Morning Report: Watson, Why Does IBM Keep Shrinking?

Morning Report: Despite Watson and cloud, IBM’s revenue declines for its 21st successive quarter.

“It’s easy to get revenue,” Martin Schroeter, IBM’s senior vice president and chief financial officer, told CNBC yesterday. Schroeter may need to think twice about that, as IBM’s revenue has declined for 21 quarters straight.

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The following revenue chart shows the company’s falling revenues in the first and second quarters of 2017, compared to their year-ago periods.

Taking a closer look at the past six quarters, there has been a steep drop from Q4 2016 to Q1 2017 Q1.

In context, you can see the charted declines in the following graph, which shows the firm’s last six quarters’ revenue result. The first and last two data points in the line graph are the same numbers as shown in the chart below:

However, IBM projects starting growth based on the optimistic rebound from Q1 to Q2 this year.

“The quarter played out as we expected, with continued solid growth in our strategic imperatives, which now really reflects organic growth,” said Schroeter in IBM’s 2017 Q2 earnings report.

The seemingly optimistic growth that IBM saw from the first quarter of this year to the second might seem cheery, since it managed a similar jump in 2016 and still posted sequential declines in every period.

What About Watson?

Earlier in 2014, IBM announced its one-billion-dollar investment into Watson, hoping to drive more revenue from its artificial intelligence unit. Watson uses machine learning to help businesses, researchers, and governments across sectors such as healthcare, finance and security to interpret data.

But even though Watson managed to beat Ken Jennings at Jeopardy, it has yet to beat the company’s revenue declines.

In the meantime, IBM is getting its feet wet in cloud services, which can potentially support the Watson platform. IBM Cloud accounted for 20 percent of IBM’s revenue in the past year. IBM grasps the opportunity in providing cloud services, but can it really challenge the AWS/Azure/Google Cloud world? Only time will attest whether IBM’s adaptation works out.

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