IBM's bet on cognitive computing, Watson will take time to pay off

IBM breaks out its cognitive unit and highlights flat revenue growth. Watson remains a work in progress, but will need to post strong growth to turn Big Blue around.
Written by Larry Dignan, Contributor

IBM is betting its future revenue growth on cognitive computing, but Watson and the gang remain a work in progress.

With IBM's first quarter earnings report it was clear that Big Blue can manage its bottom line well, but revenue continues to decline over time. IBM is a tough ship to turn and it is trying to break out in cloud services and analytics.

But the big question to date has revolved around Watson. Watson is IBM's cognitive computing brand, but it has been unclear how scalable the technology is. As a result, IBM has been buying up analytics companies and rolling them up under the Watson brand.

However, cognitive computing needs more time to bake. IBM's cognitive business delivered first quarter revenue of $4 billion, flat with a year ago. If you break that sum down cognitive software was up 3 percent in the first quarter and transaction processing application revenue fell 5 percent from a year ago.

Given the talk of cognitive computing and the Watson brand, flat first quarter revenue growth was a bit jarring. Here's the breakout of IBM's cognitive business, which includes transaction processing software (think mainframes) in addition to analytics and security tools.


So what's going on? Watson is a unit that spans healthcare and the Internet of things, but needs to be integrated because it was built by acquisitions.

Consider that Watson Healthcare was created with $4 billion for four acquisitions. Watson Healthcare has 6,000 employees. Of that sum, 700 employees were hired by IBM. The rest were acquired.

CFO Martin Schroeter said that Watson cloud offerings had double digit revenue growth as did the company's content it acquired in deals such as The Weather Co. purchase.

That growth is a start, but if Watson is going to boost IBM's growth overall there's a lot of work ahead before the revenue streams outlined in Big Blue's presentations play out.


More on IBM Watson

Editorial standards