Patricia Murphy - Vice President, Investor Relations Mark Loughridge - Chief Financial Officer, Senior Vice President

Toni Sacconaghi - Sanford C. Bernstein David Bailey - Goldman Sachs Richard Gardner - Citigroup Katy Huberty - Morgan Stanley Andrew Neff - Bear Stearns Mark Moskowitz - J.P. Morgan Louis Miscioscia - Cowen & Company Jeff Fidacaro - Merrill Lynch Keith Bachman - BMO Capital Markets Shaw Wu - American Technology Research Chris Whitmore - Deutsche Bank

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions) Now I will turn the meeting over to Ms. Patricia Murphy, Vice President of Investor Relations. Madam, you may begin.

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I am here with Mark Loughridge, IBM’s Senior Vice President and Chief Financial Officer. Thank you for joining our first quarter earnings presentation. By now, the opening page of the presentation should have automatically loaded and you should be on the title page. The charts will automatically advance as we move through the presentation but if you prefer to manually control the charts, at any time you can un-check the synchronize button on the left of the presentation. The 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 their related GAAP measures in accordance with SEC rules. You will find reconciliation charts at the end and in the Form 8-K submitted to the SEC. Let me remind you that certain comments made in this presentation made 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 will turn the call over to Mark Loughridge.

Thanks for joining us today. We had a great start to the year with 11% revenue growth and 36% earnings per share growth. This is strong proof why we believe our business model is the right one for good times and for tough times. Now right up front I want to give you our perspective on what we are seeing in the marketplace. Consistent with what we’ve been saying for the last few months, we have good results because we can deliver specific value propositions to our customers. For example, offerings that save cost and conserve capital have moved up the prioritization list of our clients. And in this environment, clients want to be able to realize a faster payback on their investment, so projects that deliver short-term savings also did very well. Customer interest also remains strong for solutions that address specific client needs, such as risk management, and security, and energy efficiency. Growth also remains strong in the emerging markets, and we’re focused on building out the infrastructures in these countries. Now there were a few areas where we weren’t satisfied with our results. System X, a high-volume transaction business and our technology OEM business, where we had decreased demand. But these areas are lower margin businesses, so had little impact on our bottom line results. Unlike many other companies in our sector, we’re not dependent on high volume transactions each quarter to be successful. We have a strategy that is based on a more balanced and stable operating model. Our annuity businesses, which drive about half of our revenue, provide a solid base of profit and cash. We continued our focus on cost and expense management and expanded gross margin year to year for the 14th quarter of the last 15. We have a disciplined approach to aligning investments to growth, so while we are taking a more measured approach in the more stable markets, we are aggressively investing in high growth markets. We are also continuing to execute our acquisition strategy and successfully closed the acquisition of Cognos, our largest ever. But at the foundation of our business model we generate a lot of cash and we have a very solid balance sheet. The first quarter typically is the most difficult for cash generation, but strong operating results and good execution in receivables resulted in positive free cash flow in the first quarter for the first time in over five years. Even with aggressive levels of share repurchase and after spending almost $5 billion for the Cognos acquisition, we ended the quarter with $12 billion of cash on hand. Our operating model is in place and executing well, and we feel good about our start to 2008 so we’re taking our view of the year up by $0.25 and we now expect 2008 full year earnings per share of at least $8.50, which is 18% growth over 2007’s reported results. Now let’s turn to the financial summary. We delivered revenue of $24.5 billion, an increase of 11% as reported and 4% at constant currency. Our gross margin was up 1.2 points, with increases in services, systems and software. Expense was also up 11%. The expense growth was entirely driven by currency, acquisitions, and additional interest expense for last year’s accelerated share repurchase. Excluding these items, expense was slightly better year to year, as we maintained our focus on cost and expense management. This resulted in very strong pretax income growth of 24%. In the quarter, our pretax margin was 13% and net margin was 9.5%, both up over a point year to year. Our share count was down 8%. This reflects the benefit from last year’s aggressive share repurchases and a good start to 2008. Bottom line, we delivered $1.65 of EPS, up 36% year to year. So now let’s get into the details of the quarter, starting with a few different views of revenue. Revenue from our industry sales units was up 12%, or 5% at constant currency. All sectors were up this quarter, led by communications sector, which was up 16%. This was primarily driven by the telecom industry, as we help our clients transform their infrastructure and build out their data centers using green technologies. Our financial services revenue was up 14%. We returned to growth in the U.S. and outside of the U.S. where we generate three-fourths of the business, revenue was up 18%. Globally, we grew in all industries -- banking, financial markets, and insurance. This is now the second consecutive quarter that financial services performance was in line with our total sector performance. Now let’s look at our results by geography. Our Asia-Pacific revenue outside of Japan grew 18%, or 10% at constant currency, as the economies of these countries continue their rapid pace of growth. Japan’s revenue was up 11% but down at constant currency. Our growth in Europe was consistent with performance over the last few quarters, reflecting a moderate IT spend environment. The big improvement in the quarter was in the Americas, led by the U.S. U.S. growth accelerated from 2% in the fourth quarter to 6% in the first. We had good contribution from our annuity businesses, and also had particularly strong acceptance of the z10 mainframe, with double-digit growth. Turning to performance outside the United States, we spent a lot of time in the fourth quarter earnings call and at our investor meeting last month on the growth markets. Demand in these markets continues to be dominated by infrastructure build-out projects in telco, banking, and retail. We formed a new growth markets organization and management structure to make the most of this opportunity. This quarter, revenue from the countries in our growth markets unit was up 11% at constant currency and represented about 17% of IBM’s revenue. Let me give you a couple of examples of the kind of work we’re doing. We’re helping Telecom Egypt construct a state-of-the-art data center with sophisticated energy-efficient green technologies based on our z-platform. In Korea, we’re working with a leading bank to build an infrastructure to develop and sell capital markets products, as they expand into investment banking. And in Indonesia, we’re part of a collaborative effort to deliver a microfinance solution platform to broaden access to basic financial services across rural communities. These are all examples of the build-out of public and private infrastructures to support 3 billion people moving into the middle class in emerging markets. We certainly expect these trends to continue and we expect these rapidly growing markets to continue to fuel IBM’s revenue and profit engine in 2008 and into the future. Now let’s turn to revenue by segment. Once again our two services segments posted the strongest performance, continuing the momentum from the second half of last year. Our success was broad-based, with strong double-digit growth in all lines of business. Software growth was led by branded middleware, including the growth from the acquisition of Cognos and in Systems and Technology, we had a very successful launch of our new z10 mainframe, and good performance in storage and midrange System p. As I said, we are not satisfied with performance in a couple of areas, specifically System x and OEM Technology. In Global Financing, while the overall growth was impacted by a decline in the sale of used equipment, our financing revenue was up year to year, as we provide liquidity and competitive financing in a tightening credit environment. Our financing business is well-positioned to grow in this environment, now let me tell you why. First, the IBM balance sheet provides substantial financial flexibility and funding capacity and second, Global Financing assets and new financing volumes are mostly IBM products financed to IBM clients and channel partners, and substantially all assets are information technology assets which provide a stable base of business for future growth. This is straight-forward product financing. There is nothing exotic in this portfolio. The new System z and high-end p servers are a significant financing opportunity and a great example of the kind of business that we are developing. Global Financing has the unique ability to finance upgrades to IBM equipment at key points in the life cycle that gives them more capacity while holding to their expense budgets. More customers will see the benefit of this in today’s market conditions. Our clients and partners find Global Financing offerings very competitive given IBM’s borrowing cost and access to the capital markets. Now let’s turn to Expense. Total expense and other income increased 11%. With 11% revenue growth, our expense-to-revenue ratio improved modestly year to year. Now peeling back the 11% growth in expense, approximately six points of growth was due to currency. We estimate that four points of growth is from acquisitions, so starting with 11 minus 6 minus 4, we’re left with one point; the remaining point of growth is what we classify as operational. Now within this, we covered interest expense from our ASR and this impacted our expense growth by almost two points. So operational expense was actually slightly better year to year without the ASR interest. I think this is pretty impressive performance. With an $85 billion spend base, we have a lot of opportunity to take out cost and expense and drive productivity across our business. Let me give you an example. We’ve set aggressive targets to reduce spending for our infrastructure organizations. This includes support functions like HR, finance, and legal, and business enablement functions such as sales support, supply chain support, and administrative support. We’re using these savings to fund investments in growth markets and sales efforts, as well as contribute to our margin expansion, so it’s a pretty effective equation. Before we move on to margins, I’ll comment on the items that significantly impacted our profit growth this quarter. Retirement-related plans generated about $450 million of cost and expense in the quarter, a savings of about $190 million year to year. To put this in perspective, when you take all forms of compensation -- salary, bonus, equity awards, retirement-related plans -- our total compensation is up about $750 million year to year. Another item that I’d like to highlight is the impact from our hedging programs. We hedge the major cash flows to mitigate the effect of currency volatility in the year-over-year results. The impact of these hedging programs is reflected principally in other income and expense, and cost of goods sold. This quarter, the hedging losses in other income and expense were higher year to year by approximately $80 million. Now keep in mind that the losses mitigate the positive benefit of currency translation throughout our income statement. Now let me give you a snapshot of margins. We had broad-based margin expansion as we mix to higher value products and services. Margins were up in both services businesses, continuing to make progress on our 2010 roadmap. Global Technology Services was driven by strong profit growth in our strategic outsourcing and ITS. Our consulting business drove margin expansion in Global Business Services. Software margins improved, due primarily to good cost and expense management. And despite revenue declines, both gross and pre-tax margin improved in the Systems and Technology segment. So now let’s turn to the segments, starting with services. Our two Global Services segments delivered powerful results again this quarter, driven by the strength of our annuity base and a portfolio of offerings that drive cost savings and value for our clients. Total services revenue was $14.6 billion, up 17% as reported and 9% at constant currency. Both segments gained share, both grew revenue faster than their longer term growth objectives and combined, they delivered a 36% improvement in pretax income. This quarter, I want to give you an additional view of signings. As you know, we have always presented our signings at constant currency. But for our shorter term businesses in particular, signings at actual rates may give a better view of how these signings will convert to revenue. And others in the industry report signings at actual rates. So to provide a more comprehensive view of our business and better comparability to market data, we are providing you with signings at both actual and constant currency rates. Signings this quarter were $12.6 billion at actual rates, up 6%, while at constant currency, signings were $10.8 billion, down 2% year to year. Our short-term signings were up 13% at actual rates and up 6% at constant currency, while long-term signings were flat at actual rates and down 10% at constant currency. We signed 11 deals larger than $100 million, and our backlog was an estimated $118 billion, up over $2 billion year to year. Let me talk a minute about the demand environment. The services market has shifted to one which favors solutions that deliver shorter time to value. Clients are focused on a faster payback driven by proven value propositions and there is no shortage of opportunities for deals that fit those characteristics. Looking at our short-term businesses, we had good short-term signings in our key plays in ITS, the plays that focus on infrastructure savings and efficiencies. Within GBS, cost take-out is the primary motivator. In the shorter term businesses, by focusing our efforts on areas where we see good demand we’ve been able to generate a good pipeline of deals. Now when you look at our longer term offerings, the value propositions are very similar, just more complex, and they take longer to drive from business development to deal closure. Overall, we have a strong set of long-term offerings. They play well in the current environment and although that environment is tough, the demand is there when we provide value, faster payback and savings. So now let’s turn to the segment details. For Global Technology Services, revenue was up 17% and 9% at constant currency. This is the fourth consecutive quarter of revenue growth at or above our long-term objective. We had double-digit growth in all lines of business. Our signings were up 2% at actual rates and down 7% at constant currency. Short-term signings were up 11% at actual rates and 4% at constant currency, while long-term signings were down 2% at actual rates and 12% at constant currency. Our Strategic Outsourcing revenue was up 16%. This is the largest annuity component of the services business. Growth is being driven by our strong backlog, last year’s signings, and continued growth in our base accounts. Despite economic concerns, we continue to sell into our existing accounts, where we can provide cost savings and a faster return on investment for our clients. Business Transformation Outsourcing was up 34% as reported. We had double-digit revenue growth in the Americas, Europe, and Asia-Pacific. Integrated Technology Services revenue was up 15%. We continue to see good momentum in our ITS key infrastructure plays. These offerings contributed $500 million in signings, or about a quarter of total ITS signings. Our Green Data Center was nearly $200 million of that, continuing the trend that we had described in the fourth quarter. Our maintenance revenue was up 19%. This includes the services provided to Ricoh Info Print, which contributed about seven points of growth at constant currency in the quarter. The work will transition to Ricoh in the second quarter. Our Global Technology Services pretax profit was up 45% and margin was 9.8%, up two points year to year. This margin expansion was driven by improved productivity and improved cost structure in our Strategic Outsourcing organization, a mix to higher value products in ITS, and year-to-year savings in retirement-related costs. Turning to Global Business Services, revenue was up 17% as reported and 9% at constant currency. Signings were up 12% at actual rates and up 6% at constant currency. Short-term signings were up 14% at actual rates and 7% at constant currency. Within GBS, clients are motivated by projects with shorter-term paybacks. Signings were driven by clients globalizing and integrating their businesses, creating shared services and centers of excellence, innovating in new markets, and replacing costly legacy systems. So while the engagements may be transformational in nature, the ultimate motivation and benefit is to realize hard economic returns. In the Americas over 90% of the transactions came from projects with shorter paybacks which yield cost savings. For the rest of the geographies, about two-thirds came from cost savings initiatives. Long-term signings were up 7% at actual rates and down 1% at constant currency. We grew revenue double-digits in all geographies and all sectors. We continued to see good results in Application Management Services and core consulting. We had strength across all consulting service lines, which include; financial management services, human capital management, CRM, supply chain, and strategy and change. Global Business Services pretax profit was up 23% and margin was 11.2%, up seven-tenths of a point year to year. This improvement was driven by good contract management, increased utilization, and year-to-year pension improvement. To wrap up services, we think we have the right set of offerings and the execution plan to take advantage of the opportunities in the market. Now turning to Systems and Technology, revenue of $4.2 billion was down 7% year to year or 12% at constant currency. Without the divested printer business, revenue was down 2% or 7% at constant currency, but pretax income was up over 50% year to year and margin was up 1.3 points. Our strongest revenue performance was in mainframe, midrange System p and Storage, as customers continue to respond to virtualization value propositions. This quarter we had a successful launch of our new z10 mainframe and continued strength in our POWER6 offerings. Offsetting this strength was weakness in our System x business and continued softness in OEM Technology. However, as I said earlier, these are low margin businesses so they had little impact on our profit. Now, let me take you through the brands. System z revenue was up 10% year to year. MIPS grew 14%, gaining market share. Revenue growth was fueled by the successful introduction of new z10 enterprise class server. With up to 70% more total capacity and a 100% performance improvement on CPU-intensive workloads, the z10 enables large scale consolidations and unmatched utilization. This allows our clients to reduce technology and energy costs while simplifying their data centers. Our System i revenue declined 21% in the quarter. This month we introduced a unified POWER platform which utilizes the same hardware for both i and p. The new products will be reported in the converged System p category. This gives legacy System i customers full access to the entire line of POWER-based systems, including new blades offerings so it’s a very good announcement for our i customer base. System p grew revenue 2% in the first quarter and gained share. We had very strong performance in the POWER6 based midrange offerings, with revenue up over 50%. This was offset by softness in the high-end as customers await our new POWER6 products. These high end products were just announced on April 8th. Our technology innovation on POWER6 is pretty impressive. At five gigahertz, it is the fastest microprocessor in the world -- no one else is even close. The technology innovation and virtualization capability of the product provides our customers with improved energy and space efficiency and enables substantial consolidation of under-utilized servers. System x server revenue was flat year to year. While the high-end grew 13%, we had weakness in the low-end as you would expect in this environment, as well as some sales execution issues we need to work through. Our momentum in blades continued with revenue up 31% year to year. In Storage, with revenue up 10% year to year, we gained share. Total disk was up 6%. We had double-digit growth in enterprise disk on continued strength of the DS8000, which was up 17% and this quarter, we started to integrate recently acquired XIV into our storage portfolio. We again had a strong performance in tape, which was up 18%. This reflects the value in total cost of ownership, power consumption, and data protection offered by IBM's tape solutions. Retail Store Solutions revenue was down 3% year to year, though we had strong gross margin performance. Technology revenue was down 20% year to year. This is the performance of our microelectronics OEM business, which has little impact to IBM’s profit. The primary mission of our technology business is to provide leadership technology for our systems business, as we saw this quarter in our new z10 mainframe and POWER6 systems announcements. For total Systems and Technology, gross profit margin was up over two points year to year, and up in four of our six systems brands. This drove our pre-tax income growth of 50%. Our software revenue of $4.8 billion grew 14% year to year, or 6% at constant currency. Pretax income was up 22% and PTI margin was up 1.6 points. Our branded middleware products grew 19% year to year. Branded middleware comprises 53% of our total software segment revenue, up six points from first quarter of 2006. In a few of the more established markets, there was more scrutiny of deals at the end of the quarter with additional approvals required. However, the growth markets continued to perform well. Some of our largest deals were in China, Latin America and Eastern Europe. In this environment, we are seeing customer demand focused in three key areas. First, customers purchased products that can improve their business operations and drive cost savings. Now let me give you a couple of examples. WebSphere Integration Software allows customers to integrate disparate systems for better business efficiency. This is part of our WebSphere brand, which grew 20% and gained share in the first quarter. Another example is Cognos’ performance management solution, which helps customers improve decision-making across the enterprise to optimize business performance. The recent Cognos acquisition is part of our Information Management brand, which grew 27% in the quarter and also gained share. Second, customers purchase products to address the complex regulatory environment of today’s business, such as Tivoli Security and Storage Management products. These provide secure access to key data and applications and provide consistent data retention across the enterprise. Total Tivoli software grew 9% in the quarter and our Storage Management software has generated 14 straight quarters of double-digit growth. Third, customers continue to invest in their strategic priorities, using software such as Lotus Collaboration and social networking software to increase productivity across their local and global teams. Lotus software grew 17%, our 14th consecutive quarter of growth and we believe we gained share in the quarter. Overall, software pretax income grew 22% year to year and the pretax margin grew 1.6 points. This is even after absorbing the amortization of intangibles associated with our recent acquisitions. Now let’s turn to cash and the balance sheet. Free cash flow for the quarter was $600 million, up $800 million over last year. Adjusting for the $500 million contribution to our U.S. retiree medical trust last year, free cash flow was up $300 million. This performance was driven by our strong net income and good working capital management, especially accounts receivable, where days sales outstanding improved seven-tenths days year to year. We had significant cash applications this quarter. We completed the purchase of Cognos for $4.8 billion, our largest acquisition ever. We also completed six smaller acquisitions, including Arsenal Digital Solutions, Net Integration Technologies, and Solid Information Technologies. We funded capital investments of $1.2 billion. We reduced non-global financing debt by $1.7 billion and we returned $3 billion to shareholders with share repurchase of $2.4 billion and dividends of almost $600 million. In February, our board approved further returns to shareholders with a share repurchase authorization of $15 billion. We expect to spend up to $12 billion on share repurchase in 2008 and we had $13.5 billion of repurchase authority remaining at the end of the first quarter. So now let’s turn to the balance sheet. We ended the quarter with very strong financial flexibility. Our cash on hand was $12 billion. The cash balance declined $4.1 billion from year-end, due primarily to the investment in Cognos. Our cash is conservatively invested to protect the principal amount and to maintain liquidity. We do not expect any negative impact due to the market conditions. Our non-financing debt decreased in the first quarter and now stands at $8.9 billion. Our debt to total capital is 26%, down from 30% at year-end 2007 and within our long-term objective of 20% to 30%. Investors can expect our debt levels and leverage to vary as the company manages its global cash and debt position. However, over the long-term we intend to manage the business back within the target range of 20% to 30%. Global Financing debt is $26.2 billion. This business, as you know, is leveraged at 6.9 to 1 and our equity is strong at $28.7 billion. So you put all of this together and the IBM balance sheet remains strong and in position to support the business as needed. Now let’s start to wrap up the discussion by showing you the drivers of our 36% earnings-per-share growth. We had revenue growth of 11%, including seven points of currency benefit. At constant mix and margin, this contributed $0.14 of the $0.44 of year-to-year EPS growth. We again expanded our gross margin, led by our two services segments, and systems and technology. This contributed another $0.14. Of that, about a $0.05 was due to the year-to-year benefit from our retirement-related plans that flowed to cost. The balance of the pension savings went to expense, for another $0.04 benefit. At the same time, our operational expense management yielded $0.03 cents and while we had additional interest expense related to last year’s ASR, an impact of a about a nickel, we generated a significant benefit of $0.13 from our aggressive share repurchases over the last year. Finally, a 100 basis point reduction in our tax rate yielded another $0.02. So as always, our performance is not dependent on one factor but rather solid contribution from revenue growth, margin expansion, and share repurchase. This is a strong start to 2008, with our operational model really coming through. We had some headwinds this quarter. As you’d expect in this environment, customers are scrutinizing deals more closely. We also had tailwinds, including currency, but most important of all, we had very strong operating performance. So let’s recap the highlights -- our services segments had strong revenue performance, each up 17%. GTS profit was up 45%, and GBS profit up 23%. While hardware revenue was down, we had a successful launch of the z10 mainframe, and continued success in POWER6 and storage offerings. Software completed the acquisition of Cognos and grew revenue 14% and grew profit 22%. From a geo perspective, our growth markets organization grew 11% at constant currency and the U.S. improved to 6% revenue growth with impressive profit growth, demonstrating the value of IBM’s offerings in the current environment. Profit growth was broad-based from a geo perspective as well, with strong profit growth in each of our geographies. We have a strong balance sheet, financial flexibility, and proven ability to generate cash, and ended the quarter with an impressive $12 billion of cash. Obviously we’ve just concluded a very strong quarter. Now, it’s early in the year and we wouldn’t typically change full-year expectations after the first quarter, but we got off to a really great start and we now expect 2008 earnings per share of at least $8.50, which is 18% growth over 2007 reported earnings. We believe success is measured over the long-term, however, and we remain focused on our objective to deliver our 2010 roadmap. With this strong performance, we are on track to our 2010 roadmap of $10 to $11 of earnings per share. Now Patricia and I will take your questions.

Thanks, Mark. Before we begin the Q&A, I’d like to remind you of a couple of items. First, we have 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. When we conclude the Q&A, I’ll turn the call back to Mark for some final remarks.

(Operator Instructions) Our first question comes from Toni Sacconaghi with Sanford Bernstein. Toni Sacconaghi - Sanford C. Bernstein: Thank you. Mark, I wanted to ask a question about your outlook and feeling for the services business. Short-term signings at constant currency were up 13%, long-term signings over the last few quarters have been relatively flat but you guys have commented that the yield is a lot shorter. So putting these factors together, can you comment about how you feel about services over the next couple of quarters relative to how you felt at the end of the year? It’s the business where you have the greatest visibility given its backlog nature, so can you comment how you are feeling in absolute terms about the services business looking forward and relative to how you felt at the end of the year?

Yeah, I’d be happy to go through that. Let’s start with the fourth quarter, really. I mean, we looked at the fourth quarter, we had good short-term signings up 8%. Within that, the U.S. was up 16%. Now you take that short-term into the first quarter, you know, once again good short-term signings, globally up 6%, U.S. up 15. I think we’ve got a good mix of business on that element of the equation going forward. When you look at long-term, long-term is just not uniformly distributed through quarters. That is, we look at the kind of -- the balance of the opportunity that we see for the year, we’ve got good opportunities here. So if I take all of the elements and put those together and look forward for the year, in the second quarter I’d soon think that both of the service units should be well into double-digits. Now remember, we are facing a second quarter last year where we had stronger performance in our business lines, so we do as a corporation have a more difficult compare last year. But on an actual rate basis, I see strong double-digits, both of our services organizations and I think we’ve got a good run-rate on margin and margin improvement that you could see the momentum moving through the second quarter last -- the second half of last year into the first quarter this year and I think we’ve got good margin plans going into the second quarter as well. As far as the broader view, certainly with the opportunities that we see through the year and the momentum that we see on the kind of cadence on short-term performance, we should be well within our model range for our services business in the back half of the year as well. Toni Sacconaghi - Sanford C. Bernstein: Thank you, Mark.

Thanks, Toni. Let’s go to the next question, please.

(Operator Instructions) Our next question comes from Mr. David Bailey with Goldman Sachs. Your line is open. David Bailey - Goldman Sachs: Thank you very much. I was just wondering if you could comment a little bit on linearity in the quarter, particularly given the comments from several companies inside and outside of tech. You commented a little bit on the software side but what did you see in the last two weeks of the quarter?

Of the skew of the business through the quarter -- we did see stronger growth rates in the first two months compared to the third month, but if you look at it we’ve been seeing that phenomena through the last six to eight quarters. I mean, we’ve been doing a lot of work, David, to try and move that skew of business into the earlier months so we are not so dependent on that back-end skew of the business. So if you asked the question did we see stronger growth in the first two months, the answer to that is yes. But if you said well is that different than the characteristics that you’ve seen in prior quarters, the answer is now. This quarter and that skew of business within the quarter was very characteristics of prior quarters. In fact, if you look at the third month growth rate and compared it to the fourth quarter, very similar. So I look at it and I don’t think it is an indication of the change in the opportunity or the market for us. It’s more a reflection of the change in our skew of business as we manage the business that way. David Bailey - Goldman Sachs: So you don’t think there was any --

Thanks, David. Let’s go to the next question.

Thank you. Our next question comes from Richard Gardner with Citigroup. Richard Gardner - Citigroup: Thanks. Mark, you -- in response to Toni’s question you talked a fair amount about what’s going on on the short-term side with services bookings but during your prepared remarks, you did comment that it’s a tougher environment for long-term signings. Could you talk about the pipeline on the long-term side as you see it currently going into the second quarter and what you think the opportunity for growth there is for the balance of the year?

You know, I think my comment, just to be perfectly clear, my comment on long-term, Richard, is that it is not uniformly distributed across quarters. So as we look at that pipeline and opportunity set for long-term on kind of a two, three, four-quarter basis, we think we have a lot of opportunity. As far as growth, I mean, based on the contracts that we see in the second quarter, we think that we are going to have that ongoing growth rate in short-term signings. We think that we are going to have growth in the second quarter on long-term signings and consequently obviously growth in total signings in the second quarter.

Thanks, Richard. Let’s go to the next question, please.

Thank you. Our next question comes from Katy Huberty with Morgan Stanley. Katy Huberty - Morgan Stanley: Good afternoon. Mark, with the macro and credit conditions deteriorating, did you have to change any of your financing or receivable reserve ratios in the March quarter?

No. No, we saw very little effect, frankly, of the tightening credit environment on our business equation. You know, one way that you can see that, just look at DSO. I mean, DSO was frankly even better. If you look at the kind of a cross-section of our portfolio in the financing business, two-thirds of that is very strong investment grade client base, so it’s a very solid client base. We did not see an impact on the credit environment. It is a very straightforward vanilla, if you will, financing business for equipment financing in the technology realm, which we understand very, very well. So I am frankly quite optimistic about the opportunities for the financing business going forward because frankly what we see is that we have a financing business with a solid book of business, a very credit worthy customer base, and a back stop by the IBM Corporation and I think it’s going to have a competitive advantage versus other financing businesses as we go through the year.

Thanks, Katy. Let’s go to the next question.

Our next question comes from Andrew Neff with Bear Stearns. Andrew Neff - Bear Stearns: I just wanted to go back to the macroeconomic question and as you are dealing with -- you talked over the past couple of quarters about some areas of strength and some areas of weakness. Could you give us a sense about where the strength is coming from? You talked about telecom in particular but again, given that some of your results are contrary to what we are seeing in other sectors and from other -- from overall macroeconomic area, could you talk about and give us a little more color on areas where you are seeing strength and areas where you are seeing weakness?

You bet. I think this quarter has played out quite consistent with the way we’ve seen the business and again, I would say this isn’t that inconsistent with what you hear from others. I think that we are playing this from a different point on the field. So let me explain what I mean by that. We have said in January as we look forward that we intended to invest heavily to capture the growth that we saw in the emerging growth markets and when you look at the fourth quarter and you look at the first quarter, sure enough very, very solid growth there. And if you look at the driver behind the growth in those markets, this is infrastructure. This isn’t just rolling out commoditized content. This is very strong infrastructure plays in the emerging growth markets. So I think that’s played out quite consistently. Number two, we looked at it and as we said, we are moving forward. We are going to play the established countries on a conservative basis, looking for productivity. And I said that I wasn’t going to build a model that required a resurgence in those established markets as we went into ’08 and I think that turns out to have been the right play to have called. And by and large, those established markets kind of performed in that envelope. The one exception obviously in this quarter was in fact the United States, and the United States did have a much stronger growth rate than was typical of this kind of a game plan. So what drove the United States? Well, a couple of things. Number one, we knew we had a relatively strong hand coming into the quarter because short-term signings in the fourth quarter for the U.S. being up 16%, and as we looked at the composition of those savings and we looked at what customers were spending on, it was very logical. We were able to kind of flexibly design programs that drove cost savings for our client base and can serve cash for our client base and those did very, very well. In some respects, you could categorize those short-term signings in the first quarter and the bulk of those were in fact solving those kinds of problems for our client base. So I’d say that was the first big driver. The second big driver is we rolled out the new z10 -- I mean, remember, the z10 had 34 days of shipments in the quarter and in the U.S., the z10 grew 14% year to year, so it was a very strong technology rollout for that platform. The POWER6 architecture on the midrange of the p series was up 56%, another good strong performance from our technology platform. So I think those kind of drove the composition. If you look at it from an industry trend, you know, globally, telecom did very, very well -- very, very well and it’s kind of our leading industry. No wonder, no wonder when you look at that telecom build-out in these emerging countries. An example that I gave at the analyst day, you know, if you take the big three telecom providers in India, they are signing 55,000 cell phone contracts a day and we have the major contracts between -- behind all three of those, so telecom was very, very powerful. Financial services sector frankly grew with the industry, with the industry average for IBM. So I think financial services did well. We had pretty strong performance from public, pretty strong performance from industrial. So -- but I think this is for the most part has played out as we expected. I think we called the right play for this kind of environment, investing to capitalize on those growth markets, a prudent plan in the established to drive for productivity. The surprise, I guess, this quarter was the resurgence we saw in the U.S. but again, pretty logically around cost, cash conservation, and the new technology announcements in the quarter.

Thanks, Andy. Let’s go to the next question.

Thank you. Our next question comes from Mark Moskowitz with J.P. Morgan. Mark Moskowitz - J.P. Morgan: Thank you. Good afternoon. Mark, if you could talk a little more about the emerging growth markets. Obviously it’s been a focal point and a good highlight, but how much of that is -- how much of that region is a percent of recurring revenues for your overall business and what is the incremental leverage opportunity there as you continue to scale that return in revenues from emerging markets?

Well, if you look at the emerging markets and the composition for the emerging markets, Mark, one way to look at it -- take China as an example. Generally, China and the business in China has a higher composition of hardware and hardware rollout in the base of the business. And if you look at that, that’s very logical. That is very logical because we are now moving into this rapidly emerging growth markets. They are filling out that hardware base, that basic structure as they fill out infrastructure and then on that infrastructure will then move in and drive maintenance, will drive software growth, drive financing, all of those other elements of the business equation. So I think you’ve got to look at it as kind of a rollout in an emerging growth market. Hardware moves in first, then we move in with software, financing, strong maintenance offerings, and those in turn establish an annuity base going forward.

Thanks, Mark. Let’s go to the next question.

Thank you. Our next question comes from Louis Miscioscia with Cowen & Company. Louis Miscioscia - Cowen & Company: Thank you. You gave a good description of your different industries and if I could look at your -- when I look at your small-medium business though, it only grew 3% in constant currency. Would you say that’s more indicative I guess of maybe that are seeing weakness, or is that an area that -- I know you’ve been reorganizing, that you need to focus on a little bit more?

That’s a very interesting question, when you look at small-medium business. And it really pretty neatly fits back to the framework we established coming into the year, the split of growth emerging as compared to established. Really SMB, small-medium business, had a very, very strong performance in these emerging markets -- very strong performance. The area where it was weaker was frankly in the established, and it was in the established in an element, a marketplace that was probably more susceptible to this tougher credit environment and tougher economic conditions. But if you looked at it globally, it had a very strong quarter in these emerging growth markets.

Thanks, Lou. Let’s go to the next question, please.

Thank you. Our next question comes from Jeff Fidacaro with Merrill Lynch. Jeff Fidacaro - Merrill Lynch: Good afternoon. I was wondering -- if you take a look across the business, did you observe any elongation of sales cycles or any material deferrals that were in the quarter that may fall in the June quarter? I know you mentioned some scrutiny of deals on the software side.

Well, you know, we did see -- as I think is again very logical, anticipated -- you did see customers being, scrutinizing deals more carefully. Who wouldn’t, right? Who wouldn’t? I think that’s a logical thing. We saw that predominantly in the established markets. So I think some of those deals did roll over and if you kind of looked at it by element of our business, I mean, we have had a good couple of weeks in April against our software objective, so we felt good about that. If you look at on our services side of the business, you know, we’ve already saw three deals larger than $100 million for $400 million, so we did see some portion of that rolling over and I feel confident we’ll capture that. The elongation of the sales cycle I think was predominantly in established markets and -- but I don’t think it’s going to be an ongoing impact as we see second quarter.

Thanks, Jeff. Let’s go to the next question, please.

Thank you. Our next question comes from Keith Bachman with BMO. Keith Bachman - BMO Capital Markets: Thanks very much for taking the call. I had two quickies I want to try to fit in, if I could. First on the hardware side, Mark, I understand the z was only out for 30-plus days. If I look at some of the other categories, they seem to be much weaker than the balance of your business, even netting out the technology side, including the constant currency impact. How do you see that unfolding here as the hardware is more of the transactional side of the business and seems to be more subject to the economic cycle that we may be in? How should we think about the balance of the business excluding the z? And the second one is if you could just tell us how much did Cognos add during the quarter, that would be helpful. Thanks.

On the hardware side, I’d like to go down that by product line. So if you look at System z, up 10%, I think that was pretty good performance and remember, now we go into the second quarter. We’ve going to have three months of these sales. We had always said that z was going to be -- the first quarter for z was going to be a quarter of transition and be a growth driver as we go into the second quarter and the second half, and I think it’s going to play out that way. But I thought z did quite well. When you look at storage, I think storage did pretty well. You know, it was up 10%. And if you look underneath that, the high end of storage, the DS8000, was up 17%, tape was up 18%, so I think we had some pretty good storage performance. Underneath System p, this was very characteristic of the rollout of the new technologies. The midrange p was up 59%. That’s the midrange. It now has the new architecture, the POWER6 architecture on it. We did see a stall on the high-end, again pretty logically because customers are waiting for the rollout of that new architecture on the high-end as well. So if I look at p series, z series, and storage, I think we had pretty good performance on the hardware base. Now you are quite correct -- when you look at the other elements of the equation specific to technology, I think we could have done a better job in technology but technology, this is OEM technology. This is not the base technology going into the platform. And I know I’ve said this a couple of times but technology, you know, at most we’re running 1% of IBM's profit and these perturbations around that don’t impact our profitability much. Also, you know, we could have done I think a little better on x series. x I think is more like SMB, more susceptible to this credit environment that we saw. But on the other hand, blades were up 31%. So I count blades as pretty good performance. So on balance, I think again this kind of conformed to the way we are rolling out our business plan and I think we did -- I think we did okay in the higher margin, higher technology element to our business that drive more value adds to our customer set. As far as Cognos, Cognos added about one point to our overall growth rate for IBM and then within the U.S., within the 6% there’s about one point of that 6%.

Thanks, Keith. Let’s go to the next question, please.

Thank you. Our next question comes from Shaw Wu with American Technology Research. Shaw Wu - American Technology Research: Thanks. Just a little more color in terms of your POWER6 transition. You talked about it a little bit but just in terms of where you are in terms of the transition. And any comment on the -- I guess the consolidation of your i series and p series, kind of the rationale behind that and do you see any impact on your business? Thanks.

Sure. The POWER6 technology will now be available across the product portfolio in the second quarter, as it’s rolled out in the high-end. And again, if you look at it, I am pretty optimistic about that potential, given what we saw in the POWER6 rollout in the midrange. We do have this convergence against the i series and now it really opens the aperture for our i series customers because they have the availability of moving to this new consolidated platform and the breadth and the performance of a p series organization. It gives you leverage, it gives you efficiency, and it also gives a good growth plan for those i series customers.

Thanks, Shaw. Let’s go to the next question, please.

Thank you. Our last question in queue comes from Chris Whitmore with Deutsche Bank. Chris Whitmore - Deutsche Bank: Thanks very much. You raised annual guidance by about $0.25. Can you split the difference of that increase in expectations between performance of the base business and the weak dollar, where the currency [tail in]? Thanks.

Sure. This is performance of the base business. I mean, if you are looking for the confirmation of that, that is performance of the base business, so we just had -- you know, as you look at it, a very powerful quarter here and I think we have some very optimistic signs as we go into the next quarter. So this is a confirmation I think of the business equation. I am certainly not going to leave our view of the remaining part of the year susceptible to vacillations on currency. I am going to base it on what I see operationally and our performance operationally going forward. Now let me just take a minute -- I think it’s logical, especially coming from that question, to talk about a little bit how we put our view of the year together and how it reflects the way we are managing the business. We’ve said this a couple of times but I think it is playing out as expected. We are managing this business for growth in the emerging growth countries and we are moving expense into those countries to capitalize on those opportunities. I know at one point in the fourth quarter we called this the gold rush and I still believe this is a huge opportunity for us as we move forward. In the established countries, we are investing in driving for productivity and productivity because we are not going to leave the guidance we give susceptible to large oscillations in that performance. If those established countries did better than we expected, well sure there could be some upside here. But that’s not how we’ve built this forward-looking view of the business. We did see, as I said, some very encouraging signs. z series up 10% at actual, 14% in the U.S. This midrange p, again that new technology element of p series, up 59%. We are going into the second quarter. We are now going to have a full quarter of z. Our just announced high-end p is going to roll through. I think we had good momentum on the high end of our storage business with the DS8000 up 17%, tape up 18%. And I think really solid short-term signings in services up 13% at actual and 6% at constant currency for that very, very steady performance across that metric. If you look at -- I think software was a solid quarter, middleware was up 19% and if you looked at the reflection of software and you again tailor that to this way that we are running the base plan, software outside of the G7 was up 21% at actual and 10% at constant currency, and virtually all of that growth was organic. So I think pretty powerful performance as we roll that through. We’ve got an additional point of margins. This was a function of all the work that we have done over years, over years to drive from commodity type business to value businesses. And I think that was a big driver of our profitability up 24%. And with that strong margin and contribution from our services organization, add the share repurchase that we’ve driven and EPS up 36%, so I think we have optimism going into this second quarter. Again, could there be upside? Well, it depends on the established markets. If they don’t move forward, we’re still very consistent with this outlook that they did see some ongoing acceleration. There could be upside. So we are pleased that we could roll in this additional $0.25. If you look at it, over the last hundred days, we’ve now increased that outlook for the year by $0.60 and I think it’s significant to remember that’s based on real [achievement], not just pointing to the -- so thank you very much for joining our call today and now off to get to work on the second quarter.

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