IBM: AI Needs More Than Just Technology

Mitch Wagner
News Analysis
Mitch Wagner, Editor, Enterprise Cloud
1/20/2017



Artificial intelligence (AI) on its own isn't enough to compete -- companies need industry-specific solutions to business problems.

So said Martin Schroeter, IBM Corp. (NYSE: IBM)'s company senior vice president and chief financial officer, on the company's quarterly earnings call Thursday afternoon.

Cognitive computing technology (IBM's term for AI) is just "table stakes," said Schroeter, claiming that his company is going the extra mile.

IBM is building datasets for Watson to serve specific industries, including healthcare and finance. "You need more than public data or algorithms to solve real-world problems," Schroeter said.

Watson Health alone has 7,000 employees, and last year the company launched Watson Financial Services using cloud and cognitive computing.

To serve individual industries with better data sets, IBM acquired Truven Health Analytics for $2.6 billion and Promontory Financial Group for undisclosed financial terms last year.

IBM also sees blockchain as strategic to serving enterprises using cloud, Schroeter said. By using shared ledgers and smart contracts, blockchain applications can securely track any asset -- including physical assets such as shipping containers, financial assets such as bonds, or digital assets such as music -- across any network. Blockchain increases transparency, auditibility and trust, while reducing risk and improving efficiency, he reckons.

IBM says it is building more complete, industry-specific blockchain platforms. Last week it announced blockchain deals with the Depository Trust and Clearing Corporation for securities clearing and settlement, and it's working with Walmart to track food across China, and tracking the provenance of diamonds and other high-value goods across the supply chain.

Also, IBM and the US Food and Drug Administration are researching blockchain to help secure patient records and other healthcare information. (See IBM, FDA Look to Blockchain to Secure Health Records.)

IBM expects blockchain will drive the next generation of the mainframe, and sees AI as integral to the company's entire business, including activities in health, the Internet of Things, security and financial services.

"Watson is firmly established as the silver thread that runs through software solutions," Schroeter said.

As for the financial results revealed on that earnings call -- it was the same old same old for IBM. IBM saw its 19th consecutive quarter of declining revenue in the fourth quarter of 2016.

As IBM's so-called "strategic imperatives" grow -- including cloud and AI -- and its traditional business drags the company down, Schroeter assured investors on its earnings call Thursday that everything is going according to plan.

The company took in $21.8 billion in revenues in the quarter, down 1% year-over-year, beating analyst estimates of $21.6 billion. Net income was up to $4.5 billion, or $4.72 per share, from $4.46 billion, or $4.59 per share, driven partly by lower taxes.

The stock was down 2.43% to $162.76 in after-hours trading.

As in previous quarters, so-called strategic imperatives were a beacon in otherwise gloomy financial results.

Strategic imperatives -- cloud, Watson AI, analytics, security and mobile technologies -- drew in $9.5 billion for the quarter, up 11% year-over-year.

For the full year 2016, strategic imperatives generated $32.8 billion in sales, up 13%, representing 41% of IBM revenues. That's a significant milestone. IBM had previously set a target for 2018 that strategic imperatives would exceed 40% of overall revenues and $40 billion. The company says it's on track to hit $40 billion for next year given a growth rate of 10-11%.


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Cloud revenues were $13.7 billion for the full year, up a hefty 35%. (See US Army Drafts IBM for Private Cloud.)

Demand for cognitive computing is appears to be driving growth for IBM.

Cloud giants, including IBM, Amazon Web Services, Microsoft and Google, are all aggressively investing in AI to drive competitive advantage. (See Hybrid Cloud Will Be a Battlefield & Other Cloud Predictions.)

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— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud

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