Elementary, my dear IBM: When will Watson make money?

Big Blue talks 'silver threads'

IBM Watson has taken heat from Wall Street for not adding to Big Blue's revenue as the company reported a 19th successive quarter of decline.

The Watson brand won worldwide attention back in 2011 when the supercomputer defeated human contestants during a special series of television quiz show Jeopardy. Now the brand lives on in the corporation's IBM Watson Group with its many Watson-themed directorates, which chief executive Gini Rometty declared would pull in $10bn in revenue by 2024.

But while Watson's revenues are indeed increasing, IBM's operating costs in driving that growth are going up faster. This leaves the corporation with ever-uglier margins in its cognitive solutions segment, a key part of the "strategic imperatives" on which it is pinning its hopes for the future and hiding the evidence of decline.

IBM doesn't give much away about Watson's performance, but its sales are included within the "cognitive solutions" segment that also includes IBM's "solutions software and transaction processing software" – things such as IBM's analytics tools.

Cognitive solutions grew 1.4 per cent to $5.3bn for the quarter largely driven by growth in cloud, analytics and security, IBM said as it reported its latest fiscal results Thursday.

Overall, IBM claimed: "[S]trong growth in our strategic imperatives, cloud, analytics, security and mobile. These offerings generated $33bn in revenue, and now represent over 40 [per cent] of our revenue. And they're high value offerings, with a gross margin that raises overall IBM."

But quizzing executives following IBM's financial report on the fourth quarter of 2016, Morgan Stanley's Katy Huberty noted that although Watson was getting a "pretty significant share of the press" – to put it mildly – unlike the other businesses that it was cited alongside, Watson was "not contributing to revenue".

Huberty probed when Watson would start bringing in money.

IBM admitted to shaving spent a combined $16bn on R&D and acquisitions during 2016, including buying 15 companies such as the $2.6bn acquisition of Truven Health Analytics.

"Do you have visibility as to when we should expect an inflection in revenue recognition from Watson, or should we just not think about this as a contributing factor or moving the needle in our models over the next couple of years," Huberty asked.

IBM's chief financial officer Martin Schroeter didn’t give a straight answer. Rather he said revenue would come through Watson serving IBM's strategic imperatives and cognitive software. Watson is the "silver thread" running though Watson Health and Financial Services, IBM's IoT and security, he said. "Watson is firmly, firmly established as the silver thread that runs through those cognitive solutions and you can see all of that in the solution software performance."

Strategic imperatives accounted for 40 per cent of IBM's revenue, $32.8bn for 2016, the firm said. Its stated goal is to make $40bn from them by 2018. ®

Similar topics

Other stories you might like

  • It's primed and full of fuel, the James Webb Space Telescope is ready to be packed up prior to launch

    Fingers crossed the telescope will finally take to space on 22 December

    Engineers have finished pumping the James Webb Space Telescope with fuel, and are now preparing to carefully place the folded instrument inside the top of a rocket, expected to blast off later this month.

    “Propellant tanks were filled separately with 79.5 [liters] of dinitrogen tetroxide oxidiser and 159 [liters of] hydrazine,” the European Space Agency confirmed on Monday. “Oxidiser improves the burn efficiency of the hydrazine fuel.” The fuelling process took ten days and finished on 3 December.

    All eyes are on the JWST as it enters the last leg of its journey to space; astronomers have been waiting for this moment since development for the world’s largest space telescope began in 1996.

    Continue reading
  • China to upgrade mainstream RISC-V chips every six months

    Home-baked silicon is the way forward

    China is gut punching Moore's Law and the roughly one-year cadence for major chip releases adopted by the Intel, AMD, Nvidia and others.

    The government-backed Chinese Academy of Sciences, which is developing open-source RISC-V performance processor, says it will release major design upgrades every six months. CAS is hoping that the accelerated release of chip designs will build up momentum and support for its open-source project.

    RISC-V is based on an open-source instruction architecture, and is royalty free, meaning companies can adopt designs without paying licensing fees.

    Continue reading
  • The SEC is investigating whistleblower claims that Tesla was reckless as its solar panels go up in smoke

    Tens of thousands of homeowners and hundreds of businesses were at risk, lawsuit claims

    The Securities and Exchange Commission has launched an investigation into whether Tesla failed to tell investors and customers about the fire risks of its faulty solar panels.

    Whistleblower and ex-employee, Steven Henkes, accused the company of flouting safety issues in a complaint with the SEC in 2019. He filed a freedom of information request to regulators and asked to see records relating to the case in September, earlier this year. An SEC official declined to hand over documents, and confirmed its probe into the company is still in progress.

    “We have confirmed with Division of Enforcement staff that the investigation from which you seek records is still active and ongoing," a letter from the SEC said in a reply to Henkes’ request, according to Reuters. Active SEC complaints and investigations are typically confidential. “The SEC does not comment on the existence or nonexistence of a possible investigation,” a spokesperson from the regulatory agency told The Register.

    Continue reading

Biting the hand that feeds IT © 1998–2021