Watson leads IBM charge as growth might be around the corner

IBM has reported another consecutive quarter of decline, but fortunes in the cloud hint it might not be long before Big Blue sorts itself out.

Jamie Davies

January 20, 2017

4 Min Read
Watson leads IBM charge as growth might be around the corner

IBM has reported another consecutive quarter of decline, but fortunes in the cloud hint it might not be long before Big Blue sorts itself out.

The former industry frontrunner has been spiralling downwards for 19 consecutive quarters, which on the surface is a worrying trend, however the strategic imperatives business unit is starting to throw its weight around. For Q4, Big Blue delivered revenue of $21.8 billion, down 1% year-on-year, however strategic imperatives accounted for 41% of total revenues against the legacy business units. Cloud was the big winner here, up 33% for the quarter to $4.2 billion, and growing 35% across 2016 on the whole, accounting for 17% of total IBM revenues.

“Looking at some of the highlights of the fourth quarter, we had terrific growth in cloud, with revenue up 33%,” said CFO Martin Schroeter, during the earnings call. “We also had good growth in our analytics, security, and mobile solutions.

“We’re continuing to grow our substantial technology services business, reflecting the work our clients are demanding to help modernize and transform their infrastructures. And we had really good performance in our z Systems business, reflecting the value of differentiated, high-value solutions running important parts of our client’s infrastructure.”

Although the transition to the era of cloud computing was a tough journey for the IBM team, the hard-graft is beginning to pay off, and it doesn’t look like it will be long before the business starts to enter year-on-year growth. Companies like AWS and Google were tailor made for the connected era, but Big Blue has had to work a bit harder to realign the focus, using artificial intelligence as the springboard to elevate its status.

While its cognitive offering Watson has been grabbing the headlines, it alone cannot revive the tech giant, though this has been fully recognised by the team. The PR machine has been sweating the Watson brand for all its worth this year, but progress in public cloud and Openstack arenas shouldn’t be forgotten either. Yes, Watson is the attention seeker, but Big Blue is turning out to be more than a one trick pony.

“Yes, we have world-class cognitive technology, but that’s table stakes,” said Schroeter. “We are building datasets by industry that we either own, or we partner for. Importantly, we’ve designed Watson on the IBM Cloud to allow our clients to retain control of their data and their insights, rather than using client data to educate a central knowledge graph. And we’re using our tremendous industry expertise to build vertical solutions and train Watson on specific industry domains.”

This is where IBM is starting to make a difference in the industry, and the restless PR machine has been cranking out the use-cases by the dozen this year. Partnerships with Panasonic for self-driving cars, Pearson for education and Pfizer for healthcare, has helped Big Blue demonstrate the versatility of Watson, and its applications in specific verticals. Journalists may get tired of the endless stream of Watson press releases, but the message is clear and concise; Watson will be everywhere, and its underpinned by a host of other cloud orientated technologies.

You would be forgiven to assume IBM is now an AI company, but in fact it is much more. Once we were talking about the three major cloud players (AWS, Microsoft Azure and Google Cloud) setting themselves aside in the cloud race, but IBM has now made that three a four. This in itself should be applauded, as its not simply a case of the rest of the industry catching up, IBM has separated itself from the chasing pack and left behind the also-ran’s category.

A prime example of this momentum in the cloud arena is a recent customer win in the US Army. As part of the deal, IBM will build and operate a private cloud for the Army, as well as providing various IaaS services. The value of the deal is $62 million, which is notable and also irrelevant, as it is more symbolic more than anything else. US Government contracts are difficult to come by, its a labyrinth of red-tape and hoop jumping, primarily reserved for the top echelon of companies in a segment. Winning such a customer confirms IBM has found its place in the big leagues.

Success is never guaranteed, but all the signs are pointing in the right direction. Year-on-year, the strategic imperatives business unit is gathering steam, and 2017 could be the year we see Big Blue return to growth.

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