance?

Your next question comes from Bill Shope – JP Morgan. Bill Shope - JP Morgan: Last quarter you said you were supply constrained on I and X series servers. Were you able to resolve these supply constraints this quarter and presumably work down backlog? Also on the mainframe side of the equation, can you give us a read on the mix in your mainframe business between specialty MIPS and traditional workload this quarter?

First of all, let me talk about supply chain. Supply chain did a superb job as they delivered against Z, IP and storage. We did have some issues on both channel management and supply chain in our X series and we need to do better as we move into the fourth quarter. But supply chain on balance across the other parts of our business could not have performed any better. As far as Z series performance, I think the more significant aspect of that was the closing rate that our Z series performance got from other attributes within the sale. So FICON, memory, elements of collaboration for that platform were also very, very strong. So we had really good revenue growth on a base of MIPS growth of 16%.

Your next question comes from Richard Farmer - Merrill Lynch. Richard Farmer - Merrill Lynch: Thanks. Mark, I wonder if you might be willing to separate some of the sales execution improvements you talked about from the general demand environment? In other words, how much of the better than expected revenue performance was attributable to your own execution versus what you would attribute to a general pickup in demand? I guess within each of those -- execution and demand -- how sustainable do you think that is going forward? In other words, the better execution, how much of that was catch-up from some deals that slipped in the earlier periods versus how much of that is sustainable? The same thing with the general demand environment.

Good question. Let me first start from an economic perspective. I think really leading economic indicators suggest the continuing moderate expansion in the global economy. So closing out the year we expect to see more global growth convergence with a modest acceleration in economic activity. So frankly, when I look at this quarter, this quarter is based on very solid execution across our services platform and some very specific geographies like Japan. We had very solid hardware performance. We had a continuing momentum in our software organizations. Interestingly, compared to the second quarter, this quarter had particularly good sales execution in September in closing key hardware and software transactions for the quarter. You know these transaction signings can fall on either side of the quarter end point and you need to look at more than a 90-day horizon. But really in this quarter, we had 4% constant currency growth, 3% on a year-to-date basis, so I think it was pretty balanced. In the quarter we were clearly able to leverage our high-value, high margin businesses to drive solid earnings per share and cash growth. So I think on balance, when you look at the third quarter, we really have got to peg this to strong execution of our teams.

Your next question comes from David Grossman - Thomas Weisel Partners. David Grossman - Thomas Weisel Partners: Thanks. Mark, it looks like you had scope enhancements in the IGS backlog for the first time, in it looks like over two years. If that math is correct, could you help us understand what fundamentally is going on and how that may impact the IGS growth rate in '07 vis-a-vis the potential for long-term bookings to perhaps be a book-to-bill of less than 1 in 2006?

Well I think we had a very low-level of erosion as you look at our performance in the quarter. If you look on a book-to-bill basis, GBS was more heavily weighted to short-term bookings and was above 1; while GTS, driven by longer-term, was below. Keep in mind that there are a number of factors that go into revenue growth beyond book-to-bill. The yield you get from these signings, the yield you get from the existing base of contracts, and the impacts from erosion. So I think the key factors you look at this quarter, we had a very modest level of erosion in the third.

Your final question comes from Keith Bachman - Banc of America. Keith Bachman - Banc of America Securities: Hi, just made it in under the wire. I have two if I could. The first one is, if you could talk about the bookings duration and annualized bookings, up or down if you factor in duration? The second one, I wanted to see if you could just return to services and go back to integrated tech services specifically and understand -- that number has been bumping around a little bit, but the performance still has been pretty weak. What does it take to turn that number into a positive year-over-year growth rate? Thanks.

Well you know on contract duration, I think if you look at our longer-term contracts, we're not seeing necessarily that duration shorten materially. But what we are seeing and you can kind of see it in the dynamics of our business, we're getting a bigger mix of our short-term business, because we're growing more rapidly there. So on a total basis, we are seeing more rapid growth in our short-term businesses, though if you look specifically at the long-term content, that deal length is relatively stable. On the second element, if you translate and look at the transition we have spoken about, it is taking somewhat longer than we anticipated in ITS as we have rolled out the higher value-add offerings. With these offerings, we have to go through an awful lot of training of our sales team. The deals have a longer sales cycles, there are other issues. But I think as I looked at it, I was quite encouraged by the signings growth that we had in ITS. It was up 7%. So if you want a real leading indicator of where that business is going, let's look at signings. Underneath that 7% signings growth, more importantly, much of that improvement came from the geographies where we implemented these changes first. So I think it's a real affirmation of the strategy that that services team is pulling off. Again, as I looked at it, I saw some very encouraging signs in our ITS business. Patricia Murphy: Thanks, Keith, and thank you all for joining us today.

Thank you for participating on today's call. The conference has now ended.