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Watson Could Hold the Answers to IBM’s Woes

Posted on Tuesday, Sep 8th 2015

IBM’s (NYSE: IBM) revenues have been declining for a while now. But the company does not seem too worried as they continue to drive focus toward other investments, the biggest one being Watson. IBM’s cognitive system, Watson, has become the most well known example of super computers. Watson follows the human thinking process of observing, interpreting, evaluating and decision making to help automate processes across multiple industries. And IBM is ensuring they leave no stone unturned to support Watson.

IBM’s Financials

IBM’s second quarter revenues fell 13% over the year to $20.8 billion, falling short of the market’s expectations of $20.93 billion. Revenues were negatively hurt by exchange movement as excluding those, they would have reported a more modest 1% decline. EPS of $3.84 was, however, ahead of the Street’s projections of $3.79 for the quarter.

By segment, revenues from global technology services fell 10.5% over the year to $8.07 billion. Global Business services continued to report a decline and revenues fell 12% to $4.35 billion. Software revenues declined 10% to $5.83 billion and systems hardware revenues were down 32% to $2.06 billion. Global Financing revenues reduced 5% to $478 million.

For the current year, IBM expects an EPS of $15.75-$16.50.

IBM’s Focus on the Internet of Things
IBM continued to enter into strategic tie-ups as part of their growth plans. After the interesting IBM Apple deal last year, they entered into an agreement with ARM last week. The deal will help IBM make inroads into the fast growing market of the Internet of Things (IoT). Chip maker ARM is already a big mover in the market and is licensing more than a billion chips each quarter to keep up with the industry’s growth. Through the agreement, products using ARM mbed-enabled chips will now be able to automatically register with IBM’s platform. Information stored on IBM’s cloud will be available for analysis. Additionally, manufacturers will be able to offer features such as delivery of events, alerts, and remote equipment control in the case of device breakdowns.

IBM recently revealed plans to offer new services focused on the IoT segment. The first such service is called the IoT for Electronics and will provide electronics manufacturers with improved capabilities in gathering data collected by IoT device sensors. Manufacturers and other service providers will be able to use this data for real-time analytics.

IBM’s Healthcare Acquisition

Last month, IBM also expanded their healthcare offerings by announcing the $1 billion acquisition of medical imaging company Merge Healthcare. Founded in 1987, Merge Healthcare is a leading provider of medical imaging solutions. The acquisition is aimed at strengthening IBM Watson’s Health initiative by providing it with access to Merge’s world-class technology platform for sharing medical images. IBM will be able to integrate the technology with Watson’s computing intelligence along with cloud-based healthcare related data to help medical services providers with better insights into patient care. According to IBM’s management, Healthcare will be one of IBM’s biggest growth areas over the next 10 years.

Despite these very interesting moves, IBM’s stock is trading at $143.70 with a market capitalization of $140.76 billion. It touched a 52-week high of $195.00 in September last year and a 52-week low of $140.62 last month.

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