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IBM CFO: Company’s Seeing ‘Good Progress’ with Watson Platform

IBM is making “good progress” with its Watson cognitive technology platform, and sees it as a “long-term investment” that will continue to grow as it’s expanded to additional markets, according to CFO Martin Schroeter.

IBM is “building new markets” with Watson and “it’s going to take some time for us to take the technologies and the processes” developed with the Watson Health business and “layer on” other Watson technologies “to get the ramp in growth that we expect to get out of some of them,” he said on IBM’s Oct. 17 earnings call for the third quarter, ended Sept. 30.

Watson is “not going to run on anything but the IBM Cloud,” he said, when an analyst asked if there are any plans for Watson to run on other company’s cloud platforms, such as Amazon Web Services.

Although IBM reported slightly weaker profit and revenue than in the third quarter of last year, revenue from its newer and more profitable “strategic imperatives” businesses that include artificial intelligence (AI)/analytics, blockchain solutions, cloud services, mobility and security continued to grow by double digits in the third quarter of 2016, it said.

Third-quarter strategic imperatives revenue grew 16% year-over-year this time. Cloud revenue soared 44 percent, while analytics revenue increased 15 percent, mobile revenue jumped19 percent and security revenue grew 11 percent, IBM said in its earnings news release. But total IBM revenue dipped to $19.2 billion from $19.3 billion, while income slipped to $2.9 billion and $2.98 a share from $3 billion and $3.01 a share.

Over the past 12 months, strategic imperatives delivered almost $32 billion in revenue for the company, and now represent 40 percent of IBM’s business, Schroeter said on the call, adding IBM is “building scale in these businesses.”

Analytics contributions in the quarter came from IBM’s core analytics platform and cognitive offerings including Watson platform, Watson Health and Watson IoT, he said, telling analysts: “We are building the industry’s broadest and deepest cognitive solutions and cloud platform portfolio, and we are extending our capabilities.” As an example, he said IBM continued the global expansion of its cloud footprint in the third quarter, and the company now has 49 cloud centers.

As IBM has discussed in the past, cognitive computing is “about using data and adding intelligence into products and services to help clients make better decisions,” he said, adding: “It’s about augmenting human intelligence.” To that end, IBM in the third quarter introduced and expanded Watson platform offerings, including Watson Conversation Service and Watson Virtual Agent for Customer Service, he said. IBM is also training Watson for cybersecurity, “expanding the amount of security data Watson is ingesting,” he said.

In Watson Health, IBM launched Watson for Drug Discovery and Watson Health Core, while, in Watson IoT, the company added new capabilities around blockchain and security “to draw insights from billions of sensors embedded in everything from machines to cars to drones to ball bearings to buildings and even to hospitals,” he said. He went on to say that where IBM is “seeing real value is in providing cognitive capabilities” in the IBM Cloud.

The “third critical element of our strategy is our industry focus, and in the third quarter we introduced an Industry Platforms business that integrates cloud, cognitive, industry and ecosystems capabilities to provide targeted solutions in specific industries,” he said. Initially, Industry Platforms “will address two substantial opportunity areas”: Watson Financial Services and blockchain solutions, he said.

IBM believes blockchain “has the potential to do for trusted transactions what the Internet did for information,” and the company is “building a complete blockchain platform” and working with more than 300 clients to “pioneer” blockchain for business, he said. In the third quarter, IBM opened a Blockchain Innovation Center in Singapore to accelerate blockchain adoption for finance and trade and now has Blockchain Garages open in New York, London, Tokyo, Singapore and San Francisco, he said.

In Watson Financial Services, IBM recently announced the acquisition of Promontory Financial Group, he went on to say. “So, just as we trained Watson on clinical research and medical guidelines to work with doctors treating cancer, we will apply the expertise of Promontory to train Watson to directly address escalating regulation and risk management requirements in financial services.”