IBM results show shift to AI and cloud business focus

IBM’s Watson cognitive, artificial intelligence technology and its cloud strategy are overtaking core product areas in terms of revenue

IBM has reported earnings of $21.8bn for the fourth quarter of 2016, as the company shifts from its traditional business to cloud and artificial intelligence (AI)-based products and services.

The company said its cloud revenue for the full year was $13.7bn, up 35%, while revenue in its cognitive solutions business, which includes software and transaction processing software revenues, grew by 1.4% to $5.3bn. Sales in this business were driven by demand in cloud, analytics and security, it said.

For the fourth quarter, IBM reported a decline in revenue for its global business services, which includes consulting, global process services and application management, of 4.1% to $4.1bn, while its technology services and cloud platforms business, which includes infrastructure services, technical support services and integration software, grew by 1.7% to $9.3bn. Here, growth was driven by strong hybrid cloud services, analytics and security performance, said IBM.

Meanwhile, IBM’s revenue in systems, which includes systems hardware and operating systems software, declined by 12.5% to $2.5bn.

During the earnings call, senior vice-president and CFO Martin Schroeter attributed the decline in systems earnings to a shift in IBM’s strategy. In a transcript of the call, posted on the Seeking Alpha financial blogging site, Schroeter said: “For systems, our revenue and gross profit performance were driven by growth in z Systems, offset by power and storage declines. These results reflect the reinvention of our core systems for work in a new era of computing.

“We have optimised our systems to drive new types of workload, like blockchain and instant payments. We are expanding our footprint, building new capabilities and solving new types of problems for our clients. And though we are facing some shifting market dynamics and product transitions in both power and storage, our portfolio overall remains optimised to address the demands of an era of cognitive and cloud computing.”

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Schroeter said the company was positioning itself to solve real world business problems by using AI and its cognititve system, Watson. “The debate about whether artificial intelligence is real is over, and we’re getting to work to solve real business problems,” he said.

“As we move into this new era, it is important to understand what enterprise clients are looking for. They need a cognitive platform that turns vast amounts of data into insights, and allows them to use it for competitive advantage. They need access to a cloud platform not only for the capability, but for speed and agility. And they need a partner they trust, and who understands their industry work and process flows.”

Ginni Rometty, IBM chairman, president and chief executive officer, said the company’s shift from its core business to so-called “strategic imperatives” accounted for 40% of the company’s earnings.

By comparison, IBM’s core business areas declined by about 9%. This means the company is spending more time pushing the benefits of cloud and AI to its customers.

Rometty said: “IBM Watson is the world’s leading AI platform for business, and emerging solutions such as IBM Blockchain are enabling new levels of trust in transactions of every kind. More and more clients are choosing the IBM Cloud because of its differentiated capabilities, which are helping to transform industries, such as financial services, airlines and retail.”

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