IBM forecast 2016 adjusted earnings of at least $13.50 per share, missing analysts' average estimate of $15 per share
NEW YORK: Here's a vexing question for artificial mega-brain Watson: Why is IBM stock surging? Big Blue's market value rose about $6 billion after the computer giant agreed on Thursday to buy Truven Health Analytics for $2.6 billion. Giving IBM's artificial-intelligence platform more data to chew on is useful, but investors' glee over an opaque addition to an enigmatic business effort is confusing.
Big Blue's top line has been shrinking steadily for nearly four years. In the fourth quarter of 2015, all major divisions had declining sales, with overall revenue falling 8.5 percent compared with the same period a year earlier. Clients need less of IBM's hardware, and its software and consulting businesses are faltering in competition with rivals' cloud-based versions.
The upshot is a falling share price. It has dropped about 25 percent in the past four years, while the S&P 500 has risen about 40 percent.
The Truven deal is part of IBM's plan to grow in areas like cloud computing and analytics services. The company says sales in those divisions grew 17 percent last year. And the main component of those efforts is Watson, which aims to make large and complex data useful.
Last year's purchase of most of The Weather Company's assets and various healthcare-company acquisitions were part of the same strategy. The idea behind buying Truven is that its data can be plugged into Watson to help health plans save money and hospitals provide better care. Including the Truven acquisition, IBM's Watson Health unit will have spent $4 billion on mergers and acquisitions since its launch less than a year ago.
The strategy seems to be working. IBM's stock price has surged over the past week, and Morgan Stanley says it believes the Watson units will return Big Blue to positive revenue growth in 2019.
The optimism may be premature, however. While IBM has trumpeted increasing sales in cloud and analytics businesses, revenue growth slowed in the fourth quarter to 10 percent. The company has also disclosed little about those businesses. Watson's financial performance, for example, is a mystery.
IBM's annual analyst day later this month may allow outsiders a better look at the company's future. In the meantime, though, Big Blue will largely remain a puzzle that even Watson would have difficulty solving.
CONTEXT NEWS
- On Feb. 18, IBM said it had agreed to buy Truven Health Analytics for $2.6 billion. Truven is currently owned by Veritas Capital Fund Management, a private-equity firm that purchased it from Thomson Reuters in 2012 for $1.25 billion.
- Truven offers healthcare data and analytics to the government, health plans and hospitals. That data is used to identify cost savings and improve patient outcomes.
- IBM statement: http://ibm.co/20Gw3l1 - Reuters
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