How IBM performed in Watson and analytics business

ibm-watson-technologyWatson and analytics traction drives another quarter of growth for IBM Software, says Sanjay Medvitz, analyst at TBR.

IBM Software is showing maturity in its long-term portfolio transformation to become a cloud and analytics-led company, posting its second consecutive quarter of growth at 3 percent year-to-year in 3Q16. Software performance was driven by strong growth in analytics and security within its Cognitive Solutions segment as well as strength in its Integration Software segment. The Solutions Software segment, which TBR expects to be the core growth driver over the next two years, grew 8 percent benefiting from increased traction with its Watson-based solutions.

IBM segment revenues

Cognitive Solutions $4.2 billion (+4.5 percent)
Cloud revenue + 74 percent
Solutions Software + 8 percent

Global Business Services $4.2 billion (–0.4 percent)
Technology Services & Cloud Platforms $8.7 billion (+2.4 percent)

Systems $1.6 billion (–21.0 percent)

Global Financing $412 million (–7.9 percent)

IBM’s software business pursues long-term growth by expanding in high-growth areas such as hybrid cloud, analytics applications and IoT. The vendor benefits significantly from scale, leveraging a wide-spanning portfolio and large services arm to quickly and efficiently deliver business solutions and win customer engagements.

IBM focuses on portfolio innovation to meet shifting customer demands, reorienting legacy solutions for hybrid environments with improved cognitive, analytics and integration capabilities, while also developing new capabilities through M&A activity. TBR believes continued innovation and integration of IBM’s software solutions will be critical to the vendor’s corporate success as software has become increasingly strategic and acts as a differentiator across its various business units.

Integration of software solutions across other portfolios helps hybridize business areas such as systems and storage

As hybrid IT environments increasingly become the norm, customers require infrastructure and management solutions to provide flexible and efficient migration of workloads, applications and large data sets across on-premise and cloud assets. IBM continues to develop flexible, as-a-Service software offerings and build out traditional software to help optimize storage and systems solutions for hybrid environments.

In September IBM launched Power Systems for cloud, which incorporates elastic consumption models and integrated OpenStack-based cloud management capabilities to enable workload extensions to the IBM Cloud. The vendor also launched IBM z Systems Operational Insights, a SaaS offering that helps analyze hybrid workloads and application performance with analytic insights.

The vendor released IBM Spectrum Copy Data Management and Protect in September. The solutions help enterprises manage data copies in agile, hybrid environments.

In October the vendor announced IBM Cloud Object Storage, which helps users secure, store and manage large data sets across hybrid clouds. The offering stems from IBM’s acquisition of Cleversafe.

IBM remains one of the few hardware and software multiline vendors to maintain a true software portfolio, underscoring the success and scale of its’ legacy license business

Largescale portfolio transformations and vendors grappling for position in various layers of hybrid cloud has forced consolidation within the IT industry. Commoditization of services and growth and profitability pressure facing many IT vendors such as HPE and Dell has led to divestitures of software and services assets, as these vendors refocus and reposition around core strengths to better attack hybrid opportunities. IBM, however, maintains a software portfolio that spans the infrastructure, management, and public cloud layers of customer environments, allowing them to attract customers with a broad set of solutions and large services arm for implementation.

Despite facing similar market pressures such as declining demand for legacy assets, IBM’s scale as a vendor who has built large license and maintenance streams allows them to retain these assets as opposed to others who have opted to spin them off. To manage and slow declines IBM has focused on reorienting its legacy middleware and management assets with improved analytics and integration functionality and developed new cloud versions to provide customers hybrid enabling and flexible solutions for their evolving environments. With this approach, TBR believes IBM will be able to migrate legacy customers to newer cloud versions at their own pace, in turn retaining these large customer bases.