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

Richard Gardner - Citigroup Toni Sacconaghi - Sanford C. Bernstein David Grossman - Thomas Weisel Partners David Bailey - Goldman Sachs Ben Reitzes - Barclays Capital Louis Miscioscia - Cowen & Company Bill Shope - Credit Suisse Mark Moskowitz - J.P. Morgan Chris Whitmore - Deutsche Bank Keith Bachman - BMO Capital Markets

Welcome and thank you for standing by. (Operator Instructions) Now I will turn the meeting over to Ms. Patricia Murphy, Vice President of Investor Relations. Madam, you may begin.

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I’m here with Mark Loughridge, IBM’s Senior Vice President and Chief Financial Officer. 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 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. Last week, we reported our third quarter revenue, profit, earnings per share, and free cash flow results. At that time, we also reaffirmed our full year guidance. Today, I want to take you through the details behind the results. This is a tough environment, but we were ready for it. We are executing a play that we called some time ago. It has two major elements. First, we have been investing to capture opportunities in the emerging markets. You can see the benefit in our results again this quarter with double-digit revenue growth and good returns. Second, in the more established markets our goal has been to drive productivity. We’ve been systematically attacking our spending base, taking out infrastructure costs, reducing our cost and expense levels, and improving our efficiency. Because of these actions we have a more efficient structure. So in the third quarter, when the revenue growth in the major markets slowed, we had great margin performance and hit our profit objectives. These ongoing actions to address spending shore up the base in tough times. But they also improve our balance point over the long run. Our focus on continuous improvement is an element of our model and an important driver of our 2010 earnings-per-share roadmap. Now there’s another important aspect of our model, and that’s the balance between annuity and transaction-type businesses. We have a number of annuity businesses like outsourcing, maintenance, and the majority of software that not only provide a good revenue foundation but also provide a steady source of profit and cash. We’ve been building these businesses and their recurring revenue streams for years. They’re part of our DNA and they provide a distinct advantage in today’s environment. So our annuity base, together with our ongoing structural changes in the business, resulted in solid profit performance in the quarter. We’ve been focused on this for some time, and it was clearly the right game plan for the third quarter. We’ll continue this same operational plan in the fourth quarter and into 2009, as we focus on delivering solid profit and cash. For the year, we expect earnings per share of at least $8.75, which is up 22% over last year. And while the current environment is challenging, we have the right operational plan to drive double-digit revenue growth in emerging markets, substantial productivity in major markets, and continue to extract cost and expense from our spending base and drive ongoing improvements to meet our full year objectives. So now let’s get into the third quarter performance, starting with the Financial Summary. Our revenue was $25.3 billion, up 5% as reported, and 2% at constant currency. We had outstanding margin performance. Gross margin expanded 2 points, led by services and software. Together with focused expense management, we grew pre-tax income 19% over last year, and PTI margin expanded 1.8 points. And with a half-point improvement in our tax rate, net income grew 20% and margin expanded to over 11%. Bottom line, we delivered $2.05 of earnings per share, up 22% year to year. Our balance sheet and capital structure are also on very solid ground. We finished the quarter with almost $10 billion in cash on hand, and we demonstrated strong access to the debt markets by raising an additional $4 billion last week. Our liquidity position is also very strong -- I’ll address cash, balance sheet and liquidity later in the webcast. Let’s get into the details of the quarter with a few different views of our revenue. I’ll start with a geographic view. Our total geographic revenue was up 6% as reported, 3% at constant currency. Europe had the strongest performance, up 4% at constant currency, while Americas was up 2%, and Asia Pacific up 1%. I’ll discuss these results through the lens of our major market and growth market organizations. In the more established markets that we address through our major markets organization we are uniquely positioned to assist enterprise clients with high value transformational projects as they retool for efficiency and cost savings. Our model in these markets is based on delivering high value solutions and driving productivity. This quarter, major markets grew 5% as reported and 1% at constant currency. Now let me give you a sense of how some of the larger countries performed at constant currency. Of the G7, Canada had the fastest growth for the second consecutive quarter with 6% growth. The U.K. grew 3%, while Italy, Germany and France each grew 2%. The U.S. grew 1% and Japan declined. Now in the emerging markets, we’ve been investing heavily to capture opportunities to build out public and private infrastructures. Our growth markets organization grew 13% as reported and 10% at constant currency, representing 19% of IBM’s geographic revenue in the quarter. The BRIC countries, a subset of our growth markets, grew 19% as reported and 12% at constant currency with strong double-digit growth in Brazil, Russia and India. However, our results in China slowed to 3% growth, down 4% at constant currency. The Olympics were a tremendous success for China; however, we do believe the focus caused a delay in IT spending decisions and we did not fully anticipate the breadth and duration of this delay. We believe that the fundamental growth opportunity in China continues to be compelling and we are continuing to invest in capabilities to capture the growth. I should note that the growth markets organization excluding China grew over 12% at constant currency, in line with their first half growth. Turning to another perspective on revenue, the business from our industry sales units was up 6%, or 3% at constant currency. I’ll comment on a few of the sectors. We had strength in the Public sector, driven by government and healthcare industries. Healthcare growth accelerated this quarter as clients continue to look for more cost effective business models. In Government we had good growth in both major and growth markets. In the US, our government business grew 7%. In our growth markets, revenue grew 33% as governments in these countries use technology for national development. Lagging overall performance was the Industrial sector, as concerns with the credit markets and margin pressures impacted near term spending decisions. Worldwide Financial Services results were roughly in-line with our total sector performance for the fourth consecutive quarter. I’ll remind you that about 60% of our Financial Services revenue is in annuity businesses. The U.S. revenue was down 1%, slightly better than our second quarter performance. However, outside the U.S., where we generate over 75% of our business, revenue was up 10%, or 4% at constant currency. Globally, we had growth in banking and insurance but financial markets revenue was down at constant currency. There have been some comments recently about closings and consolidations in the financial services sector. I’d like to address those comments now. Earlier this month The New York Times, using Bloomberg data, published a timeline of buy-out and takeover activities of major financial institutions in the U.S. and Europe since the middle of last year. There were 21 companies in total, you can see the names here, and we have included the original exhibit from the article in our supplemental charts. The amount of revenue IBM generates from these institutions is only about 1% of IBM’s total revenue and about the same portion of our outstanding receivables, so this should give you some perspective on the amount of business we do with these firms as it compares to IBM’s total business. So now let’s look at our revenue by segment. From a segment perspective, software had the best growth rate, leveraging a solid annuity base as well as acquisitions. Services revenue continued to be driven by good short term signings performance. Systems and Technology was most impacted by a slowdown in transactions at the end of the quarter, though we had strong demand for high end systems as customers looked to optimize their infrastructures through virtualization and consolidation. In Global Financing, financing revenue was up 6%, though this was more than offset by a decline in the sales of used equipment. I’ll come back to our financing business a little later. So now let’s turn to Expense. Total expense and other income was up 6%. Approximately four points of growth was due to currency and we estimate that five points of growth is from acquisitions, driven primarily by Cognos and Telelogic. So operational expense actually improved by four points year to year. Underneath this we’re executing our investment strategy and allocating our spending to areas where we see the best opportunity. In our growth markets, where we’re investing to capture the fast growing opportunity, SG&A excluding currency and acquisitions was up 15%. While in the rest of the world it improved 4% year to year, reflecting our focus to drive productivity in our major markets organization. Our emphasis is not just on expense, but on our entire spending base and you see the benefit of these operational actions in our margins. Let me give you an example of the types of things we’re working on. We spend over 15% of our $90 billion spend base on what we call Global Support Functions -- think of it as back office functions like Finance, Human Resources, and Sales Support. Our objective is to drive 5% savings annually. We’re well on our way to achieving our 2008 target, having reduced our spending by 4% through the first three quarters. And by the end of this year, we will have reduced our spending by $1.4 billion since the end of 2006. We are continuing the same approach to improve our spending structure and drive efficiency into the fourth quarter and 2009. Before I show our margins by segment, I want to comment on the items that significantly impacted our profit growth this quarter. First, we took additional specific reserves against our accounts receivable balance, reflecting the current economic environment in many industries. This contributed to a year-to-year increase in AR Provisions of about $125 million and increased our reserve coverage on accounts receivable to 2%, up 50 basis points from a year ago and up 30 basis points from June. Second, retirement-related plans generated about $380 million of cost and expense in the quarter for a savings of about $275 million year to year. For the full year, retirement-related cost is expected to be $1.5 billion, which is $1.1 billion better than 2007. This includes the termination of the Career Choice Retirement Plan in Japan in the fourth quarter. That will result in a one-time benefit in retirement-related costs of approximately $100 million. This will be largely offset by fourth quarter workforce actions in Japan designed to improve Japan’s structural competitiveness. Now, before getting into the segments, I’ll quickly show you our margin performance by segment. You can see that we had good margin performance in both services segments and in software. Despite a benefit from mix, hardware margins were down due primarily to the performance of our industry standard servers. Overall, gross margin was up 2 points and pre-tax margin up 1.8 points. This is driven by our ongoing cost and expense initiatives. I just talked about one to address expense, let me mention another to drive a more efficient cost structure. Global Technology Services service delivery contributes over $1 billion of annual productivity savings by shifting resources to global delivery centers, improving our processes, and improving our tools -- all designed for more efficient support to our clients. You can see the benefit to our services margins, GTS was better by over 2 points year to year. So now I’ll move on to a broader discussion of our Services segment. Our two Global Services segments leveraged their very strong margin performance to drive strong profit growth this quarter. Together, pre-tax profit was up 23% on revenue growth of 8% as reported and 4% at constant currency. This was the highest level of services pre-tax margin in six years, it’s especially important given that we did it in the seasonally challenging third quarter. Signings were $12.7 billion at actual rates, down 4%, while at constant currency, signings were $11.1 billion, down 5% year to year. Overall short-term signings were up 13% at actual rates and up 8% at constant currency. Short term signings were up in both the growth markets and the major markets. Long term signings were down 16% at actual rates and down 15% at constant currency coming off very strong performance last year. But we had good long term signings performance in the growth markets, up almost 60%. We signed nine deals larger than $100 million, and our backlog was an estimated $114 billion. So let me tell you what we’re seeing in the marketplace. There are a lot of enterprises dealing with a tough environment, looking for ways to reduce costs, conserve capital, and in some cases just to survive so there’s a lot of good services opportunity out there. But frankly, there are also many deals that have very unattractive economics, and while these may be interesting to some of our competitors, they’re not to us. It’s not hard to drive revenue in a services business on a weak book of business. But we’ve built a strong and profitable business and we’re not going to put that at risk just to show a higher level of signings. I think the most impressive aspect of the business this quarter was the margin expansion and profit growth. This is a function of the quality of our portfolio of contracts and our ongoing programs to drive operational efficiencies and structural changes to our cost base. Over the past few years we’ve talked quite a bit about the changes we’re making to our delivery structure in Services. We’ve built a delivery platform that takes advantage of the best skills and costs globally. It’s a platform that maximizes flexibility, enabling us to put our people where the work is. The end result is higher utilization and the ability to get optimal pricing while continuing to deliver value to our clients. These changes have contributed to our recent profit performance but more importantly, we will continue to drive structural changes that will result in a more efficient delivery cost base by focusing on ongoing process efficiency and productivity. So now I’ll go to a few specifics on the segment results. For Global Technology Services, revenue was up 8% and 5% at constant currency. Short term signings were up 19% at actual rates, while long term signings were down 17%. Our Strategic Outsourcing revenue was up 8%. We had very strong performance in the growth markets, up 21%; however, growth in the major markets moderated as we wrapped on a number of large contracts and we were impacted by the lower level of long term signings over the last few quarters. Integrated Technology Services revenue was up 11%. Signings were up a very strong 19% as the momentum in our ITS key infrastructure plays continues. We had signings growth in all geographies and all sectors. Our Global Technology Services pre-tax profit was up 16%, and margin was 11.6%, up 0.8 points year to year. This margin expansion was driven by improved cost structure, a mix to higher offerings in ITS, and year-to-year savings in retirement-related costs. Turning to Global Business Services, revenue was up 7% as reported and 3% at constant currency. Our revenue growth was impacted by year-to-year declines in two countries. Japan and Australia combined were down 13% at constant currency. The rest of Global Business Services was up 8% at constant currency. Short term signings were up 10% at actual rates. Signings were up in Europe and Asia but down in the Americas. Long term signings were down 16% at actual rates. In the third quarter last year long term signings for GBS were up more than 85% year to year at actual rates, so it was a very tough compare. Global Business Services delivered a record level of profit. Pre-tax profit was up 39% and margin expanded 3.3 points to 14%, their best ever. About 2 points of this improvement was driven by better utilization, pricing, and cost and expense management, with the remainder coming from lower retirement-related costs. Turning to Systems & Technology, revenue of $4.4 billion was down 10% year to year, or 11% at constant currency. We continue to see strong performance in our high-end systems. Customer demand for virtualization and consolidation drove double-digit revenue growth in System z and high-end System p. However, this was more than offset by declines in our low-end products and in Storage. Building on the momentum established in the first half of the year, System z had another quarter of solid performance. MIPS grew 49%, and revenue was up 25%, with double-digit growth in all geographies. System z continues to sell very well, even in a tough environment, thanks to its ability to consolidate the workloads done by many different servers onto a single, virtualized platform. Specialty MIPS grew over 120% as customers exploit the capabilities of System z to bring new Linux and Java applications to this highly efficient and cost effective platform. We are also seeing customers in emerging countries leveraging this platform’s stability and efficiency. For example, the Philippine Savings Bank consolidated seven on-line transaction processing applications, spread across multiple servers to just one Linux partition, resulting in better productivity and energy savings. System z performance reflects its strong value statement in this environment and good sales execution, and we believe we gained market share. Converged System p was up 7%, reflecting strong demand for IBM’s virtualization technology and energy-saving capabilities. This is the ninth consecutive quarter of revenue growth, again gaining share and extending its market leadership position. High-end servers were up 19% year to year, and midrange servers were up 21%. Legacy System i revenue declined about 80% year to year as we continued to transition our customer base to the converged POWER platform. This is a very small piece of our portfolio reflecting prior generation technology. System x server revenue declined 18% year to year, and blades were down 8%. This quarter’s weakness was driven by sales execution issues, a very competitive pricing environment and a continuation of the slowdown in the X86 market. We expect to see improvement in the first quarter of next year. Our Storage revenue declined 3% year to year after a first half of strong growth. Disk grew 1%, and our high-end DS8000 increased 2% driven by our strong System z performance. Tape declined 11%, as customers decided to purchase additional media to expand the utilization of their existing devices rather than commit to new capital. Gross profit margin in Systems and Technology was down 2.4 points year to year, driven primarily by industry standard servers. Software revenue of $5.2 billion grew 12% year to year, 8% at constant currency. Branded middleware grew 15% year to year to $2.8 billion, and in the quarter comprised 54% of our total software segment revenue. Customer demand continues to be focused on software products that generate short term returns and improve operational efficiency. For instance, our virtualization technology, which is in both our operating systems and Tivoli storage products, sold well in the third quarter. This software helps customers improve utilization and significantly lower data center cost. Information management grew 26% year to year as we had strong demand for our relational database products. Our Cognos acquisition was a key driver of the 26% year-to-year growth in our Information Management brand. Lotus grew 10% in the quarter, capping its 16th consecutive quarter of growth. Customers are investing to improve their workforce efficiency and drive effective global teaming. Lotus Notes growth continued and our advanced collaboration technologies had a terrific quarter. Rational software grew 23% year to year, fueled by our Telelogic acquisition. With the addition of Telelogic, only Rational can provide a common framework for software and systems delivery across a client’s business. Growth in WebSphere and Tivoli was impacted by the slowing growth in the United States and Europe, however both brands enjoyed strong growth in Asia. The annuity nature of our software business provides a predictable and growing stream of profit and cash for IBM. The Software segment pretax income grew 19% year to year to $1.5 billion, even after absorbing acquisition-related items, and PTI margins expanded 1.5 points to 25.9%. Turning to IBM’s cash performance, we generated $2.1 billion of free cash flow in the quarter, which was down $500 million from last year’s third quarter, but we were up $1.3 billion year to date. The decline in the current period was primarily driven by working capital. In particular, our inventory levels increased due to our hardware performance. That said, our collections performance was excellent. DSO improved three days year to year and resulted in the best third quarter DSO level in eight years and our collections remained strong throughout the quarter. Through the first three quarters, our free cash flow was $6.4 billion. As I said, this was up $1.3 billion year to year. Turning to uses for the year, we have invested $6 billion in acquisitions. We’ve also returned $11.8 billion to shareholders. We bought back over 83 million shares for $9.8 billion, including $2.7 billion this quarter. And at the end of September we had $6.3 billion remaining from our last board authorization. Turning to the balance sheet, we finished the quarter with almost $10 billion of cash, flat to June. With liquidity such an important topic, let me spend a minute on IBM’s liquidity position. At the end of September, we had $4.5 billion of commercial paper outstanding. This is down from $5.8 billion at the end of last year. Our experience in the CP market has been consistent over time. We continue to access the same one to three month tenors and our pricing remains well under LIBOR. We have not experienced any problems at all accessing the commercial paper market. In addition, we have a $10 billion credit facility available as back-up liquidity. And last week, we raised $4 billion of term financing which adds to our already significant flexibility. We could eliminate our reliance on the CP market if we chose to. But as I mentioned, our experience has been positive and furthermore, we would expect to have access to the Federal program. We could use this to reduce term debt maturities in the fourth quarter and next year, so some of this could be pre-funding for those maturities. But in the end, the recent financing simply increases our flexibility. So we have a very strong liquidity position. Our non-financing debt was $9.9 billion, and debt-to-cap was 29%. We continue to run our Global Financing business at an appropriate 7.1 to 1 leverage. Let me spend a minute on our Global Financing business. In light of recent turmoil in the financial markets, I thought it appropriate to revisit some of the key dynamics of this business. First of all, I think it’s important to understand that the mission of this business is to generate a strong return on equity and to facilitate enterprise clients’ acquisition of IBM hardware, software, and services. Let me put our financing business in the context of overall IBM. Global Financing’s revenue in the quarter was about $600 million, or 2.5% of IBM. The segment pre-tax income was almost $350 million, about 9% of IBM’s pre-tax income, and global financing’s external receivables were over $24 billion, about 21% of IBM’s total asset base. Ninety seven percent of the portfolio is in the core competency of technology financing, so there’s nothing exotic in our portfolio. So we have a rock solid book of business and very credit-worthy customer base. About 60% of the portfolio is with investment grade clients, with no exposure to consumers or mortgage lending. Looking at the reserve coverage on that client base, we took it up to 1.8% -- that’s an increase of 40 basis points since last year. Of that, the rate of identifiable losses increased from 1.1% to 1.3%, and our rate of anticipated losses increased from 0.3% to 0.5%. Now we closely monitor the credit of our clients and adjust as needed. It’s important to remember that the majority of the assets we’re talking about are in support of critical IT operations and have substantial value. Our leases are non-cancelable and we are financially protected in the event of a merger or acquisition. The assets we finance are critical to major financial institutions. In the event of bankruptcy, leases are often reaffirmed by the bankruptcy courts sustaining our expected lease payments. If necessary, the financed assets can be recovered and resold through our highly refined marketing operations, which extract significant value in the event we have to repossess the equipment. So we have the ability to manage our risks. Let me put this in the context of recent events; if you take those same 21 financial institutions that I referenced during the sector discussion, IGF had exposure to ten of them, and we have not been adversely impacted at all. Overall, this is a very solid business and gives us a competitive advantage in the marketplace. Now let me start to wrap up with a discussion of the drivers of our 22% earnings per share growth. We had revenue growth of 5%, including 3 points of currency benefit. At constant mix and margin, this 5% revenue growth contributed $0.08 of year-to-year EPS growth but by far, the biggest driver of our earnings growth was gross margin expansion, led by services and software. Gross margin improvement contributed $0.27 of the $0.37 of EPS growth in the quarter. Of that, about $0.09 was due to the year-to-year benefit from our retirement-related plans that flowed to cost. Our expense growth impacted EPS by $0.03, though as I mentioned earlier, our operational expense -- that is, without currency and acquisitions -- was better year to year. Our $0.04 cent contribution from share repurchase was less than we’ve seen in the last few quarters, as we wrapped around on the benefit from last year’s accelerated share repurchase. And finally, a 50 basis point year-to-year reduction in our tax rate yielded the last penny. When you look at this chart, it’s obvious that the growth came from margin expansion, the result of an ongoing focus on increasing operational efficiencies and good, tactical cost and expense management. Before moving on, I want to address one other item that is embedded in the EPS bridge above and that is currency. We report the top line impact from currency each quarter, and we provide an estimate of future quarters based on current spot rates. Typically, there is not much movement in currency rates over the course of the quarter. We’ve seen this in the last six quarters. But in the third quarter, we saw a significant strengthening of the dollar and rather than the 6 to 7 point benefit to revenue growth that we would have expected, currency added only 3 points of year-to-year growth. The difference was $800 million. At current spot rates, currency will shift from a tailwind to a headwind. So in the fourth quarter, as compared to the 3 point benefit to revenue growth we had in the third quarter, at current spot rates we could have a 4 point hurt to revenue growth from currency in the fourth. Now in terms of currency impact on EPS, we can’t precisely determine the currency contribution to the bottom line because we don’t know how much of the currency impact is passed on to our customers in price, or how it affected our sourcing decisions. In the third quarter, we estimate that currency, net of the hedging activity, was not more than about 20% of our total EPS growth. But in our experience, pricing and sourcing actions reduce this so you can think of this as a hypothetical upper limit. Now, let me wrap up. This is a tough market, but we have a lot of things going for us in this environment. We have a very strong liquidity position. We have $4.5 billion of commercial paper, with continued access to the market at sub-LIBOR pricing in one to three month maturities, just as we’ve always done. We’ve had absolutely no problems at all with access to the market. Now let me reassure you we’re not reliant on CP. We ended the quarter with nearly $10 billion in cash and we maintain a $10 billion back-up credit facility, so that is $20 billion that we could access at any time. So if we wanted to exit the CP market because of some macro event, we certainly could. And last week, we demonstrated substantial access to the term debt markets by raising an additional $4 billion of cash across five, ten, and thirty year maturities. We think it’s smart to go long in this environment, if you can. So with our cash balance, now enhanced by our recent term debt issuance and our backup credit facility, it is clear we are not reliant on the short term commercial paper markets for funding our business. To continue to build our balance sheet, we have a business model that is designed to deliver profit and cash. An important element of that model is our disciplined approach to aligning investments to growth, so just as we aggressively invest in high growth markets, we’re driving productivity from the more established markets. We’ve been managing the major markets to deliver productivity for some time. We have made a lot of progress in our initiatives, but still have a lot of opportunity to continue to improve our balance point. Earlier I gave you a few examples of actions we've been taking to optimize our spending profile. Let me give you a flavor of what we're working on going forward. In Global Technology Services service delivery we will continue to generate $1 billion annually in productivity. In addition, we have aggressive plans in place to accelerate our shift of resources to global delivery centers. In 2009, we plan to increase our global delivery center population by 25%. Within our supply chain function, we expect to reduce spending by another $3 billion to $4 billion in 2009. This is consistent with what we’ve done in the past. Now, some of this goes to price and some goes to offsetting the increased labor costs, so not all goes to the bottom line. Let me give you a couple of specific initiatives we’re working on. Product design teams will reduce supply chain cost by eliminating redundant components and substituting lower cost alternatives. Our procurement team is consolidating the number of suppliers to leverage our spending, and working closely with these suppliers to improve cost and eliminate waste. This work, combined with our investments in decision support tools and improved processes to enable us to optimize our worldwide supplier base, have already identified over $300 million in future savings. Now in our Global Support functions, we will continue to expect 5% annual reductions. I've mentioned in the past that within my function, Finance, more than 40% of the function is located in Centers of Excellence both in the US and around the world. Our goal is to improve this to 50% by 2010. And other functions are making similar shifts. By 2010, our IT function will increase the number of people in centers of excellence by 17%; HR will increase 9%, and our sales support function will increase 16%. All of this drives better productivity and efficiency with our functions while enabling us to reach our cost objectives. These initiatives are useful in getting you through tough times. This quarter, they helped us to deliver 2 points of gross margin improvement and 4 points of operational expense improvement. In other words, they paid off on the bottom line. And they have another benefit -- they ultimately improve our balance point so that when the market turns, we’ll get better leverage off a leaner cost base. Overall, we feel confident in our ability to deliver at least $8.75 of earnings per share for the full year 2008. 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) Your first question comes from Richard Gardner with Citigroup. You may ask your question. Richard Gardner - Citigroup: Thanks very much. Thank you very much, Mark, for all the detail today. It’s very helpful. I did want to ask you though, you mentioned that there was some slowing in the hardware business toward the end of the quarter. You do have still a substantial portion of the business that’s transactional. Q4 represents a very large quarter for you and I was just hoping maybe you could summarize while you’ve talked about it throughout the call, summarize what gives you the confidence that you can hit a 305 or 310 number for the fourth quarter, consistent with your guidance of 875 or better for the full year? Thank you.

Okay, Rich, that’s a very good question. Let me kind of go down this by business unit, so let’s start with our services organization -- first of all, our services organization had a very strong third quarter. You look at that margin performance, in this kind of environment that’s the highest margin as we’ve said that we we’ve had in six years. And if you look at the signings content, those short-terms signings which exhibited themselves most quickly in our mix of business were up 8%. So as I look forward and we look at the profile of business, we look at the pipeline, we think that we can continue to move into the fourth quarter on our services base of business at about that same revenue growth and double-digit margin, double-digit profitability growth for both GTS and GBS. In addition, let me give you a little color underneath that. If you look at GBS alone and you look at the U.S. base of business that we see in the fourth quarter that we need to sign to achieve our objectives and break that down into deals greater than $20 million, we’ve already been awarded 65% of that pipeline. Now that doesn’t mean it’s signed and completed but for October 16th, for us to have 65% of the deals we need to close, the U.S. GBS business over $20 million already awarded is a pretty strong position. So if you look at the margin, all of the work that we have done on cost take-out and the momentum we have there, I feel quite confident on our own momentum and our profit growth for the services business. Now let’s go to software -- in our software business, we had good revenue growth but again, 19% profit growth. And remember, that profit growth is overcoming all of the amortization of intangibles from acquisitions and we get real leverage on that as we go into the fourth quarter. So what’s the pipeline look for software? I went through this with all of the general managers over the weekend and Steve Mills who runs software said this is the best pipeline he’s ever had. Let’s look at the characteristics of that pipeline -- you know, just on a volume base, it’s up 8%. On a dollar basis, it’s up 18%, so in general terms in most times, I’d be looking at -- looking for acceleration on our software business going into the fourth quarter. Now this quarter, given the economic issues in the world, we only assume that we have kind of similar characteristics on revenue growth in the fourth quarter from our software business. But if you look at the pipeline, there’s opportunity out there for us to be optimistic and I expect once again for the software business to develop double-digit profit growth in the fourth quarter as well. Now let’s go to hardware -- hardware was below our objective but underneath hardware, the higher margin content I think had a pretty strong quarter. Look at Z-series, up 25%, look at the high-end of our P-series content, also up very strong in the quarter. So both of those we expect to have good momentum going into the fourth quarter and good margin. I do expect that the areas that were more problematic, the industry standard content in the third quarter also lag as we go into the fourth but I think we have more than enough momentum in the software services elements of our business, as well as the high-end server content to deliver on our objective of at least 875 for the year.

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

The next question comes from Toni Sacconaghi with Sanford Bernstein. Toni Sacconaghi - Sanford C. Bernstein: Thank you. Just a follow-up to that, Mark, if I think about it the other way, it’s obviously a very turbulent market environment and there still is about half your business that is transactional. So the question therefore is what kind of IT spending environment would we need to see for you not to be able to hit your full-year guidance? So if your revenues were down 5% year over year, assuming current currency levels, and IT spending was also down, would you still feel confident in your ability to hit that?

Well you know, Toni, it’s an interesting way to phrase the question because I am sure there’s always an environment that could prove quite challenging towards -- as we enter it so once again, I’ll just go down the elements. I mean, this quarter we delivered strong profit growth without the benefit of the lift we saw in the major markets in the first half of the year. And I think that’s a pretty strong position. So we would have to have major markets fall off much more substantially and we just don’t see that in our load data. Again, I’d go back to the comp, the data that we had from both our services organization and our software organization going forward. We’d have to see a dramatic slowdown in our emerging countries but we don’t see that. In fact, if you look at the emerging countries, once again double-digit performance, a strong base of business, Russia up 51%, Brazil up 28%, India up 24%, a little stall I think in China as we grapple with the Olympics but I expect that to come back at the end of the quarter. And I think underneath this, even in a weaker demand environment, Toni, we have put exceptional focus on costs, expense, and margin management. And regardless of what happens in the economic environment, those action plans are going to come through. And if you had to pick one attribute that accounted for those margin performance in the third quarter, it’s that focus on systematic cross take-out across our businesses and their headquarters organization, both the back-office content where we have taken billions out to deliver to the bottom line, our work that we’ve done to take costs out of our service delivery organization, all the work we’ve done to provide more productivity in our sales organization. And it’s that cost take out and systematic margin performance that I think gives us confidence as we go into the fourth.

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

The next question comes from David Grossman with Thomas Weisel Partners. David Grossman - Thomas Weisel Partners: Thanks. Mark, you gave us a lot of information on things that you are doing to drive incremental cost savings into next year. With that said, given the economic and currency backdrop, it’s conceivable revenues could be flattish on a reported basis. So if you take out the pension out of the equation, is it conceivable that margins can still expand in that scenario and can you review for us the key margin headwinds and tailwinds as we enter next year?

Sure. I mean, if you look at the contribution of pension to our gross profit margin in the third quarter, it was about a third so in other words, two-thirds of this was strong operational performance flow-through and I expect that to continue as we go into the fourth quarter and next year. As we look at the content in the cost of expense actions that we are taking, they should really continue to support that margin expansion play that we are driving across each of our businesses. I mean, if you look at margin headwinds and tailwinds, I mean really the biggest headwind that we are dealing with overall is the economy, the volatility of currency could be a headwind but if you are talking about just margin in a roll-through, I think the mix of our business is a real tailwind for us. I think our focus on systematically solving our customer problems with real value-add solutions is a real tailwind for us, and I think the momentum that we’ve seen this year also in a difficult economic environment gives us confidence that we can continue to roll out this play.

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

The next question comes from David Bailey with Goldman Sachs. David Bailey - Goldman Sachs: Thank you very much. Given the sharp moves in the equity and the fixed income markets so far this year, can you help us understand what the help or hurt you expect from pension in 2009 relative to the $700 million year-over-year pretax benefit that you outlined during your analyst meeting?

Sure, and David, I want to go back to how we established the roadmap to begin with. When we first established the roadmap and we said there is $0.90 from that pension contribution cumulatively from ’06 to ‘010, the amount that we were counting on in our ’09 work was about $500 million year to year. Now it did move over time but if you go back to the initial roadmap and what we have been managing to, at that time we thought we would get about $500 million. If you now took that work and updated it for the close of business on September 30th and we looked at the return on assets that we’ve gotten in our U.S. pension fund, which by the way came in about minus 10%. Now that’s certainly not what we were looking for overall but a lot better than the industry because we have about a 43% mix of fixed income, and you also updated for discount rates and other assumptions and return profiles amongst all of our world trade pension funds as well, and if you said well, that’s the profile that we’ll use [to find the] the year and updated all of the performance, then that year-to-year benefit of about $500 million and our base 2010 model would be reduced by about half and would be now about $250 million year to year compared to our ’08 run-rate. Now that doesn’t include the one-time event that we had with the Japan pension fund that we described but that kind of gives you the kind of characteristics. All of this is dependent on how we turn out at the very end of the year -- you know, what’s the discount rate at the end of the year? What are the return assumptions globally at the end of the year and we’ll update you with how we close out the fourth quarter and what that means as we enter 2009.

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

The next question comes from Ben Reitzes with Barclays Capital. Ben Reitzes - Barclays Capital: I guess in clarification of the roadmap, Mark, if you could start and just given what you just said, does the $10 to $11 look possible? And further on that, within the roadmap there is a revenue growth assumption of 3% and then maybe 5% plus in your up scenario to $11. There’s numbers in there of $1.55 as well, in terms of $1.50 in contributions plus in the roadmaps from revenue growth. And in 2002 in a recession you guys declined in revenue, et cetera, so I guess the question is if revenues are flat to declining, which is frankly what all my clients are telling me and won’t believe me if I tell them you are going to grow, what happens to the roadmap? Thanks a lot.

Ben, I think it’s a very good question. Let’s now go back to the roadmap and how we set that up and what the elements of that roadmap were. I think the important aspect of the 2010 roadmap is the granularity of actions that we have at our disposal to achieve that end result. So it’s not just revenue -- it’s revenue, it’s margin and it’s margins submitted, supported by our mix move into higher margin content. It’s margins supported by our aggressive cost take-out plan. It’s share repurchase and its ability to use cash to most support our shareholder base. It’s the momentum that we see in our growth plays, like virtualization, which frankly have exhibited themselves actually more through margin than revenue growth as we’ve gone through the year. And in addition, last within that operational profile, you know, the performance of our acquisitions, which right now if you looked at our acquisition portfolio in its entirety or [inaudible], they are ahead of their profit plan. But if you look at all of those and put them together, I don’t think they will all play out exactly as we have laid them out. If you look at it right now, you would have to conclude I think that we are well ahead of track in aggregate and we are ahead of track especially on margin performance. I think we have very strong operational characteristics on margin performance across our business units. We are head of track on share repurchase. I think we’ve done a very good job there. The acquisition base that we need to deliver on, we have basically acquired already and I think we can deliver against those profit objectives. The revenue base, you know, we obviously did better on that revenue performance in the first half than we did in third quarter but the third quarter, you could really feel the work on margin coming through. So I think if I put all of those characteristics together and we’ll look through the period through ’08, ’09, ‘010, I feel quite confident that operationally we should be able to get to that $10 amount on operational performance and maybe even exceed that. And then we also said that whatever pension was that would be additive to our model and at the time, as I explained in the last question, that pension adder in the roadmap was about $0.90. If we now made that same update and we said well let’s take the year ended September 30th, carry all of those metrics and parameters to establish the year, assuming we turn back to more normal position next year, that would take that $0.90 of pension benefit in the 2010 roadmap and reduce it to about $0.50. So at that kind of a level, you can see we are still in the same range of $10 to $11, albeit I think the metrics will come potentially through different elements of the roadmap. Some will be stronger and I think over the course of that period from ’06 to ‘010, it’s not going to be a straight line. I mean, there will be stronger periods and periods of less [inaudible], but over the longer term, we feel pretty confident that we have a good game plan to achieve that objective.

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

The next question comes from Louis Miscioscia with Cowen & Company. Louis Miscioscia - Cowen & Company: Yes, maybe if you could go into a little bit more detail about your X86 server business, or your X-series. Obviously it was very weak. Was it mostly you would say the industry situation or is there something to do with changes around in your product line, and just what you are doing to obviously turn that around? Thank you.

Sure. First of all, our X86 did lag -- I mean, these clearly were not the results we were looking for and it was I think more characteristic of a couple of things, you know, the industry standard market -- I mean, that’s not the market where we have our best opportunity to show our value-add to our customer base. We are weaker in our hardware base on the more industry standard content. I do think as we go into the fourth quarter, we are going to have opportunity for improved margins on the X86 base, and as we go into ’09, the work that we are doing to improve our sales execution I think will pay off as well and we will be returning to a stronger footing.

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

The next question comes from Bill Shope with Credit Suisse. Bill Shope - Credit Suisse: Thank you. Going back to your financing strategy, are you seeing any signs of any material credit constraints for your SMB customers and/or reseller partners? And if so, are you increasing or considering increasing your level of customer/partner financing to counter this?

You know, I think our -- the bulk -- you know, if you looked at that distribution that we showed you on the global financing chart, that’s much more driven by enterprise than it is the small/medium business content. There’s virtually no exposure, as you know, to consumer issues but it’s much more driven by enterprise and as we look at the financing and our partner financing, whether it be support of the partner or the financing through that organization, we are very tough-minded on the credit evaluations and the certainty of repayment regardless of the product opportunity. We have a very aggressive and disciplined program to price the risk, again regardless -- a narrow, a skillset that we apply very specifically to technology. We don’t go outside of those white lines and within financing, the strength that we have aside from the ability to assess the credit portfolio quite specifically, the real strength that we have is I think we have some of the best capability to evaluate the take-down curve on technology and evaluate that residual value. And as you all know, the residual value is a very powerful opportunity for us because -- and in the least, we bring that box back, we remanufacture it, we ship it out through either used equipment or equivalent to new and recoup a lot of the value. So it’s a much more operational manufacturing brand driven organization than strictly a financing opportunity.

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

The next question comes from Mark Moskowitz with J.P. Morgan. Mark Moskowitz - J.P. Morgan: Thank you. Good afternoon. I want to get a little more context around the services profile, Mark, if I could. You’ve talked about the deal with the pricing environment. I think it’s a little tenuous out there and we are hearing chatter about Western Europe having some difficulties in the outsourcing side. How much of your confidence in the IBM profile is really driven by any sort of marginal increases in the level of recurring revenues in your services business versus perhaps the benefit of your cost takeouts allowing for a much better service platform and a much better economic platform that you can provide to your customers that is allowing you to take share right now?

Well, I think there’s three things that I would say as we go forward on that -- number one, the things that give us confidence is the short-term signings profile and how quickly those short-term signings profile yield as we go into the next quarter. As you have seen throughout the year, we’ve had very good performance on that short-term business and we expect that to yield as we go into the fourth quarter. We’ve talked a lot about all the work that we’ve done on cost take-outs but underneath that, I can tell you that we are very encouraged by the gross profit of the business that’s in that backlog. One way to look at it is that frankly, it’s not that difficult in a services business to build a backlog to just drive revenue. But it’s very difficult to do that and reap the kind of margins we are looking for. And so we don’t go after the offering that has terms and conditions or a pricing structure that we know won’t yield over the course of the contract. I mean, we get requests for the terms and conditions -- like in Europe, we had a request for a large deal and they simply asked us to take over their pension base [inaudible] population -- well you know, I don’t want a pension base in Europe. I’ve got a lot of experience with pension and I don’t need anymore pension base in Europe, so we turned that contract down. Would it have expanded signings? Yes, but it would not have expanded gross profit. And we’ve had requests for unlimited liability for data security breaches in a contract in the U.S., even though the customer wasn’t willing to install the needed security measures and products from our portfolio. Now, why would I do that? In that case, the customer is really looking for an insurance policy. I mean, we’re not here to write insurance policies just to drive signings. So underneath this, it’s really the confidence in the quality of the deals that we’ve signed I think moving into the fourth quarter. And then last, I would reiterate we see good pipeline and I would go back, as an example, in the GVS pipeline, I just thought it was quite powerful that we’ve already been awarded about 65% of the deals greater than $20 million that we needed. So obviously in all of this, there’s a lot of work we need to do to get through the fourth quarter. We’ve got to continue to take costs out, we’ve got to yield on the signings, we’ve got to drive margins, we’ve got to maintain discipline in the business. But I think we’ve got a good footing again as we go into the fourth.

Thank you, Mark. Let’s take the next question, please.

The next question comes from Chris Whitmore with Deutsche Bank. Chris Whitmore - Deutsche Bank: Thanks very much. Just to follow-up on that last question, it looks like backlog deteriorated sequentially for the second consecutive quarter. Can you provide some color around that deterioration in the backlog? And secondly, has the pricing environment changed significantly in the past several months? And to what extent has the HP/EDS deal had on the competitive environment overall? Thanks a lot.

Sure. I would not say that the pricing environment has changed over the last couple of months. It certainly didn’t become more difficult as we went through the quarter. I mean, one interesting fact on those short-term signings performance as we progress through the quarter, they in fact accelerated as we went into September. I mean, sometimes I think we’ve looked at this and say well there must have been deceleration in the month of September. Well in short-term signings, we had pretty good growth in the quarter but they definitely accelerated as we went into September so I don’t think they would have accelerated had we had real pricing pressure as we exited the third. And as far as the erosion you saw this quarter, you know it’s still within historical norms. It can be a bit like signings. It’s not very consistent across quarters. We always have some level of terminations, re-scope and adjusted volume so I didn’t see any distinct trend this quarter. And as we look forward to the fourth quarter, we see enough opportunity for us to continue to grow our short-term signings across the services business and in fact grow our long-term signings as well.

Thank you, Chris. Let’s take one more question, please.

Thank you. The last question comes from Keith Bachman with Bank of Montreal. Keith Bachman - BMO Capital Markets: Thanks for taking the question. Mark, I was hoping you could talk a little bit about mix, in that is it your impression given the environment that hardware will continue to exhibit negative growth rates in this and subsequent quarters? And then related, how does that make you think about the cash flow, because the cash flow I thought was a little disappointing this quarter? Does that come back in Q4? Thanks very much.

I think that’s a good question. You know, the cash flow issue that you mentioned in the third quarter was really in some sense driven by hardware and within hardware, there was some inventory build-up as we move into the fourth quarter as well. But you know, when you look at the mix of business going into the fourth quarter, I would remind you that we had very good growth in our Z-series platform, in our high-end T-series platform, where we have unique value and actually our best margin performance. And I think that is likely to maintain a fairly consistent mix as we go into the fourth. I do think that the industry standard content, which for us is not where we show our best value proposition and it doesn’t have the margin inherent in it to begin with, would probably continue to be a challenging environment within the fourth quarter. Now the mix clearly is going to have a strong component of this highly profitable services business. I mean, we had the highest margins we’ve had in six years and I think a very strong mix of highly profitable software content, given the pipeline that we see going into the fourth. So let me thank you for those questions and let me take the opportunity now to just close up. Now I hope that there were a number of things that you took away from this call. There are obviously some very specific points we wanted to make, which I would like to summarize. Number one, we have a manageable level of exposure I think to the large financial institutions that have been impacted by the financial crisis. We kind of explain this as you look across that industry because we have 75% of our business in fact outside of the U.S. But another interesting statistic if you look at it, the breadth of the opportunity in the financial services sector, at least by the analysis that we have seen, if you in fact ranked the largest banks based on assets globally and you looked at those top 50 banks, really only four after the consolidations, or I would say five to four are in the top 50 are in the U.S. Well, what portion of those are in the top 10 -- it’s really only one after the consolidation. I just give that as an example of how broad this financial services sector opportunity is and I think you could see that in those pie charts that we gave you, where really the exposure in both revenue and AR were -- for both of those in the 1% area. Secondly, I think our financing business is in a very solid footing. As I have said earlier, it’s kind of a narrow mission. We don’t get outside those white lines where I think we have a tremendous skill set. We do aggressively manage those residual values in the risk profile of our business and I would add that we look at the end of lease as another business opportunity to what we would call remanufacturing, which has its own challenges because you have to take the content that you are taking out of the back of that truck when the lease is over and renew that and match it to demand and we do that. If you looked at our financing IT structure, you would find that the most sophisticated software that we have installed is in fact aimed at the back-end of the lease, not the front-end of the lease for that reason. I think we have very good access to the CT markets. I can honestly tell you we have not had problem asking the CT market at all this year. It’s a very good source of financing leverage for us. But we are not dependent on it. I mean, we have about $4.5 billion right now but if you look at our opportunity otherwise, we have $10 billion of cash. We’ve got another $10 billion in our revolver. I mean, clearly if there were to be a problem in commercial paper, we could source from some of those other areas. But I personally, I do not think that the IBM Corporation is going to have a problem accessing commercial paper. We have a great portfolio of products. We talked about that. I think it’s not just the portfolio of products we enter the year with but the solutions aimed at solving our customers’ problems on cost management, on capital conservation, on risk and compliance, all the elements to help us continue to drive short-term signings up 8% and if you then said well within the financial services sector, what did short-term signings grow? In the third quarter globally they were up 12%. In the U.S., financial services sector short-term signings were up 33%. I think that’s a function of the solutions and how we’ve oriented to solving our customers’ challenges in this environment. So I guess to conclude, we are focused on the things we can control. We think we have shown real momentum, especially in that margin performance in the third quarter and we are confident as we go into the fourth quarter and 2009. So I want to thank you again as we conclude the call.

Thank you for participating on today’s call. The conference has ended now. You may disconnect at this time.