Mark Loughridge - Chief Financial officer of Finance & Enterprise Transformation and Senior Vice President Patricia Murphy - IR

Keith F. Bachman - BMO Capital Markets U.S. Benjamin A. Reitzes - Barclays Capital, Research Division Louis R. Miscioscia - Collins Stewart LLC, Research Division Mark A Moskowitz - JP Morgan Chase & Co, Research Division Katy Huberty - Morgan Stanley, Research Division Chris Whitmore - Deutsche Bank AG, Research Division A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division David Grossman - Stifel, Nicolaus & Co., Inc., Research Division Scott D. Craig - BofA Merrill Lynch, Research Division Bill C. Shope - Goldman Sachs Group Inc., Research Division

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] Now I will 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, Finance and Enterprise Transformation. Thank you for joining our third quarter earnings 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 the 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 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 for joining us today. In the third quarter, we drove 8% revenue growth, expanded gross pretax and net operating margins and delivered operating earnings per share of $3.28, up 15% year-to-year. We're increasing our full year 2011 expectation for operating earnings per share to at least $13.35. This is up $0.10 from our previous view of at least $13.25 and up $0.35 from the beginning of the year. Looking at the drivers of our performance, our software profit was up 12%, driven by Key Branded Middleware revenue growth of 17%. Hardware profit growth of 8% was led by Power Systems, where we had outstanding revenue growth and margin performance. We're continuing to drive competitive displacements and extend our share gains in UNIX. Services delivered strong profit growth, with pretax income up 13% in both segments. Services revenue growth was again led by growth markets, up double digits at constant currency. Our growth markets' performance was terrific across all of our segments. Revenue from these countries was up 19% or 13% at constant currency. This is our fifth consecutive quarter of double-digit constant currency growth in growth markets, with double-digit revenue growth in 40 countries. Consistent with our model, growth markets, along with our other key growth initiatives, are driving our revenue performance. Turning to profit, we expanded operating gross margin by 0.5%. The improvement was broad-based, with strong performance in systems and technology. With 10% growth in operating pretax income and 9% growth in operating net income, we expanded pretax and net operating margins as well. Our third quarter operating tax rate reflects an updated view of the full year rate to 24.5%. The rate in the quarter is up 60 basis points year-to-year, which impacted EPS growth by $0.03. Bottom line, we delivered operating EPS of $3.28, which is up 15% year-to-year. Our strong earnings performance resulted in $3.5 billion of free cash flow in the quarter, and in the last 12 months we've generated over $16 billion of free cash flow. And we've delivered significant returns to shareholders, with over $4 billion in share repurchase and dividends this quarter and more than $18 billion over the last year. Now I'll get into third quarter details, starting with revenue by geography. Our geographic performance was again led by the growth markets in North America. I'll discuss the geographic results on a local-currency basis. Revenue in our major market countries was essentially flat year-to-year. The U.S., our largest market, was up 4%, and Canada was up 7%, driven by continued momentum in our software business and great performance in Power Systems. In Europe, we had good growth in Spain, which was up 9%; and in the U.K., up 5%. We've now had 8 consecutive quarters of constant currency revenue growth in the U.K. Our growth markets, again, had fantastic performance, outpacing the majors by 12 points. With 13% revenue growth, this is the fifth consecutive quarter of double-digit revenue growth in share gains compared to a strong third quarter last year. Performance was broad-based. As I mentioned, we had double-digit growth in 40 growth market countries including each of the BRICs. Our success is broad-based from a segment perspective as well. In fact, growth markets led the performance in each segment, with strong growth and expected share gains in GTS, GBS, Software and Systems and Technology. Within growth markets, we're expanding into new countries and territories to reach new clients and enterprises. And so far this year, we've opened over 80 new branches. Turning to revenue and gross margin by segment. The total services revenue growth rate was 8% or 2% at constant currency. This constant currency growth was consistent with the second quarter growth rate. We had great year-to-year performance in the growth markets, with double-digit constant currency revenue growth and expanding margins. Our software business had a great quarter. Growth was led by our Smarter Commerce and business analytics initiatives. In Systems and Technology, we had double-digit growth in our growth markets, while major markets declined. As I mentioned earlier, we had terrific revenue growth and margin expansion in Power Systems. While our System z mainframe wrapped on new product introductions a year ago. Turning to gross profit. Our operating gross margin improved 1.5 points, with growth across our major segments. The largest contribution came from Systems and Technology, which was up over 3 points, driven by improvements in POWER, System z and System x. Now let's take a look below the gross profit line to our expense and spending profile. Our total operating expense and other income was up 12%, with over 1/2 of the growth attributed to currency from both translation and hedging dynamics. Acquisitions over the last 12 months contributed 3 points of the increase. Because this is a view of our operating expense, it excludes the impact of amortization. Our base expense, excluding currency and acquisitions, was up 2 points. I'll comment on a couple of expense items that had larger year-to-year impacts to our profit. First, we had a $60 million decrease in investment gains, which increased our expense year-to-year. This is driven by a gain in the third quarter of last year associated with the disposition of a joint venture. Another driver of expense growth is the impact of our hedging programs. We hedge our major cross-border cash flows to mitigate the currency volatility in global cash planning. With the year-to-year change in currencies, hedging programs generated losses in the quarter, which mitigate the translation benefits elsewhere in the P&L. Of the roughly $250 million year-to-year impact in cost and expense from these programs, $190 million is an expense, almost entirely in other income and expense. So now let me go into the segments. The 2 services segments delivered $15.2 billion in revenue, up 8% as reported and up 2% at constant currency. Both services segments grew pretax profit 13%, and combined pretax margin was up 80 basis points year-to-year. Total outsourcing revenue was $7.1 billion, up 9% as reported or 3% at constant currency. Our total transactional revenue of $6.1 billion was up 7% or 1% at constant currency. Overall growth was again driven by strength in the growth markets, with constant currency revenue up double digits in both the outsourcing and transactional businesses. Total backlog in the quarter was $137 billion, up almost $2.5 billion year-to-year. Now let's move on to the 2 segments. In Global Technology Services, revenue was $10.3 billion. GTS outsourcing revenue was up 9% or 3% at constant currency, and we gained share again this quarter. Growth was led by our performance in the growth markets, with revenue up 10% at constant currency. Integrated Technology Services revenue grew 11% or 5% at constant currency. This 2 point improvement over the last quarter's constant currency growth rate was driven primarily by the major markets. In ITS, we had strong performance in our software support services and business continuity and resiliency services. The growth in our higher-value offerings helped drive overall gross margin expansion for ITS. Global Technology Services pretax income was up 13% year-to-year and pretax margin improved to 15.9%. Margin expansion was driven by improved gross profit in Strategic Outsourcing, ITS and maintenance. Turning to Global Business Services, revenue was $4.8 billion. Application Outsourcing revenue was up 11% or 5% at constant currency, led by strong performance in the growth markets. Consulting and Systems Integration, which includes consulting, AMS systems integration and the U.S. federal business grew 4% as reported and was down 1% at constant currency. Declines in Japan and public sector continued to weigh on good performance in the remainder of the C&SI business. They impacted our C&SI constant currency growth rate by 7 points this quarter. In fact, if you look at total GBS revenue, excluding Japan and public sector, revenue was up high-single digits at constant currency for the third consecutive quarter. Global Business Services did a great job driving profit and margin again this quarter. Pretax profit was up 13% year-to-year, with pretax margin up 1 point to 15.4%. This is the third consecutive quarter of margin expansion. Now let me close the services discussion with a few comments on the key drivers of services contribution to the 2015 roadmap. First, we're building a great services business in the growth markets, with strong revenue growth across our outsourcing, transactional and maintenance businesses, good backlog growth and expanding margins, with gross margin nearly 3 points higher than the majors. Second, we continue to get good traction in all of our key plays: cloud, business analytics and Smarter Planet. And finally, we continue to expand margin and drive solid profit growth. We're seeing the benefits of mixing into higher value offerings in the yield from our productivity initiatives, consistent with our long-term objectives. Software had another great quarter, with revenue of $5.8 billion, up 13% or 8% at constant currency. Key Branded Middleware grew 17%, gaining share for the 16th straight quarter and extending our leadership of the middleware market. Segment pretax income was up 12% to $2.2 billion. Turning to brand performance, WebSphere had another terrific quarter, with over 50% revenue growth, driven by both our base business and acquisitions. Revenue from our Smarter Commerce offering more than doubled year-to-year, as we bring together our WebSphere Commerce business with the Sterling, Unica and Coremetrics acquisitions. Business process management, which helps our customers drive new levels of efficiency and effectiveness in the business, grew nearly 50%. Information Management was up 12% and gained share. I'll comment on 2 key contributors to this performance. First, Netezza, which grew 36% over last year. Since its introduction in 2009, the Netezza appliance has won over 80% of the head-to head proof of concepts against competition. Second, data management. Last month, Gartner reported that IBM is the market leader in data archiving, Master Data Management and data integration. Both Netezza and Data Management are key components of IBM's business analytics growth initiative, which grew double digits again this quarter. Tivoli software grew 8%, driven by strong performance in storage management. Lotus grew 6% year-to-year, with strong growth in our social business offerings. And with 7% growth, Rational gained share. Overall, software had another powerful quarter, with revenue up 13%, driven by branded middleware growth, gross profit margin up 0.2 point and pretax income up 12%. Going forward, we continue to expand our software business both organically and through acquisitions, with a focus on higher growth segments such as Smarter Commerce, business analytics and security. We closed on the acquisition of i2 earlier this month. i2 helps customers in the public and private sectors address crime, fraud and security threats. We expect to close on the acquisition of Algorithmics and of Q1 Labs later this year. Algorithmics expands IBM's capabilities in the financial services industry by helping clients quantify, manage and optimize their risk exposure across a range of financial risk domains. Q1 Labs helps clients more intelligently secure their enterprises by applying analytics to correlate information from key security domains and creating security dashboards for their organizations. Moving on to Systems and Technology, revenue was $4.5 billion, up 4% or 1% at constant currency, and profit was up 8%. Growth markets grew 12% at constant currency. This is the seventh consecutive quarter of double-digit growth in growth markets. Gross profit margin expanded 3.4 points to almost 40%, driven by margin expansion in POWER, System z and System x. Now let me take you through the brands. Systems z revenue declined 5%, and MIPS were down 11%, as we wrapped on the successful launch of our zEnterprise 196 in the third quarter of last year. Since the z 196 started shipping a year ago, we've added over 80 new System z customers, with more than 30% of these in the growth markets. We had great performance in POWER, up 15% year-to-year. We've gained share in each of the last 14 quarters, and now, for the third consecutive quarter, IBM's strong performance accounted for all of the UNIX industry's growth. We continued our success and competitive takeouts. This quarter, we had over 250 competitive displacements, which resulted in over $225 million of business. Roughly half of this business came from HP and the other half from Oracle/Sun. Storage hardware revenue grew 8% year-to-year, with constant contributions from both disc and tape. When combined with storage software, total storage grew 12% this quarter. System x revenue grew 1%. System x revenue in growth markets was up 15% at constant currency. This is the eighth consecutive quarter of double-digit revenue growth in growth markets. Overall, System and Technology revenue grew 4%, gross profit margin expanded over 3 points and pretax income was up 8%. Turning to cash flow, we generated $3.5 billion of free cash flow in the quarter, which is up $300 million year-to-year. The year-to-year improvement was in line with our net income growth. Through the first 3 quarters, our free cash flow of $7.6 billion was flat versus last year. Excluding the impact of income tax settlement payments, which I discussed in the first quarter, year-to-date free cash flow would've been up $800 million. Our collections continue to be very strong. Looking at the uses of our cash through the first 3 quarters, we returned $14 billion to shareholders. We paid over $2.5 billion in dividends, and we spent $11.5 billion in share repurchase where we bought back 69 million shares. At the end of the third quarter, we had $5.2 billion remaining in our buyback authorization. Looking at the balance sheet, we ended the quarter with cash balance of $11.3 billion. Total debt was over $30 billion, of which $22.8 billion was in support of our financing business, which is leveraged at just over 7:1. Our nonfinancing debt was $7.4 billion, with a debt-to-cap of 28%. With this amount of leverage, we continue to have a high degree of financial flexibility. Our balance sheet remains strong and positioned to support the business over the long term. So now let me start to wrap up with the drivers of our operating earnings per share performance. Our revenue growth of 8% contributed $0.22 to our earnings growth. Our solid gross margin expansion more than offset a higher level of expense and an increase in tax rate. Gross margin drove $0.23 of EPS growth, while we had a $0.17 impact from expense and a $0.03 impact from a higher tax rate. All in, margin expansion contributed $0.03, and a lower share count contributed $0.18 consistent with last quarter. So this quarter, our EPS growth was driven by revenue growth, margin expansion and share repurchases. When we introduced our 2015 roadmap, we identified 4 key initiatives that would deliver most of our revenue growth over the next few years. We've had terrific performance in these growth plays. Our growth market strategy is driving powerful growth and share gains. So far, this year, these countries grew 20% or 13% at constant currency and contributed over half of IBM's constant currency revenue growth. In business analytics, we're helping our customers manage and optimize tremendous amounts of data. Through the first 3 quarters of the year, our business analytics revenue is up 19%, reflecting a strong portfolio of integrated software and consulting capabilities. Our enterprise cloud initiatives help clients improve the economics of IT. Year-to-date, we have already doubled last year's cloud revenue as we extend our offerings. In fact, just last week, we announced new and enhanced cloud capabilities for service delivery, the data center and business model innovation. We continue to have strong growth in our Smarter Planet offerings. Through the first 3 quarters, we're up 50% over last year. This quarter, growth was again driven by solutions in our retail and telecom industries, and our Smarter Commerce initiative is gaining momentum. So we're leveraging our growth plays while expanding margin. For both the quarter and year-to-date, we've expanded our net operating margin by 20 basis points. At the same time, we're driving investment of R&D, capital and acquisition spend, along these same growth themes, from optimized systems to business analytics to Smarter Commerce and Smarter City. So now through the first 3 quarters of 2011, we've delivered revenue growth of 9% or 4% at constant currency, operating pretax income growth of 10%, net income growth of 11% and operating EPS growth of 18%. We've generated over $7.5 billion of free cash flow and returned $14 billion to shareholders. With 3 quarters behind us, we're once again increasing our full year 2011 expectation for operating earnings per share to at least $13.35, a good start towards our 2015 roadmap. Now Patricia and I will take your questions.

Thank you, 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 our prepared remarks. And second, I'd ask you to refrain for multipart questions. When we conclude the Q&A, I'll turn the call back to Mark for final comments. Operator, please open it up for questions.

[Operator Instructions] The first question comes from Ben Reitzes with Barclays Capital. Benjamin A. Reitzes - Barclays Capital, Research Division: Mark, I guess currency is going to be a less of a positive impact in the fourth quarter and should revenue slow markedly, could you remind us of your cost levers, not only for the quarter, but then maybe some that will continue in to next year? And if you want to quantify any, that will be great.

Well, Ben, I think when you look at the overall levers, to use your terminology, I would start with the overall business model. The business model is a balanced set of operational degrees of freedom from our base revenue performance, mixing into higher revenue sources like our growth markets unit, revenue from our acquisition base, mixing into higher profit elements of our business, continuing to drive productivity with our spend takeout initiatives and using our balance sheet to both repurchase our own shares and pay dividends to our customer set. And those same degrees of freedom we apply right down through the business units. So as we looked at the business as we go into the fourth quarter and into next year, we'll certainly take advantage of those alternatives. Now I'd also remind you, especially as we talked about the 2015 model, that we are driving our business units towards a higher level of revenue performance. In the spend takeout, you remember we have modeled it in the at least case that we drive $3 billion of spend takeout to the bottom line. But I can assure you we are chasing $8 billion, but there's another $5 billion of opportunity there. And lastly, if we achieve our free cash flow objectives by 2015, we'd have another $40 billion of financial flexibility. So those all give us additional options. But I would come back and step back looking at the fourth quarter and the full year. I think we've got a pretty good hand. As I look at our performance outside of STG, which has a very difficult compare, we should see pretty good performance on a revenue and profit base at the balance of our businesses. GTS should have a similar quarter in the fourth quarter compared to the third quarter. GBS should have an improved performance in the top line. And our software base of business has a very strong pipeline, and they should be running for a similarly strong performance in the fourth quarter compared to the third. The issue really is on STG. They just have a massive compare. I mean, they have 22% last year. So on an absolute dollar basis, we're going to have a great quarter on our STG business, sort of a lot of revenue, lot of profit, a lot of free cash flow, but they have a very tough compare.

The next question comes from Toni Sacconaghi with Sanford Bernstein. A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division: I guess this is somewhat a follow-up to the first one. I'm wondering if you can comment at all on what you're seeing in the macro environment and now we should be thinking about your revenue growth in light of that and the tough compares you face. So I asked that because I see several things, your major markets growth rate decelerated meaningfully. It was flat this quarter. Financial Services, after quarters of 8%, 10%, 15% in the last 3 quarters, decelerated meaningfully this quarter. And you commented on how public was a big drain in consulting. So there definitely seems to be some areas that are less strong. Overall, you grew 2.8% in revenues this quarter, including acquisitions and your comparisons get a lot tougher. So I guess the question is: Can you comment on the macro, and can you comment on the things that you're doing? And given the comparisons, shouldn't we be expecting constant currency growth rate to actually decelerate going forward rather than accelerate?

Now if you look at the -- I think that's a very good question. I'm going to start from where I left off the last question. First of all, as we look at the fourth quarter, it should look very similar to the third quarter outside of the STG compare. So just to reiterate, GTS should have a very similar quarter. GBS should have improved revenue performance in the low- to mid-single digit, and software should have another strong quarter base in the pipeline that we can see. I don't expect STG to be able to overcome the compare given that they grew 22% last quarter, but they should do -- book a lot of business, a lot of profit and a lot of cash, as I said. But I want to make very clear, though, as we look at the performance in the third quarter, really, the performance on the software side and the services side was very consistent with what we saw in the first half of the year. And we're driving those businesses for profit achievement using the degrees of freedom that they have in their individual business models just as we do at the IBM level. So just to recount, I mean GTS, 13% profit growth in the quarter; GBS, 13% profit growth in the quarter, 20% year-to-date; GTS is 13% year-to-date; Total Services has 15% profit growth on a year-to-date basis. Even in STG, that began to wrap on the mainframe cycle, drove 8% profit growth in the third quarter, and we had very strong performance once again out of our software base of business. So I think it's going to be another quarter where we'll be driving for similar, if not improved, level of performance in the software services side of the house. STG does have a difficult compare, but I think we've got a strong book of business. Now to your other question, let's look at it on a geographic standpoint. I mean, first of all, the U.S. was up 4%, Canada was up 7%, Latin America was up 17%. Within the overall growth markets unit, it was up 13%. I mean 13% is very, very strong, a very strong quarter for us. You mentioned the FSS in your question as well. Well, let's look at FSS. FSS grew 10% in the third quarter compared to IBM at 8%, so a little better. If you look underneath FSS, they grew 14% in GMU and 16% in GMU on a year-to-date basis, and those growth rates are at constant currency. So I wouldn't look at the overall Financial Services sector through a major market lens. I mean some of the issues we're all reading about in the periodicals that affect the Financial Services sector in the major markets, we don't see that in the growth markets. We see a very strong book of business growing in a very rapid rate in margin and profit opportunities for us that are very powerful. Again, it's growing 14% FSS and GMU in the quarter and 16% on a year-to-date basis.

The next question comes from Bill Shope with Goldman Sachs. Bill C. Shope - Goldman Sachs Group Inc., Research Division: Well, I hate to add -- ask another macro-sensitive question, but I think it's certainly top of mind for investors. Obviously, I think some of the comments you've made in the past few minutes are all coming to the same point, which is that your model tends to be supported by a fairly healthy dose of perpetuity, revenue and profit streams. But when we look at the near term, the fourth quarter can obviously be fairly sensitive to transactional volumes, particularly within the hardware segment. Can you understand -- can you help us understand how we should think about recent macro economic uncertainty and normal seasonality for the fourth quarters that we don't get off-base when we're forecasting in the near term for you?

Well, when you look at the year, at $13.35, it's a very strong year, up 14%. That 14% is ahead of the growth rate required for our business model, that's 11%. So it's already ahead of that trajectory. Now I will agree to some degree to your point that we are less than 90 days away from the end of the year, so there's probably less variability around that at least $13.35, but that is an at-least number that we see for the year. And again, going underneath this on a more macro basis, we do see a very good pipeline in the fourth quarter for our software business. I think they had a very good quarter in the third, and they've got a very good pipeline to extend that performance into the fourth. As I said earlier, we see very similar performance for GTS as we go from the third to the fourth, and we can see improved performance on our GBS business growing to low to mid-single-digit growth rate. As well, a lot of those same characteristics that help us expand margin so substantially within the quarter are going to be able to -- we'll take advantage of those as well as we go into the fourth quarter.

The next question comes from Chris Whitmore with Deutsche Bank. Chris Whitmore - Deutsche Bank AG, Research Division: I also wanted to ask one question on the macro environment, this time focusing on the services business. Are you seeing anything in terms of sales cycles elongating, competitors getting more aggressive? Any of the more anecdotal indicators that would suggest things are getting more difficult in the services side of your business, any color there?

No, I don't think I would say that. I mean, if we look at the services base of business, as I said, from a GTS side going into the fourth quarter, we would expect that GTS would have a similar quarter in the fourth quarter to what they had in the third. I guess from a macro standpoint, we could talk a little more about GBS. I mean, on a GBS basis, one thing from a macro position to remember, they have kind of an outside distribution of their business in Japan and public sector. In fact, within GBS, well over or just over 1/3 of their business is in Japan and public sector. So when you look at the GBS performance, I think it's fair to look at how do they perform outside of those 2 areas of business. And if you extract Japan and public sector from GBS performance, you'd see that the revenue in the third quarter was up 13% for the balance of the business. The revenue for GBS on a year-to-date basis was up 13%. And if you look at that performance on a constant currency basis, it was roughly identical 8%, 8%, 8% for the first, second and third quarter for sustained performance. So I think outside of those areas that have proved difficult for global economies, GBS really performed pretty well. And I would also add, when you look at those 2 areas, we indicated at the beginning of the year that we thought at the IBM level, we would be able to continue to overcome those, and we demonstrated that in the third quarter. So I think going forward, we should still be able to overcome the overall economic issues that we see in Japan given the natural disaster that they suffered underneath and the government issues that we see and read about that I would restrict. That's a major market phenomena, not a GMU phenomena. But at the GBS level, given that it's over 1/3 of their business, I think it's fair to extract that by looking at their performance outside of that. And I'd remind you that both services have year-to-date profit growth of 13% in GTS, 20% in GBS and 15% overall.

The next question comes from Katy Huberty with Morgan Stanley. Katy Huberty - Morgan Stanley, Research Division: This growth in System z revenue growth decelerated a little earlier and more than I would've expected. Can you just talk about whether you saw particular regions or verticals of customers that pulled away from those larger deals?

Well, I would interpret it more as a kind of characteristics mainframe cycle. If you look at it versus the last 3 mainframe cycles, this falls right in the middle of that. So I would explain it, Katy, that really this is a fairly consistent mainframe cycle. Now the one area I guess we could comment on, if you look at Europe, actually, on the services and software side in Europe, the third quarter revenue performance is actually stronger than it was in the first half of the year. The issue in Europe really was that they had the STG, the mainframe wrap, and some countries in Europe like France, tend to have a very high adoption rate on a mainframe cycle, and consequently, France was flat. But even Europe, I wouldn't wrap into a one homogenous view of country performance. As an example, at the total IBM level, Spain was up 9%, and we could see that 9% was driven by the linkages Spain has built with Latin America banking industry. The U.K. was up 5% now for the eighth quarter in a row. In the U.K., it's really the services business driving the investment themes in Smarter Planet business analytics. That is accounted for. So Europe is not one homogenous grouping of countries, but I do think you'll see in the performance that even though there was a year-to-year issue on the compare given the announcement of mainframe and some faster adoption cycles in Europe affecting the STG side, actually, the services and software growth rate were stronger in the third quarter than they were in the first half of the year.

The next question comes from Keith Bachman with Bank of Montréal. Keith F. Bachman - BMO Capital Markets U.S.: Mark, I want to go to services, if I could, as well. Could you talk a little bit about why backlog was down sequentially. It's the first time I think in 5 years, the only exception was the '08 period where backlog is down in September, and it doesn't appear that currency was a driver. So can you talk a little why it was down? And then secondarily, given your comments on both GPS -- GBS rather and GTS, how we should be thinking about the growth of backlog as we look out over the December quarter?

Okay. If you look at the quarter-to-quarter backlog performance, that differential, in fact, was entirely driven by 2 sources. It was dominated by currency within the backlog, number one. And then there also was some effect of seasonality in the backlog, but those 2 accounted for all of that differential. Keith F. Bachman - BMO Capital Markets U.S.: What would be different -- sorry, Mark. What would be different about seasonality in this particular September versus, say, the last 5 years?

Actually, if you'd look at it over the last 4 years, you'd see that it's actually very -- a portion of it that was very consistent with that. So again, the delta was, in fact, dominated by currency, but the balance was, in fact, very consistent with the seasonal view of the world. Now on a backlog basis, the other point that I would make is when I made the comments that we see improved performance on the GBS side of the business going into the fourth quarter, all mid single-digit revenue growth, that backlog growth on a year-to-year basis, that 137 up $2.4 billion. All of that $2.4 billion can be attributed to the transaction side of the businesses. And that transaction, the balance of it outside of outsourcing is driven by transaction maintenance, and the big driver of that performance is the transaction business. That's why we feel that we have a good hand going forward in the GBS business since you see improved growth rates out of the backlog.

The next question comes from Scott Craig with Bank of America. Scott D. Craig - BofA Merrill Lynch, Research Division: Mark, can you delve into the System p in Power Systems a little bit more? You've obviously been gaining share there for quite a while now. How much longer do you think this can go on, and can you describe the sort of competitive dynamics that you're seeing there?

Sure. Well, as you saw in the results, our P series or our POWER series had 15% revenue growth in the quarter. And I'll tell you, they had a likewise very strong performance in their margin in the quarter as well. In fact, if you look underneath that 15%, the high end of P series grew about 50%, so really strong performance. Now on your point on the industry, I mean we gained 6 points a share in the quarter, which is strong performance, and that's now 14 quarters in a row of share gain. I think more interesting underneath that, IBM once again in the third quarter drove all of the unit's market share growth, all of it. So I think this has real opportunity to extend as we go into the fourth quarter in 2012. I'd also say, point out underneath this, we did take about $225 million from a competition this quarter, pretty balanced between HP and Sun on a kind of a 50-50 basis. So it's a strong competitive platform for us as well. But I think most impressive, at least for me, and I know this is going to be a very CFO view of the world, but you're talking to a CFO. So if you look underneath that, very strong revenue performance, but also very strong marketing performance at the same time.

The next question from Louis Miscioscia with Collins Stewart. Louis R. Miscioscia - Collins Stewart LLC, Research Division: Thanks, Mark, for being very helpful, a lot of color on things. Maybe you could give us some more of a breakdown on Financial Services and public sector maybe from an industry vertical perspective, for example, there's, obviously, insurance and Financial Services or maybe also a geographic -- both of those will be helpful.

Sure. Let's start -- when you look at the Financial Services sector performance, I want to reiterate some of the points I've already made, but I think they're important. One, with IBM going 8%, the FSS business grew 10%, so better than the average. But I think more interesting is if you look at the growth market's performance in the Financial Services sector, I mean, up 14% in the third quarter on a constant currency basis and up 16% on a year-to-date basis. So just as IBM is rapidly mixing in these growth market businesses, obviously, each of the industries are doing the same, and we do not see the same level of concerns certainly in the Financial Services and banking sector in growth markets that we see in the major markets. Quite contrary, we see a lot of momentum, a lot of opportunity. From an industry standpoint, though, stepping back from Financial Services sector, I'd remind you, we had terrific growth in general business. So this is generally small-, medium-sized business, up 16%. In that industry, that's larger than $5 billion. It's our second largest industry. Likewise, distribution grew 11%, so pretty strong performance in some of our other areas as well. From a breakdown underneath that, I was most impressed with our ability to still drive that customer standpoint in our engagement with the customer base. This turned out to be the sixth consecutive quarter of positive growth with growth in all industries. And as I said, in the growth markets, along with the very powerful performance, the banks are really focused on increasing their service coverage and expanding offerings in business model transformation. So I really want to emphasize that, that growth market potential is substantial.

The next question comes from Mark Moskowitz with JPMorgan. Mark A Moskowitz - JP Morgan Chase & Co, Research Division: Mark, just given the sensitivity around the macro environment, I want to come back to software for a moment. You talked in prior quarters about the big pipeline, and you guys definitely delivered in terms of the growth. But I just want to get a sense, if you can help us out here, in terms of the 4Q pipeline or even looking into early 2012, how much of the pipeline relates to new projects that have already started in software at your customers versus new projects that have the green light but you have not started actually rolling out those products? Because I'm concerned here, if we do see new products start to come under pressure because of the macro, those that have not started could be tabled or delayed versus those that have already started. So any sense that you can give us qualitatively will be great.

Yes. First of all, within software, we had a number of deals that we are right on the cusp that rolled over into the fourth quarter. So a pretty strong engagement, and those didn't roll because of some kind of pullback in the businesses, but all of it was just the contract signatures and the negotiation process pulled it over the line. So number one, we start with the pretty strong number of deals that have rolled over. Number two, we also have a lot of opportunity in our current customer set and their structural dynamics and contracts that is growing on a year-to-year basis and is not just dependent on new product content and new product rollout. Now that said, I think we have a very strong set of offerings in that new product content, not only organically, but through our acquisitions. But I certainly wouldn't look at the fourth quarter and say that the fourth quarter is dependent on new products that rolled out.

The last question comes from David Grossman with Stifel, Nicolaus. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: [Indiscernible] it's clearly been a driver for us in most of the segments, and it's over 20% of the mix.

Sorry, David, can you start again at the beginning of the question?

Can you start again? David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Sure. It was really a question about the growth markets. It's over 20% of the mix. It's having a fairly dramatic impact on your growth rate across all segments. Can you -- if global economic growth continues to slow, can you remind us of how the growth markets performed back in the '08, '09 time frame? And just help us understand how you'd expect it to trend again if global economic growth is, in fact, slowing.

Yes. I mean, the differential between major market performance and growth market performance over -- since 2008, which is the date I have most clearly in my head here, I mean in 2008, the growth markets grew 8 points more rapidly than the majors. In 2009, they grew 8 points more rapidly again. 2010, they started to move away from the major markets and grew 10 points faster. The first half of this year, they grew 10 points faster. In here, in the third quarter, they grew 12 points faster. If you just looked at it on the relationship of growth markets to major markets, you see kind of an acceleration of that differential. So I think that kind of gives you a characterization. But I also want to add, growth markets, they've got a lot of margin capability within that mix of business. This is big iron rollout that we see, big banks in China, big banking Financial Services sector, telecom sector in India, industrial sector that general business content is a huge part, a huge part of that GMU opportunity set. So if anything, we see expanding potential there. I'd also add that when you look at our growth in the growth markets unit, it's not simply capitalizing on just the growth within the geographies, which we certainly do, but it's also expanding into that next tier city. So on a year-to-date basis, we've opened 80 new offices, 8-0, 80 new offices move into new cities and new capabilities. That is also a very strong suit for us. And then the last point I'd make, when you look at the performance in growth markets, though we did well in the BRICs, and the BRICs are a very strong part of our overall offering, 2/3 of the growth market revenue, almost 2/3, lies outside of the BRICs business, almost 2/3. And that's why we mentioned we had 40 countries with double-digit performance in growth. So this isn't just Brazil, Russia, India, China. It's also a strong way of another 36 countries going double-digit with 2 -- almost 2/3 of that overall growth markets business outside of the BRICs. So let me just make a few comments to wrap up the call. Our third quarter performance reflects the execution of our innovation-based strategy and the strength of the business model. The investments we've made in key growth initiatives are paying off and drove our revenue performance this quarter. Smarter Planet was up 50% year-to-date. Business analytics was up almost 20% year-to-date. Cloud revenue has already doubled -- through the first 3 quarters of the year, has already doubled the full year 2010 results. And, of course, as I just pointed out in the last question, 13% growth in our growth markets, 12 points faster than majors. So all of these initiatives performed really well. We expanded margins, leveraged our cash generation, deliver 15% growth in operating EPS. And with at least $13.35 EPS for the full year 2011, we're on track for a great year and a good start to our 2015 roadmap. So thanks for joining us. Now, as always, it's back to work.

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