The New IBM Beats The Street With the Help of Watson, Cloud and IOT

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Yesterday, for the first time in a long time, International Business Machines (IBM) reported quarterly earnings that beat analyst expectations. Even more impressively, IBM delivered its turnaround quarter by keeping its focus on transformational technologies like cloud, IOT and cognitive or artificial intelligence(AI).

Big Blue beat Street consensus again on Monday, reporting earnings of $2.95 per share and revenue of $20.2 billion for the second quarter of 2016. Those numbers easily beat the analyst estimates of $2.89 in earnings per share and $20.03 in revenue. However, IBM also reported a decline on year on year revenue for the 17th straight quarter. In general, the stock seems to have reacted positively rallying up 1.7% in after-hours trading.

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Beyond the general numbers and the stock reactions, there are some interesting lessons to be learned from IBM’s earnings report. This quarter will be considered by many analysts as a turnaround moment in the IBM’s continued transformation to focus on new technology areas such as cloud, AI and IOT while still managed to continuously deliver decent quarterly numbers.

Bluemix is Growing Strong

Cloud computing was the shining star of IBM’s earnings report with revenue growing over 30%. Even though Bluemix still trails AWS and Azure in cloud market share, it has established itself as a solid competitor. More importantly, Bluemix is actively innovating in areas such as IOT, AI and blockchain technologies which can offer an edge over the market leaders.

Watson Is Hot

The Watson cognitive platform continues to be a strong area of focus for IBM. Even though the specific numbers for Watson are a bit hard to extrapolate analysts are forecasting revenues around $4.5B for the next 12 to 18 months. IBM also reported a 300% increase in the number of developers using the Watson platform. If those numbers are remotely correct, Watson will be by far the market leader in enterprise AI technologies.

Active in M&A

IBM is a very active in M&A. Big Blue reported 11 acquisitions so far in 2016 for a combined $5 billion which represents a record in the company’s history. More importantly, IBM has done a very solid job integrating the new acquisitions into the cloud, IOT and AI pipelines.

The New IBM is Real

With this earnings report, IBM can claim that the investment in transformational digital technologies is already an important part of IBM. Today, the “strategic imperatives”: cloud, mobile, social, security and Watson and analytics already account for 38% of IBM’s overall revenue. Very very impressive.

What’s Next for the New IBM?

I think is safe to say that for the next 12–24 months IBM is going to continue doing what has done so well until now: investing in new, disruptive technologies in its core areas of focus. Without speculating too much, here are 4 key ideas about what we can expect from the new IBM in the near future:

1. Continue bridging the gap with AWS and Azure in the cloud platform space.

2. Establish Watson and the market leader in enterprise AI technologies.

3. Continue growing the Watson IOT platform to rival the efforts of market leaders such as GE’s Predix.

4. Invest a one new “core imperative”. Blockchain seems like a great fit ;)

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