IBM Sells Some Watson Health Assets for More Than $1 Billion

IBM agreed to sell part of its IBM Watson Health business to private equity firm Francisco Partners, scaling back the technology company's once-lofty ambitions in health care. From a report: The value of the assets being sold, which include extensive and wide-ranging data sets and products, and image software offerings, is more than $1 billion, according to people familiar with the plans. The deal "is a clear next step as IBM becomes even more focused on our platform-based hybrid cloud and AI strategy," said Tom Rosamilia, senior vice president, IBM Software. "IBM remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT." IBM launched Watson Health in 2015 with the aim of using its core artificial intelligence platform to help health care providers analyze troves of data and ultimately revolutionize cancer treatment. Many of the company's ambitions haven't panned out, though, and some customers have complained that its products didn't match the hype. Even after spending roughly $4 billion in acquisitions to prop up the initiative, Watson hasn't delivered the kind of progress IBM initially envisioned and the unit wasn't profitable. Last year, the Wall Street Journal reported the unit generated about $1 billion of annual revenue.

The IBM philosophy

[groobly]

As a former employee of IBM, I can succinctly explain the IBM philosophy:

"If we just have enough bureaucracy and rules, we can accomplish anything."

Re:

[oldgraybeard]

"If we just have enough bureaucracy and rules, we can accomplish anything." Wow! Right out of the Washington DC's playbook.

Re:

[saloomy]

Try as they might, they will never compete with Washington, which ultimately was Watson's undoing. It is a great tech, and it was right for IBM to be optimistic on its adoption. But, healthcare is extremely regulated in the US. You are not going to transform that industry without a mountain of kickbacks going to political campaigns, billions of shares in insurance and big Pharma, and an army of lawyers and lobbyists to corral the medical boards and institutions in the various states. In a free market, IBM w

Re:The IBM philosophy

[Junta]

IBM would have leveraged their tech to provide lower cost diagnostics

You don't know IBM very well do you?

Watson is a slacker

[Rosco P. Coltrane]

It's much too busy playing Jeopardy [wired.com] to have any time left to work on a cure for cancer.

Cringely prediction

[enriquevagu]

Two years ago Cringely predicted that IBM would 'Disappear Into Red Hat' [slashdot.org], which they had bought the year before [slashdot.org].

Today, IBM has been dropping all of its former technology. It sold their PCs and laptops to Lenovo many years ago [slashdot.org]. Its blockchain branch, unsurprisingly, is almost dissapeared [slashdot.org]. Now they are selling their Watson health assets, which was one of their big bets [slashdot.org] years ago.

They still have some relevant technology, such as Power servers and Mainframes, but nowadays IBM is mainly Red Hat. Cringely was rig

Not really

[virtig01]

Or at least not yet. By IBM's Q3 numbers:

$4.4B - Global Business Services (consulting)
~$3.5B - Cloud and data platforms (Red Hat is in here)
~$1B - Transaction processing
~$1B - "Cognitive apps" (assuming Watson is in here)
~$1B - Mainframe, Power, OSes

So by revenue, the Red Hat portion makes up about 30% of revenue, or 40% once Watson is gone. When IBM bought out RHT in 2018, it cost them about 30% of their market cap, so Red Hat hasn't taken over the business. Yet.

"More than $1B" for a unit that made $1B in 2021?!

[Khopesh]

A billion dollars sounds like a lot ... until you read the final line of the article summary:

Last year, the Wall Street Journal reported the unit generated about $1 billion of annual revenue.

I know Watson Health has been a sinking ship, having been designed to compete on Jeopardy and then struggling to be re-adapted to healthcare, but when you sell off assets for what they generated in the last single year, that's saying something really bad. There must be some inflation to that last year's worth of revenue

Re:

[ranton]

when you sell off assets for what they generated in the last single year, that's saying something really bad

Why? Companies with low profit margins can have a market cap close to their yearly revenue. Walmart currently has a $400 billion market cap based on over $550 billion in 2021 revenue. If someone acquired Walmart at 40% above current market rate, they would be buying them for about the same amount as their yearly revenue. That doesn't reflect anything bad about Walmart's business, it simply means they have a low profit margin.

Re:

[Khopesh]

If this unit made $1B in 2021 and would make roughly the same in 2022 and onward, then IBM loses a potential $1B/y starting in 2023 in exchange for getting 2022's revenue a little early. Generally, sale of a unit goes for at least a few years' worth of profits.

Re:

[Junta]

designed to compete on Jeopardy and then struggling to be re-adapted to healthcare

From what I heard, about the only continuity between the Jeopardy stunt and the Watson that existed in conjunction with 'Watson Health' was the brand name.

Basically they made a PR stunt with no business plan beyond the stunt, then tried to leverage the brand in products they thought might have a viable business plan.

Re:

[kriston]

When I worked for IBM Federal Systems Company back in the early 1990s, IBM sold the division to Loral. It was the sole source of income that constituted IBM's profit that year.

They're not new at this.

Fun fact: Loral eventually bankrupted themselves and rolled all their acquisitions into what is now Lockheed Martin with a $1 billion cash gift from the Clinton Administration.

Now explain why they bought The Weather Channel

[kriston]

Yeah, now explain why they bought The Weather Channel.