IBM's Answer To Growth Is Elementary, Watson

According to a MarketsandMarkets report, the global artificial intelligence (AI) market is estimated to grow at 53.65% annually from $419.7 million in 2014 to $5.05 billion by 2020. The growth in the industry is attributed to the deployment of AI technologies in retail, finance, and healthcare sectors. IBM (NYSE: IBM) is targeting this high growth market with added focus on Watson through acquisitions and strategic tie-ups.

IBM’s Financials

IBM’s third quarter revenues were flat at $19.23 billion compared with $19 billion forecast by the market. Adjusted earnings of $3.29 per share were also better than the Street’s forecast of $3.23 for the quarter.

By segment, revenues from Cognitive Solutions grew 7% over the year to $4.24 billion. Global Business Services revenues fell 0.4% to $4.19 billion. Revenues from the Technology Services & Cloud Platforms grew 2% to $8.75 billion while Systems revenues reported the biggest decline at 21% to $1.56 billion. Global Financing revenues were down 8% to $412 million and revenues from other sources grew 35% to $81 million.

IBM continued to see impressive performance for its focus areas. Revenues from strategic imperatives business which includes the cloud, analytics, mobility and security business grew 16% over the year to $8.75 billion compared with $8.51 billion forecast by the market. Cloud revenues which includes public, private, and hybrid services grew 44% over the year. Cloud revenue over the trailing 12 months came in at $12.7 billion. The annual run rate for Cloud as-a-Service revenue grew 67% to $7.5 billion. Revenues from analytics increased 15% and revenues from mobile grew 19% over the year.

For the current year, IBM continued to forecast an EPS of at least $13.50 while analysts expect EPS of $13.51.

IBM’s Watson Focus

IBM continued to step up its efforts for Watson across multiple industries. Within the healthcare segment, it entered into an agreement with Siemens last week to help hospitals better manage populations of patients. It signed a five-year agreement with Siemens Healthineers that will help providers meet the demand for value-based care analytics and reporting along with patient engagement. Population health management is seeing strong competition from analytics and software companies as well as health insurers. The industry involves a close integration between population management and health insurance industry so that payments to health care providers are shifted away from fee-for-service to reimbursement that is based on how well providers perform and the health outcomes achieved by patients.

As part of the agreement, the two companies will work together to help healthcare professionals understand the changes occurring within healthcare by analyzing the growing volume and diversity of health data, assessing the best ways to engage an aging population, targeting solutions to help prevent the spread of chronic diseases, and addressing changes in healthcare payment models and the digitization of healthcare. Siemens Healthineers will also have access to IBM Watson Care Manager, a cognitive solution that helps providers and patients work together to support individual health by integrating disparate types of clinical and individual data and by applying cognitive analysis to draw insights for care providers.

IBM’s Recent Acquisitions

Besides the healthcare sector, IBM Watson is also expanding its reach in the financial services sector. It recently announced the acquisition of Promontory Financial Group, a global market-leading risk management and regulatory compliance consulting firm. Promontory has a talent pool of over 600 professionals spread across North America, Europe, the Middle East, and Asia Pacific. It addresses standards for compliance implemented to ensure the integrity of the financial system, protect consumers, and build trust through transparency. IBM’s goal is to build a cognitive solution for risk management and it hopes to leverage Promontory’s professionals to train Watson by providing it with access to regulatory information and through interaction in real-world applications. Terms of the deal were not disclosed, but analysts estimate that the deal may have cost IBM close to $300 million.

Its stock is trading at $150.15 with a market capitalization of $144 billion. It touched a 52-week high of $165.00 in May last year. It has recovered from its 52-week low of $116.90 that it fell to in February this year.

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