The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst
: Arvind, you said AI adoption is accelerating right at the top of the call. And I'm wondering if you can maybe help us think through
the financial impact in maybe revenue terms for IBM, how we should think about the progression for that? Are we hitting some kind
of inflection that we should see meaningful upside into '26 on the AI front?
And maybe quickly, your quick thoughts on maybe the impact of the federal government shutdown if there's any materiality to that
to IBM here in the fourth quarter. And if I could, Jim, if you could just clarify the organic growth in Software in third quarter and
expectations for transaction processing going into the end of the year?
Question: Erik Woodring - Morgan Stanley - Analyst
: Just one quick clarification question there, Arvind. The growth rates you just provided in the response to that question for 2026 or
into 2026. I just wanted to confirm those were all organic growth rates or whether they included M&A embedded in them?
And then my question, just taking a step back, Arvind is we've seen cloud providers experienced exceptional growth recently,
particularly in infrastructure services and large-scale AI workloads. How does IBM view that trend? And do you see a similar opportunity
Question: James Schneider, Ph.D. - Goldman Sachs International - Analyst
: Arvind, I was wondering if you could maybe elaborate a little bit on how you're thinking about M&A from a target perspective. You've
previously stated you're looking to accelerate growth and you're looking for things that fit strategically with the portfolio. But on
the margin, anything -- in any way you're thinking about -- differently about either the portfolio or the product piece of it or the
potential size of transaction you might like to undertake? And specifically, would you consider undertaking a somewhat larger, more
transformative transaction maybe not quite as big as you did with Red Hat, but a sort of similar scale relative to your overall portfolio?
Question: Brian Essex - JPMorgan Chase & Co - Analyst
: Arvind, maybe as a follow-up as to part of Erik's question, and I appreciate your hybrid exposure here. But could you generalize what
you're seeing with regard to mix as enterprises focus on AI readiness? Are cloud-native ISV-based agentic applications may be
targeted at task and point solution automation, are those low-hanging fruit to prove ROI before pursuing self-hosted projects?
And then maybe within the IT budgets, where is the spending coming from? What's at risk of getting trimmed as companies focused
on adopting AI-based technology?
Question: Mark Newman - Sanford C Bernstein & Co LLC - Analyst
: Very good to see the growing AI book of business, and thanks for those comments just now, Arvind. I don't think you've given any
specific breakdown yet on the breakdown between Software and Consulting of the AI book of business. Is there any clarity on that?
I think it used to be 80/20. Just want to clarify if there's any clarity you've given on that today.
And then a follow-up on Consulting. I think there's two quarters in a row now where we're seeing the book-to-bill ratio a touch below
1. I know you pointed in the earnings to a book-to-bill ratio greater than 1 if you're looking at the trailing 12 months, but I would
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