IBM 1Q16 Earnings Call Notes

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Martin J. Schroeter – Senior Vice President and Chief Financial Officer

Watson adoption increasing

“Over the last 12 months, the number of developers using Watson APIs is up over 300% and the number of enterprises we’ve engaged with has doubled. Watson solutions are being built, used, and deployed in more than 45 countries and across 20 different industries. And this quarter, we significantly added to our Watson Health platform with the acquisition of Truven, a leading provider of cloud-based healthcare data, analytics, and insights. This was announced in February and closed just over a week ago. I’ll expand on these solutions and go into more detail on our strategic imperatives performance in the segment discussions.”

Watson Healthcare is creating a new market

“Watson Healthcare is our first industry-focused area where we’re creating a new market. This is an industry with billions of dollars of new revenue opportunity for IBM. We started to move into the cognitive healthcare space just about a year ago and have invested $4 billion through four acquisitions. We’re scaling rapidly, moving from effectively no employees to more than 6,000 in a year.”

Watson has learned new languages

“When we first introduced Watson, it could reach a population of 400 million English-speaking people. As Watson has been taught more languages, it can now speak with another billion people in their native language.”

Where are we in the transformation?

“So where are we in the transformation? It is continued focus on shifting our investments into those strategic imperatives, it is making sure that the space we’re moving to is higher margin and higher profit opportunity for us and then making sure we’re investing aggressively to keep those businesses growing.”

A weak dollar helps us

“At current rates we would get a bit of a translation benefit, but I think it’s really important to recognize that while as much as we like to think this is uniform on both sides of a dollar move, and we do believe that a weaker dollar on balance helps us, a weaker dollar also drives renegotiation in price and other things that come into the equation. So the impact at this point, the hedge impact on the currency rates today is obviously exactly the same. We’d do a little bit better at this point in profit if we were able to keep it; we’d do a little bit better there for the rest of the year.”

The world only creates so much talent in a given field

“Now, in terms of spend rates, as I mentioned, investments are shifting our workforce, if you will, investing are changing the way we operate. It’s changing the way we engage with one another. So if the world created 5,000 cognitive experts, we would hire 5,000 cognitive experts. We already have, by the way, the largest private math department in the world, and so we are absorbing, if you will, the skills that we need for our business in order to drive these. But there is a rate at which it doesn’t make sense for us to keep putting money into these because the world doesn’t create them anymore. It’s not a problem that can be solved by spending more money. It’s a problem that is constrained by the kinds of skills the world’s creating. So we have a global search on for talent.’

Skills have gravity

“What we find is that skills have gravity and highly skilled people want to work with others in their fields who are also highly skilled. So they come here to work with our unique data sets, with our unique technologies, with our unique industry expertise, in order to change the way the world works in order to change the way industries operate, in order to change professions.”