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 Jeff Fidacaro - Merrill Lynch Ben Reitzes - Lehman Brothers Louis Miscioscia - Cowen & Company Keith Bachman - BMO Capital Markets Katy Huberty - Morgan Stanley Chris Whitmore - Deutsche Bank Mark Moskowitz - J.P. Morgan David Grossman - Thomas Weisel Partners

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I’m here with Mark Loughridge, IBM’s Senior Vice President and Chief Financial Officer. Thank you for joining our second 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 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 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 web site, or from us in Investor Relations. Now, I’ll turn the call over to Mark Loughridge.

Thanks for joining us today. To start the call, I’ve got to say that this is one of the best quarters I’ve ever seen and remember, we delivered an outstanding second quarter a year ago, so these are truly powerful results. To drive these results, we’ve been executing a strategy that aligns investments to growth opportunities. In the emerging markets, we’ve been investing to capture the opportunity created from the build-out of the infrastructures in these high growth economies, while in the more established markets we’re managing our business for productivity and we’re delivering solutions that provide value to our clients. In this environment, our customers are looking for ways to save cost, conserve capital, and manage risk. With this strategy, this quarter we performed better than ever and it shows in our results, with almost $27 billion in revenue, up 13% or 6% at constant currency, earnings per share growth of 28%, and free cash flow up almost $1 billion year to year. When we get into the details, you’ll see that growth improved in all three of the geographies at constant currency, led by Europe. We also had better performance in software and systems, with systems getting a boost from our mainframe and POWER6 product ramps. At the same time, our services momentum continued with great revenue growth, signings growth, and margin expansion. Now, while Services has been delivering strong growth, it is also an important element of our annuity businesses. About half of IBM’s revenue is from annuity businesses, which provide a solid base of revenue and cash. Our performance this quarter reflects the strength of IBM’s unique business model, delivering breakthrough technologies and business know-how to our clients, built for both emerging and established markets. So, we had a strong quarter, and first half. In April, I told you we expected full year 2008 earnings per share of at least $8.50. Now, after the second quarter, we’re taking our view of the year up by another $0.25 and we now expect earnings per share of at least $8.75, which is a growth of at least 22% over 2007 reported results. Since the beginning of the year, we’ve increased EPS expectations by $0.85. So now let’s turn to the financial summary. Our revenue of $26.8 billion is up 13% as reported, and 6% at constant currency. Now these would be strong results in any economy, let alone today’s dynamic global environment, but as I mentioned, a year ago we had a strong second quarter with 6% constant currency growth. So this is outstanding growth compared to an equally powerful quarter last year. You’ll see the benefit of our operating leverage throughout the entire P&L. Gross margin expanded 1.4 points, led by services and systems. Pre-tax income dollars grew 21%, and PTI margin expanded 1 point. And with a half-point improvement in our tax rate, net income grew 22% and margin expanded to 10.3%. Bottom line, we delivered $1.98 of EPS, up 28% year to year over our reported results last year. You’ll remember last year we had an $80 million pretax gain for the sale of our printer business, which was $0.05 per share. So without the second quarter ‘07 gain, which I know is the way you view our business, our earnings per share was up 32%. So now, let’s get into the details of the quarter, starting with three different views of revenue. Growth in all geographies accelerated from last quarter. At constant currency, Americas was up 6%, Europe up 7%, and Asia-Pacific up 6%, so growth not only accelerated but was also very consistent across the geographies. In the established countries, which we address through our major markets organization, our value proposition and our new technologies fueled strong growth. The U.S. had another very good quarter, up 5%, and Canada accelerated to 11% growth at constant currency. In Europe, at constant currency Germany was up 7%, France was up 6%, Italy up 5%, and the U.K. up 4%. And while Japan was down year to year, it did improve modestly from last quarter. Our performance in the emerging markets also accelerated. We address the emerging markets through our new “growth markets” organization. These countries represented 18% of IBM’s geographic revenue in the quarter and together grew 21% as reported and 14% at constant currency. And the BRIC countries subset grew 31%, or 20% at constant currency. This was led by explosive growth in India. Now I want to take a minute to show you our performance on this basis for the first half. These countries coded in blue represent our major markets organization, which as I just mentioned address the more established markets. The countries coded in green comprise our growth markets organization. The countries in darker green each grew at greater than 10% in local currency. I think this makes it clear that our growth markets organization covers a lot more than just the BRIC countries, across Latin America, Eastern Europe, Africa, and Asia. The base is large and for the first half, these countries represent 17% of our revenue and they’re growing rapidly, collectively up 13% year to year. Now let me give you a couple of examples of the kinds of things we are doing in with our clients in these emerging markets. In the Czech Republic, we are helping the Ministry of Finance automate their tax systems. In Russia, we have consolidated the settlement systems for the Central Bank of Russia and provided a centralized disaster recovery solution. In addition, our Information Warehouse and Cognos products were selected as the platform to analyze each member bank’s compliance with various regulations, like Basel II. And in China, we are partnering with one of the country’s largest real estate companies to construct a new financial management system to meet the needs of a rapidly growing enterprise. So we’re not just selling products -- we’re selling major backbone solutions as these high growth economies build out their infrastructure, and we expect these rapidly growing markets to continue to fuel IBM’s revenue and profit engine in the second half of 2008 and into the future. Now I’ll give you a snapshot of revenue by sector. Revenue from our industry sales units was up 14%, or 7% at constant currency. All sectors grew, again led by the Communications sector. It’s the second consecutive quarter of double-digit constant currency growth for Communications, with continued strength in the Telecom and Utilities industries. Our worldwide Financial Services growth accelerated to 15% growth, or 6% at constant currency. Now, while the U.S. revenue was down 2%, outside the U.S., where we have about 75% of our business, revenue was up 22%, or 9% at constant currency. Financial Services results were in line with our total sector performance for the third consecutive quarter and overall we believe we gained share this quarter. Revenue from our small and medium business clients increased 13%, or 6% at constant currency, driven by continued strength in the growth markets, which were up 15% in local currency. In the major markets, our SMB business returned to growth, with good acceptance of our new System p offering and broad-based growth in our software portfolio. So now let’s look at our revenue by segment. Our two services segments had another great quarter. Our success was broad-based, with double-digit growth in all lines of business. Software growth improved to 17%, compared to a great second quarter of last year. In Systems and Technology, Systems improved to 10% growth, led by outstanding performance in our high-end servers. In Global Financing, while the overall growth was impacted by a decline in the sales of used equipment, our financing revenue was up year to year. So now let’s turn to expense. Total expense and other income increased 15%. With 13% revenue growth, our expense-to-revenue ratio was up about 40 basis points year to year. Now peeling back the 15% growth in expense, approximately eight points of growth was due to currency and we estimate that six points of growth is from acquisitions, with a full quarter of Cognos and Telelogic spending. So operational expense was flat year to year. Now within this, we covered interest expense from our ASR, which impacted our expense growth by almost a point. But we’re not taking a mallet to our spending to keep the operational expense flat; we’re executing our investment strategy and allocating our spending to areas where we see the best opportunity. For example, this quarter, our operational SG&A expense, that’s without currency and acquisitions, was flat. In our growth markets, where we’re investing to capture the fast growing opportunity, SG&A was up about 12% while the rest of the world was down 1%. So let me give you a couple of examples of the kinds of investments we’re making in the growth markets organization. In Vietnam, we established a sales team to pioneer System z and won our first mainframe account in June at a Vietnamese bank. In Latin America, we’re adding resources to regional cities in Brazil, Mexico, Colombia, and Argentina to reach out to our small and medium business clients. In Bangalore, we created the Systems Solution Center to provide proof of concept and training to our customers. So we’ve been focused on the strategy of aligning our investments to growth for some time and I think you’ll agree it’s really paying off. Now before we move on to margins, I’ll comment on the items that significantly impacted our profit growth this quarter. First, retirement-related plans generated about $380 million of cost and expense in the quarter for a savings of about $250 million year to year. But pension is just one category of compensation. When you look at all forms of compensation, salary, bonus, equity awards, retirement-related plans, our total compensation is up about $800 million year to year. AR provisions were up about $60 million, driven by a higher level of receivables and additional reserves for specific customers. This increased our coverage by 10 basis points from the first quarter to 1.7%. And within other income and expense, there are a couple of items that drove the higher level of expense. First, while our cash balance remains strong, decreasing interest rates resulted in a reduction to interest income of about $50 million; and second, let’s look at the impact from our hedging programs. We hedge the major cash flows to mitigate the effect of currency volatility as we manage our cash globally. The impact of these hedging programs is reflected principally in other income and expense and cost of goods sold. This quarter, these hedging losses in other income and expense were higher year to year by almost $90 million. Now let’s turn to margins. We had broad-based margin expansion again this quarter, led by increases in both services segments. Our software gross margin declined as we integrated Cognos and Telelogic but good productivity drove expansion in pretax margin. And with improving revenue dynamics due to a strong acceptance of our high-end systems products, both gross and pretax margin improved in the Systems and Technology segment. So now let’s turn to the segments, starting with Services. Our two Global Services segments continued their momentum and delivered powerful results again this quarter. Total Services revenue was $15.2 billion, up 16% as reported and 8% at constant currency. This is the fourth consecutive quarter that Global Services revenue growth has been above our longer term objectives. Signings were $14.7 billion at actual rates, up 12%; while at constant currency signings were $12.2 billion, up 4% year to year. Our short-term signings were up 18% at actual rates and up 9% at constant currency, while long-term signings were up 7% at actual rates and were flat at constant currency. We signed 13 deals larger than $100 million and our backlog was an estimated $117 billion at constant currency, up $1 billion year to year. The demand environment was very consistent with first quarter. In the growth markets, where clients are focused on infrastructure build-out and growth opportunities, we’ve had good performance in both long- and short-term signings. At constant currency, long-term signings are up over 70% and short-term up 25%. In the major markets, clients continue to favor solutions that deliver shorter time to value. We’ve seen good results in the shorter term businesses, with signings up 7% at constant currency, including the U.S., which was up a very strong 17%. Long-term signings in major markets were down 10% at constant currency. So you can see that these results validate our strategy for both emerging and more established markets. The emerging markets are focused on longer term infrastructure plays. For example, Idea Cellular, one of the top five telecom providers in India, strengthened its relationship with IBM by awarding GTS additional scope this quarter. This includes support for geographic expansion, new transformation projects, and a further scaling of the current infrastructure to enable the company’s rapid growth. In the more established markets, our offerings that drive cost savings and time to value are vital to our clients in this environment. For example, this quarter GBS was awarded a contract to help transform Pfizer’s manufacturing organization into a globally integrated, agile, and demand-driven supply network. IBM will provide business process design, systems integration, and application support focused on new common business processes to reduce costs and improve supply chain operations. So these results are being driven by offerings that work well in each of these very different environments. So now I’ll give you some specifics on the segment results. For Global Technology Services, revenue was up 15% and 8% at constant currency. We had double-digit growth in all lines of business. Signings were up 14% at actual rates, with short-term up 16% and long-term up 13%. At constant currency, GTS signings were up 9% and in fact, both short-term and long-term were up 9% as well. Our Strategic Outsourcing revenue was up 13%, driven by prior year signings and continued growth in our base accounts. Business Transformation Outsourcing was up 29% as reported. We had double-digit revenue growth in the Americas, Europe, and Asia-Pacific, and our BPO Daksh business continued to grow at double-digits. Integrated Technology Services revenue was up 16%. The momentum in our ITS key infrastructure plays continues. Now, the last couple of quarters, I’ve highlighted our success in Green Data Center offerings and in the second quarter, we signed another $220 million of Green Data Center business. Today I’ll highlight another area, Converged Communications, which helps our clients address increasing costs associated with managing and maintaining separate voice and data networks and equipment. Converged Communications signings were up 65% over the first quarter. I think this is a very good example of where customers are spending to lower costs in the short-term and to drive a lower total cost of ownership. These key plays represent about a quarter of ITS total signings and were up 14% quarter to quarter. Maintenance revenue was up 16%. This includes two months of revenue for the services provided to Ricoh Info Print. This work transitioned to Ricoh in June. Our Global Technology Services pre-tax profit was up 26% and margin was 9.5%, up nine-tenths of a point year to year. This margin expansion was a result of the improved cost structure driven by productivity in last year’s restructuring, 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 18% as reported and up 9% at constant currency. We grew revenue double-digits in all geographies and all sectors. Total signings were up 9% at actual rates and down 2% at constant currency. Within that, short term signings were up 19% at actual rates and 9% at constant currency. Our clients continue to be motivated by projects with shorter-term paybacks and ones that preserve cash and drive cost savings. Examples are projects that help our clients manage global deployments and integration, create shared services, and replace legacy systems. These cost savings and efficiency offerings represent over two-thirds of our short term signings on a global basis and almost 90% in the Americas. We’re also seeing good demand for offerings that help clients meet regulatory requirements through improved compliance and governance, as well as drive innovation in new markets. For GBS, long-term signings were down 9% at actual rates and down 20% at constant currency but remember in second quarter last year, long-term signings for GBS were up 70% year to year, so this was a very tough compare for them. Global Business Services pre-tax profit was up 31% and margin expanded 1.5 points to 11.9%. GBS delivered record levels of pretax dollars and margin this quarter. The improvement was primarily driven by increased utilization, good contract management, and lower retirement-related costs. Systems & Technology revenue of $5.2 billion was up 2% year to year. Our systems business grew 10%, or 4% at constant currency, driven by double-digit growth in System z, POWER systems, and storage. Customers continue to leverage the fast payback from IT efficiencies driven by virtualization and consolidation into high-end systems. System z revenue was up 32% year to year and MIPS grew 34%, gaining market share. The new System z10 Enterprise Class Server has been extremely well-received in the marketplace since our announcement at the end of February. Customers are leveraging the z10 to reduce their technology and energy costs as they simplify their data centers. We entered the second quarter with a strong deal pipeline and this quarter, frankly, we were sold out. Performance was particularly strong in the Americas and Europe, as well as in the Financial Services Sector. We also shipped a record number of specialty engines this quarter, as our customers and partners are continuing to bring new applications to the mainframe. Our legacy System i revenue declined 47% in the quarter, as we transition our System i customer base to the converged POWER platform. Converged System p had an outstanding quarter, growing 29%, gaining share and extending its market leadership position. Last quarter we had growth of almost 60% in our midrange servers; this quarter we accelerated midrange growth to 68%. High-end servers grew 21%, driven by the new POWER6 595 announced early in the second quarter. The 595 server running AIX became the first and only server to achieve more than 6 million transactions per minute, offering customers nearly three times the performance per processor core of an HP Superdome at a lower cost. With POWER6 performance now available across the entire product line, this platform is well-positioned to sustain its technical and market leadership as we enter the second half. System x server revenue declined 5% year to year. While both high-end servers and Blades grew double-digits, we experienced continued softness in the low-end. Storage revenue was up 12% year to year and gained share. Total disk was up 20%, as we had double-digit growth in enterprise disk on continued strength of the DS8000, which was up 24%. We also had strong performance in mid-range and low-end disk, growing 28%. Tape declined 2% as customers paused in advance of our new high-end product which we announced earlier this week. We believe we held share in tape. Microelectronics OEM revenue was down 19%, but overall, Systems and Technology pretax income improved 21%. Margins, both gross and pretax, improved over a point, reflecting our ongoing shift to higher value as customers virtualize their IT environments. Our software business generated $5.6 billion in revenue and growth accelerated to 17%, or 9% at constant currency. Our branded middleware products grew 21% year to year and now account for 55% of our total software revenue. Customer buying priorities in the second quarter were similar to the first quarter and fall into three broad categories. First, customers purchased software that can improve their own cost effectiveness and business performance. The advanced virtualization technologies found in our Z and P operating systems are good examples of this. Our WebSphere products continued to grow as customers use the power of the Web to lower their cost and expand their reach. Information Management products provided Information on-demand to help improve business performance. Information Management grew 30% in the quarter. This was fueled by our Cognos acquisition as well as over 30% growth in distributed relational database. The second customer priority is driven by regulatory requirements. Tivoli security and storage management products address this need and both grew double digits in the second quarter. This was our 15th consecutive quarter of strong growth in storage management software. And third, customers continued to invest to improve the personal productivity of their workforce, this was clearly demonstrated by the growth in our Lotus family. Lotus had a terrific quarter, with 21% growth marked by a series of competitive wins in both growth and established markets. For example, a major bank in Asia licensed over 300,000 Lotus seats. The bank recognized the rich out-of-the-box capabilities of Lotus Notes as well as the long-term product strategy. Software tooling also increases workforce productivity, and our Rational portfolio holds a unique position in the market. With the addition of Telelogic, IBM has the software tooling to support both applications and embedded system development. Rational grew 37% year to year. Software segment profit grew 19% in the quarter, and this includes the absorption of acquisition-related cost and expense. With this profit growth, pretax margin expanded to 23.7%. Turning to IBM’s cash performance, we generated $3.7 billion of free cash flow in the quarter. This is up $1 billion year to year and was driven by growth in net income, improvement in working capital, and outstanding DSO performance. In fact, DSO improved 1.1 days year to year. And we had a great first half, with free cash flow of $4.3 billion, up $1.8 billion year to year. Now turning to uses, we’ve invested $2.4 billion in net capital expenditures and $5.9 billion in acquisitions to acquire 13 companies, including Cognos and Telelogic. We’ve also returned a very significant amount to shareholders, $8.4 billion, through a combination of dividends and share repurchases. In the first half, we paid out $1.2 billion in dividends and in April, we announced a 25% increase in the quarterly dividend. We have now increased the dividend by 150% in the last three years, and we bought back 62 million shares for $7.2 billion year to date, including $4.7 billion this quarter. At the end of June we had $8.9 billion remaining from our last board authorization. I’d like to also note that during the quarter, we achieved a real milestone. Since the inception of our share repurchase program in the mid-90s, we’ve invested over $100 billion to repurchase shares at an average price of $69 per share, so this has been a very effective investment. So now let's turn to the balance sheet -- we finished the second quarter with a strong cash balance of $9.8 billion. Our non-financing debt was $9.1 billion, and debt-to-cap was 27%, essentially flat from last quarter and down from a peak of 47% at the end of the second quarter of 2007. The remaining three-quarters of $34.2 billion of debt is to support our Global Financing business, which is leveraged at 6.8 to 1. We continue to have seamless access to global capital markets at very competitive rates. This quarter, we capitalized on our global reach by raising debt from U.S., Swiss and Japanese capital markets. We issued a $1.5 billion U.S. extendible, a 500 million Swiss Franc bond, and a 50 billion Yen syndicated loan. The balance sheet remains very strong and well-positioned to support the business over long term. So let’s start to wrap up with a discussion of the drivers of our 28% earnings per share growth. We had revenue growth of 13%, including 7 points of currency benefit. At constant mix and margin, this 13% revenue growth contributed $0.20 of the $0.43 of year to year EPS growth. We again expanded our gross margin, led by services and systems. This contributed another $0.19. Of that, about $0.08 was due to the year-to-year benefit from our retirement-related plans that flowed to cost. Our expense growth impacted EPS by $0.04, though as I mentioned earlier this was driven by currency and acquisitions. And we generated a benefit of $0.09 from our aggressive share repurchases over the last year, mitigated slightly by the additional interest expense related to last year’s ASR. And finally, a 100 basis point reduction in our tax rate yielded the last penny. Now I think it’s obvious, but we achieved all of this with the U.S. economy as a headwind and currency as a tailwind. But bottom line, the IBM business really executed this quarter. Our business model is designed to capture the opportunity and drive solid profit and cash in a global environment. In emerging markets, growth is fueled by infrastructure build-out. We’ve got a lot of experience in this area and we’re investing to capture this massive opportunity. In the second quarter, countries in our growth markets organization grew 21%, or 14% at local currency, and made up 18% of our geographic revenue base. This quarter, we also had strong performance in the established countries. As an example, the G7 countries collectively grew 5% at constant currency. We weren’t counting on this kind of growth, so with a focus on productivity, this provided real leverage to the bottom line. In the established markets, demand was high for offerings that provided cost savings, conserve capital, and deliver a faster payback on investment. Clients are also looking for offerings that address specific needs such as energy savings, security and resilience, and risk and compliance. The advantage of having a high value services business is that we can adapt our offerings to meet clients’ needs. We’re also continuously investing to extend our technology leadership, such as our new System z, introduction of POWER6 to our server lines, and new releases of advanced social networking software. And finally, this quarter we once again leveraged our financial strength. We have significant annuity content, which provides stability to the model. We expanded pretax margin by a point as we focus on driving productivity in our own business. We generated $1 billion more free cash flow year to year, proving that we can convert our profit to cash, and with debt-to-cap now at 27% and almost $10 billion of cash on hand, we have substantial flexibility to make investments where we see the best opportunities. You put all of this together, and we call it “The IBM Difference”. So we had a very strong quarter and first half and based on this performance, we’re taking our view of the year up by another $0.25 and we now expect earnings per share of at least $8.75, which is growth of at least 22% over 2007 reported results. With this strong performance, we are well 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 today comes from Toni Sacconaghi with Sanford Bernstein. Toni Sacconaghi - Sanford C. Bernstein: Thank you. Mark, I was wondering if you could comment on the forces at work in the services business and how we should think about them. When I think about them, your signings actually accelerated both long-term and short-term this quarter. That’s a positive. Looking to the second half, you’re comparisons in terms of revenue growth become more difficult and the benefit from currency, assuming constant spot rate, also becomes less advantageous. So when we put that together, you’ve been doing 16%, 17% revenue growth, reported revenue growth in services in the first half. Should we still be thinking about a double-digit kind of revenue growth number for global services in the second half? And can you comment on the forces at work?

Sure, I’d be glad to. First of all, as we look at the services business going into the second half, we see both GBS and GTS performing well within their model, and remember their model is 6% to 8% revenue growth, so even with a diminished amount from currency, we should be in double-digit revenue performance. Now, we’re quite encouraged by our services business. I mean, we’ve have very strong performance for a number of quarters on our short-term signing basis. I personally was very impressed with our long-term signing performance in the quarter, especially in GTS, so I think we entered the second half with a lot of momentum and we have a good deal list as we go into the second half as well. Now, you are quite correct -- we do wrap-on power performance. We’ve had four sequential quarters where services outperformed their model objectives, but we have a very good book of business, good momentum, and we had strong signings performance in the quarter as we move into the second half.

Our next question comes from David Bailey with Goldman Sachs. David Bailey - Goldman Sachs: Great. Thank you very much. While the compounded earnings growth between ’06 and 2010 is 14% to 16%. Of the new 2008 target, the compounded growth is only 7% to 12% over the next couple of years. Is there any reason that we should expect your earnings growth to slow over the next two years, or should the $10 to $11 move higher?

Well, I think that’s a -- that is what I would call a high quality problem. I mean, right now if you looked at our performance along that track, it’s difficult not to say we’re ahead of track. I’m not going to give a longer term forecast today. We’ll do that at the end of the year once we’ve completed the year and get ready for the -- our annual analyst meeting but I quite agree with you; I’m very encouraged by our performance and looking at that performance going forward, you know, I would have to admit that we are ahead of track and we feel like we’ve got a very strong half to 2008 ahead of us as well. So no debate there -- I think we’ve got a good level of performance right now.

Our next question comes from Richard Gardner with Citigroup. Richard Gardner - Citigroup: Thank you. Tough to find anything to really question but could you, Mark, maybe talk about anything unusual in terms of linearity in the quarter? Also, could you talk about what you are seeing in terms of any elongation in sales cycles, or more layers of approval, more stringent approval processes required to get deals done in the current environment?

Sure, well the first -- to answer your first point about trends within the quarter, the second quarter was very characteristic to the kind of monthly skew that we saw in the fourth quarter and the first quarter. Frankly, it’s kind of an encouraging trend from my perspective because we see more business as we try to move the skew of business to early in the quarter, rather than all in the third month of the quarter. And I think that is part of our management system and an increased mix of services. But if you look at the characteristics of the second quarter compared to what we saw in the first quarter or compared to what we saw in the fourth quarter, it was a very typical trend month to month. Now on your second part on longer sales cycles and changes in approval, in the -- I would say more characteristic in the long-term business, we’ve seen some changes in approval and customers being very diligent about this, especially in the -- more the G7 major market countries, but I think we’ve been wrestling with this for some time so I’m not sure I would say that’s a difference in trend. I think customers have been looking carefully at their contract basis for some time and from my perspective, I didn’t see a change in that trend as we went into the second quarter. And we had good closure on our software base as we closed out the quarter. We did have both in software and services a number of contracts roll over the date line into the third quarter, but again I don’t think we saw anything unusual in that trend.

Our next question comes from Jeff Fidacaro with Merrill Lynch. Jeff Fidacaro - Merrill Lynch: I was wondering if you could talk about the buy-backs, about $4.7 billion in the quarter was a little bit ahead of our expectations. Could you discuss the priorities for use of cash and comment on thoughts of acquisitions here as we’ve seen the market pull back a bit? Do you see valuations attractive?

Sure. First of all, let’s put this in the perspective of how we utilize our cash and how we prioritize the use of that cash. Well, first of all, it’s investing in the business and I -- I have to admit, since I’ve been in this job and even back when I was the controller, so now we’re talking a decade but we have never turned down a big capital investment in the business because we were allocating cash. We always had enough cash to invest in the business. Now, we have turned away from investments if they didn’t meet our financial objectives, they didn’t meet our IRR or payback or didn’t seem to be part of our overarching strategy. And we’re quite financially disciplined about that, so if it doesn’t meet the financial objectives, we generally don’t make that expenditure. But we do prioritize investing in the business first. After that, acquisitions play a very strong part. Now you’ve seen that we’ve just completed some very big acquisitions with Cognos and Telelogic which we are integrating in the business, but at today’s prices there are also some very attractive candidates out there. We are sticking to our strategy of scalable intellectual property and I think that has turned out to be the right approach for acquisitions. That then brings us to the dividend; obviously we’re very committed to that dividend, which we’ve increased substantially over the last three years. And if you look at share buy-back, we repurchased $19 billion last year. We got the authorization from the board this year for $15 billion, of which $12 billion would be in the year, and that is a very logical -- that is a very logical objective for us.

Our next question comes from Ben Reitzes with Lehman Brothers. Ben Reitzes - Lehman Brothers: Thank you. I was hoping to I guess talk about hardware; the p and z momentum very significant in the quarter. I was wondering if you thought that could continue into the back half, Mark. How many quarters cycle is it in mainframe and p do you think we should be looking for? Typically in the past it’s been anywhere from two to four quarters of strong growth in the mainframe cycle, so I’m wondering what you think there and how that’s impacting the business. Thanks.

Sure. z Series -- obviously very pleased with the z Series performance, up 32% and it’s an extrapolation I think of the momentum that we saw in the first quarter. Remember the first quarter we only had this box for a month, so I think it’s a pretty logical relationship from first to second. As you look at it going forward, number one as we close out the second quarter, we were sold out. So there is still much more demand as we move into the second and we are now facing what is relatively, as you remember, an easy compare in the third and the fourth, so as I look at z Series going to the second half, I think it’s a very strong play for us. As far as your question what we think that overall z Series cycle is going to be like, I think it will be much more similar to what we saw with the z9 cycle -- in other words, a longer cycle with less spiky behavior across the initial phases of that rollout and a more sustainable longer term cycle for us. As far as p Series, boy, this was a terrific performance, up 29%. And interestingly, if you look underneath it, remember last quarter we said mid-range p was up 60%? This quarter, mid-range p was up 68%. High-end p, where we now introduced the POWER6 architecture that we had for the full quarter, is up 21%, so the p Series performance was very, very powerful. And we see strong demand for that, both in the major markets but very strong demand for p Series as well in the emerging growth markets. So I think there’s a lot of opportunity for the p Series. If you look at p Series, we’ve got about 36 points of share on that. We picked up 17 points over the last seven years, and that leaves us about 64 points to go, so we’re pretty bullish about p Series performance.

Our next question comes from Louis Miscioscia with Cowen & Company. Louis Miscioscia - Cowen & Company: Continuing on with the hardware line, if you could maybe comment a little bit more about System x in the sense of you already had mentioned on the call that the high-end in blades were good and obviously that might be due to virtualization, but I thought that you would actually see enough strength there to actually lift that as the impression is that there’s a lot of very big companies that are rolling out virtualization. We think that the whole group would actually see a revenue lift. Maybe if you could just explain what’s going on under the covers.

Sure, I’d be happy to. When we look at x Series performance, I mean, obviously we think we could’ve done better in x Series and we do think there’s some execution sales issues that we need to address as we go into the second half, but I think if you step back from this and look at the performance, remember that on the x Series, the high-end x grew 23%, blades grew 14%, so we saw pretty good high-end growth rates on the x Series base. As I look at it, I think that’s in a way characteristic of a virtualized environment and if you look at it more across the entire product line, as we had indicated in the analyst meeting, as an environment virtualizes, they favor a higher end mix of servers, and that’s a part of the industry where we have a commanding position and I think you saw that in the quarter -- very high growth rates on z, very high growth rates on p, good growth rates on the high-end of x -- all, again in my opinion, characteristic of a customer environment that’s virtualizing. And that virtualizing capability really expands as you move up the product line. You know, if you look at the virtualizing opportunity within an x86 environment, you can get three to four images per system. And if you look at and you move it up the product line on a p Series, you can get dozens, maybe up to hundreds. And if you get to z Series, you could do hundreds and we have customers that are doing in the low thousands, so a very powerful opportunity set for us, a very good position for us, and a very good play for our customer set that helps them reduce their costs, both IT and power consumption, which are important priorities in today’s economy.

Our next question comes from Keith Bachman of Bank of Montreal. Keith Bachman - BMO Capital Markets: Thank you. I have a clarification and a question, please; on the clarification, Mark, I’m not sure if you said it through the transcript but I wanted to see if you could clarify what Cognos and Telelogic added for year-over-year growth rates on the top line, either as a percent of -- you know, either as a part of software or as IBM in total. And then on the question side, you normally provide some color about how you are thinking about the pipeline signings in the services arena, and just even against some metrics of last year or the recent quarter. I just wanted to get your perspective on the pipeline with any color on the competitive landscape there as well. Thank you.

Okay, fine. Let’s start off with your question about Cognos and Telelogic. I’m not going to go into just specifically those two acquisitions but if you look at the acquisitions as a whole that we have in the first half, and remember we’ve done 13 overall in the first half, of which nine were in software, but if you just look at the nine in software, and obviously that’s where the biggest ones are with Cognos and Telelogic, we’re -- on our revenue case, we’re slightly ahead of our profit case in those. Against a 17% growth that we had in the software group, about seven points was driven by acquisitions in total; for organic performance, about 10%. And as we look at that organic performance now on a constant currency basis, that should accelerate we think as we go into the third quarter. As far as our pipeline for services, we have a pretty good pipeline, I think, going into the third quarter and we are looking for growth continuing in our short-term signings. I think we’ve shown real momentum there. We see some acceleration and opportunity in our long-term signings, and a good pipeline of opportunity. There’s some characteristics I think though that you could look at in these signings. Let’s take long-term. I mean, in GTS, long-term was up 13% and if you look underneath that, business transformation is a very appealing opportunity, is up 45%. But if you look across the profile of both GTS and GBS, one of the very powerful opportunities in long-term is our growth markets. In our growth market, long-term signings were up a very powerful 72%. And that’s -- if you look at our long-term, that’s in face of the fact that in GBS last year, we had a signings performance that was up 70%, so a fairly difficult compare for us. If you look on the short-term signings base, again, very powerful performance at the top for IBM, up 8%, 6%, and 9% in the second quarter, [at actual rate is 18]. But it’s interesting again if you look at this and say well, how did that perform in the growth markets? Short-term signings for the last six quarters have grown 49% in first quarter ’07 in the growth markets, 19 in the second, 40 in the third, 37 in the fourth, 15 in the first, 25 in the second -- I mean, a very powerful performance against that. So I think we’ve had good performance there and we think we have good opportunity for growth as we go into the third quarter and the second half.

Our next question comes from Katy Huberty with Morgan Stanley. Katy Huberty - Morgan Stanley: Mark, I wonder if you can share some anecdotes from conversations you’ve had with large enterprise customers that can help us better understand how your revenue growth can be so strong in the current macro environment? And maybe specifically, how you would characterize the potential for budget cuts in the back half of this year?

Well, I think that’s a good question, and I think the best way for me to answer that is to give you examples of in our -- you know, our signings base where we had real value propositions that I don’t think everybody can replicate, that drove real performance for us. So in the text, in the prepared remarks that I gave, we talked about green data centers and converged communications. As you look at those two, and I’m just talking about just those two signings categories, in the second quarter combined we had over $370 million of signings against those two offerings, and we ended the second quarter with $1.1 billion of backlog going into the third quarter against just green data centers and converged communications. And if you look at those, those two examples, those are clearly targeted at solving our customer requirements in today’s environment. Now, green data centers, you could say well, maybe a lot of people could accomplish that. I don’t think so. If you look at our experience in data center management, we’ve designed and built more than 30 million square feet of raised floor data centers from Brussels to Bangalore. And imagine now we bring that expertise to this rapidly emerging growth set of markets that are building out infrastructure, it’s very powerful offering. And likewise, in converged communications services, we bring very powerful integrated capability to the table not just for our customers that are driving to save costs and conserve capital in the major markets, but also as we build out big infrastructure offerings in the growth markets. So I think it’s expertise, drives real value to our customer set, and has longevity as we move into the second half.

Our next question comes from Chris Whitmore with Deutsche Bank. Chris Whitmore - Deutsche Bank: Thanks. Mark, I wanted to understand the currency tailwind a little bit better. Obviously a significant tailwind on the top line. I was wondering if you could quantify the bottom line or the EPS impact that currency is providing, and relatedly to what extent is the P&L exposed to a stronger dollar, if that in fact does play out? Thanks.

Sure, Chris. Let me start by saying it’s very difficult to analyze the effect of currency on the bottom line. We give statistics and differences on actual and constant currency on the revenue line, but as you migrate to the bottom line, it’s very difficult to quantify the effect, for a couple of reasons. First of all, we obviously run in an very competitive world and we believe that some of the cost base benefit in a weak dollar environment is in fact passed on to the customer. Now secondly, we hedge cash flows to mitigate the volatility of our global cash position, which also mitigates the volatility of currency on the P&L. Now that said, there’s no question that in a weak dollar environment, there is currency as a tailwind to both revenue and profit dollars, but I think one way to look at this is by assessing the impact on our margins. Now in businesses, like services, where costs and revenue are generally incurred in the same currency as we translate that back, margins are generally unaffected by currency. I think the bigger question is what is the effect on margins when costs to source in dollars and revenue in local currency in a weak dollar environment like our hardware business. So the question really is does the currency based cost benefit transfer to the bottom line and increase margin? And we believe that in general, some of the currency-based cost advantage is in fact passed on to the customer and reduce price rather than bottom line and increase margin. So we have many examples of this, both in our analysis of our price/mix cost analysis by platform, as well as the work that we do with our suppliers in the same way, and oftentimes we negotiate price reductions or in a period of currency based cost advantage. Now, I’d also qualify this that even if all -- let’s say all of the currency based cost advantage were transferred to the bottom line, currency would only improve IBM’s margin by a tenth or two, so this is not a big impact to margins. But as I said earlier, we believe that some of the currency based cost advantages in fact pass on to customers and reduce price in our competitive engagement, so in the end, we’re all fighting for that same business. So I personally think that there wasn’t much benefit in the second quarter margins from currency in a weak dollar environment, but again even if it all flowed to margin, currency would only account for a tenth or two of margin improvement. Now to your second point, I think the bigger question is how we manage through a period of rapidly strengthening dollar in the future. Well, first of all, our program to hedge cash flows does help mitigate the impact of reversal on the dollar, and it’s important to understand that a hedge does not eliminate the effect of currency; a hedge defers it. So if you look at the bulk of our hedges, they are one-year hedges. We do do multi-year hedges sometimes, but generally they are one year, and that gives you time to adjust your cost structures and sourcing strategy. So as we look at 2009, the hedges would help offset the currency impact if there were a reversal of the dollar, and we would adjust our cost and sourcing strategies to manage the impact in 2010. In addition, we always have natural hedges in the business mix, like the business we source in Rupees, as well as terms and conditions in some of our services contracts to protect against the steep reversal in currency. We’ve run a number of scenarios and feel confident in our ability to manage this and achieve our 2010 roadmap.

Our next question comes from Mark Moskowitz with J.P. Morgan. Mark Moskowitz - J.P. Morgan: Thank you. Good afternoon. Mark, I want to see if you can give us a sense about the revenue growth contribution within software in terms of how much of growth are you seeing from your SMB initiatives as well as from the emerging markets? And are those two buckets growing at or above or below your corporate average for software? And how should we think about that going forward?

Well, the software business I think had a very effective quarter on both the revenue and profit line. I think the important part on that, relative to the mix, is to remember that as software grew revenue 17%, they grew profitability by 19%, and that’s after absorbing the amortization of intangibles for our major acquisitions. But as far as our performance globally, we had pretty good growth on that base in both our major markets and our growth markets for a software business, and as I had said earlier, we expect organic constant currency performance in software to accelerate as we go into the third quarter.

Our next question comes from David Grossman with Thomas Weisel. David Grossman - Thomas Weisel Partners: Thank you. You know, Mark, if I understood your prepared remarks, I think you said that Global Finance was up ex the used equipment piece, and I was wondering, could you just help us understand the important of Global Finance, particularly given the global credit situation and how that flows through the P&L?

Sure. Global Finance is a very strong part of our value offering to our customer set. Now, the Global Finance portfolio is a very straightforward vanilla technology financing business. There is nothing exotic in this play. The interesting thing about the Global Finance returns is we generate market returns in the financing cycle but we generate very good returns at end of lease against residual value. And that’s because number one, we have real capability in our global financing business to evaluate that residual value of the box and number two, we have the capability when we get that truck back of all the equipment to refurbish, revitalize and integrate it back into product line to substantiate the value of the residual value on that. And so frankly, as we look at return on equity, we get about half and half from the leasing profile and on the end of lease, which gives us a lot of I think sustainability in that base. Now, as far as a credit risk, we don’t see very much additional risk in our financing base. There’s nothing exotic, there’s no mortgage financing, there’s nothing outside of our sweet spot of capability there, and our -- generally our customer set is very high quality customers, two-thirds of it at investment grade and we’re very confident. So I frankly look at financing as a strong capability as we go into the second half and strong part of our offerings, and I don’t see outsized risk in the portfolio.

Before I turn it back to Mark for closing comments, I just -- we just learned that we did lose audio for a short while for those of you listening on the web and I apologize for that. We’ll have the comments on the web just as soon as we can get them up there, so let me turn it back to Mark for some closing comments.

Sure. Well, I want to thank you for joining us today. You know, as I close out the second quarter here, I was reflecting that we reintroduced the 2010 roadmap after we had completed our 2006 EPS of $6.06. Now, last year we did $7.18 and now I would say we’re on track to our current view of at least $8.75 for 2008. I think initially as we rolled out this roadmap, people were skeptical. But we have really executed on a very specific play to focus on capturing high growth in emerging markets and manage for productivity in major markets. Now this quarter, we had a powerful performance driven across the board by our technology leadership in hardware, software, and services. Hardware was very strong in our high value segment; z up 32%, p up 29%. Software grew revenue 17 and profit 19, and services grew revenue 16%, profit up 28 and signings up 12% with short-term up a pretty impressive 18%. So I think we are very well-positioned with what has turned out to be an adaptable business model, which gives clients what they need in both growth and established markets, so let’s look at that in a little more detail. We continued the momentum we saw in the emerging countries with revenue up 14% at constant currency in our growth markets organization and 20% constant currency in the BRIC countries. And as you look at the drivers of our growth in these emerging markets, it’s really backbone infrastructure with long-term sustainability. Now, we had better-than-expected performance in the major countries, with revenue up 5%. And if you track down that, you’ll see that the U.S. grew 5%, Canada 11, Germany 7, France 6, Italy 5, U.K. 4% -- pretty broad-based. And here we were very successful in not only delivering our new technology but as well, driving solutions to reduce costs, conserve capital, and deal with risk and compliance, all of which I think you would agree are very important in these markets. So we’re on track to achieve our revised forecast of at least $8.75 for 2008 and we are well on track to achieve our road map to $10 to $11 by 2010. So again, thank you for joining us today and now it’s back to business.