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IBM Says Earnings Slump Is Part of Transformation

Oct. 20, 2015
IBM reported a profit of $2.95 billion but revenues tumbled a disappointing 14% from a year ago, the 14th consecutive decline in revenue.

LAGUNA BEACH, Calif.—IBM's top executive on Tuesday played down an earnings miss that hammered the technology old-timer's shares, saying the company is evolving to thrive in a new age.

"Those results show a lot of progress and a lot of work to be done," IBM chief executive Virginia Rometty said during an on-stage chat at a WSJD Live technology conference in California.

"We are 104 years old; the reason we are the only company still here is because we have transformed."

IBM shares were down more than 5% to $140.83 in mid-afternoon trading on the New York Stock Exchange.

Rometty said that IBM is focusing on cloud services, mobility and data analytics, with its "Jeopardy"-winning Watson artificial intelligence poised to differentiate the company from competitors.

IBM reported a profit of $2.95 billion but revenues tumbled a disappointing 14% from a year ago, the 14th consecutive decline in revenue.

While IBM earnings overall disappointed the market, Rometty pointed out that revenue in each of those categories at the company leapt.

"It is the right decision for the long term," Rometty said.

"We are a $90 billion company transforming. We are completely changing the portfolio and we are doing it in public."

Healthcare Moon Shot

She noted that IBM has acquired some 37 companies during her more than three years at the helm and that the company will continue to buy enterprises that it believes will complement its goals.

IBM in August set out to boost the capacity of its Watson supercomputer, acquiring medical imaging group Merge Healthcare for $1 billion.

The new group will be integrated into IBM's Watson Health platform, which sifts through vast amounts of research and medical data to help health professionals improve treatment.

"It will be our moonshot to redo health care," Rometty said, using a term commonly used at Google for projects such as self-driving cars and delivering Internet service from high-altitude balloons.

Watson is being taught to recognize things such as lesions or tumors in medical imaging.

IBM plans to analyze cross-reference medical images against a deep trove of lab results, electronic health records, genomic tests, clinical studies and other health data--which the company estimates represent 315 billion data points and 90 million unique records.

With the new platform, Watson will be able to view medical images of a person at different times to detect changes or abnormalities.

Man and Machine

Rometty saw the coming of an era of "cognitive" computing that disrupts the way digital companies operate.

"Systems that can understand all sorts of data, they can reason and they can learn," Rometty said.

"It will be an era of man and machine being better; it is collaborative when done correctly."

While the amount of data gathered in the digital age has rocketed, the bulk of it has been incomprehensible to computers that don't typically know what to make of songs, poems, pictures, video and more.

Google, Facebook and Microsoft have been working on making computers smarter when it comes to seeing the world the way people do.

IBM's transformation has included selling off  billions of dollars worth of businesses that the company didn't see as part of it future, including its personal computer business.

IBM's path has included recent alliances with Apple, Twitter and Facebook.

China Sees Source Code

While fielding questions, Rometty confirmed that IBM has allowed officials in China and other countries to look at source code in secure settings.

She said the practice has been around for more than a decade, and it is intended to assure governments that there are no backdoors into software or data being shared in secret.

"It boils down to one word: trust," Rometty said.

"You have to assure a government, many governments around the world. It is called a highly controlled demonstration."

IBM has been in China for decades, and along with selling in that market the company has labs, research centers and looks for talent there, according to Rometty.

Copyright Agence France-Presse, 2015

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