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IBM results leave Watson thinking

Artificial intelligence is at the heart of IBM's long-term strategy, yet its cognitive solutions business experienced a slight decline. Oh dear, Watson

IBM has reported second-quarter revenues of $20.0bn, up by 2% in constant currency compared with the same quarter last year, but it experienced a slight decline in its cognitive business.

Cognitive computing, covering the likes of Watson and advanced analytics, is an area core to many of IBM’s so-called strategic initiatives. In the first quarter, the cognitive business was IBM’s main growth engine.

In a transcript of the earnings call, posted on the Seeking Alpha financial blogging site, IBM’s chief financial officer, Jim Kavanaugh, reported cognitive solutions revenue of $4.6bn, down by 1% at constant currency.

When asked about the decline, Kavanaugh said: “We have a strong portfolio in the key strategic areas around analytics, around industry verticals, around security and around IoT [internet of things], and we continue to see good performance overall. But, I’ll remind you, this portfolio is a high-annuity content. Over 80% of the business is annuity with strong renewal rates we continue to drive, but that SaaS [software as a service] has a longer time to value and longer time to realisation.”

Looking specifically at SaaS, he said the company grew its as-a-service revenue and scaled its solutions software platform.

“Growth in our underlying analytics platform was led by our DB2 portfolio, our data science offerings and our new IBM Cloud Private for data offering, which makes data ready for AI [artificial intelligence] across the clouds,” said Kavanaugh.

“In our Watson platform, the AI platform for business, growth reflects strong demand for our new virtual assistant offering, with triple-digit growth in our conversation service usage. Clients using Watson Assistant include Bradesco, Orange Bank, Autodesk, Royal Bank of Scotland, Vodafone and LivePerson, to name a few.”

However, revenue in IBM’s transaction processing software (TPS) was down by 2%, driven by declines in storage software. “Within TPS, we had growth in IBM Z middleware and Power middleware,” said Kavanaugh.

The company reported a 3% decline in its application management services revenue, which Kavanaugh said reflected a continued decline in traditional enterprise application managed services. “We’re growing in strategic offerings like cloud migration factory and cloud application development. The increased demand in these areas has led to two consecutive quarters of double-digit signings growth in application management,” he added.

Overall, IBM reported strategic imperatives revenue of $39bn over the past 12 months, up by 12% when adjusted for currency. Total cloud revenue over the past 12 months was $18.5bn, a 20% increase in constant currency, of which $8.2bn came from hardware, software and services to enable IBM clients to implement hybrid cloud across public, private and multi-cloud environments.

Ginni Rometty, IBM chairman, president and chief executive officer, said: “More clients are engaging IBM on their journey to the cloud, and deploying IBM Cloud, Watson AI, analytics, blockchain and security solutions. This demonstrates IBM’s unique leadership in providing innovative technology coupled with deep industry expertise, trust and security.”

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