IBM Hits 52-Week Low as Watson Branding Flails
Bob Dylan has made a television commercial for International Business Machine Corp.’s (NYSE: IBM) Watson natural language machine learning “mega project.” So have Serena Williams and scientist Richard Thaler. Watson is not a consumer product, so the selection of well-know people is out of place, and so is its presence on national TV. But IBM wants to be viewed as the company based on Watson’s future, and not the mainframes for which it has been known for decades. While Watson management tries to garner major customers, for some reason via Bob Dylan, Wall Street has pushed IBM’s shares to a 52-week low. Watson may be a major advance toward the future of computing, but it has not made a mark with the people who buy and sell IBM shares.
After three years during which IBM’s stock has made almost a direct move downward, it reached a 52-week low of $116.90 recently, against a 52-week high of $176.30. The cause cannot be entirely weak earnings or forecasts. Those were posted several weeks ago and were dismal. The most important marker of the fourth quarter of 2015 is that revenue fell 8.5% to $22 billion. Net income fell 18.6% to $4.5 billion.
IBM does not have much to show for its tremendous Watson marketing effort. It has a deal with Under Armour Inc. (NYSE: UA) meant to help people with their personal fitness. It has an arrangement to help Medtronic Inc. (NYSE: MDT) with diabetes management. IBM bought the Weather Company’s assets, other than the television network. As part of the promotion of the buyout, management commented:
“The Weather Company’s extremely high-volume data platform, coupled with IBM’s global cloud and the advanced cognitive computing capabilities of Watson, will be unsurpassed in the Internet of Things, providing our clients significant competitive advantage as they link their business and sensor data with weather and other pertinent information in real time,” said John Kelly, senior vice president, IBM Solutions Portfolio and Research. “This powerful cloud platform will position IBM to arm entire industries with deep multimodal insights that will help enterprises gain clarity and take action from the oceans of data being generated around them.”
Weather forecasting is a fairly narrow business on which to help build a large next generation computing product line. It was important enough, however, that IBM made Weather Company CEO David Kenny head of the Watson division. No one inside IBM qualified.
Among the major reasons investors are skeptical about Watson is that the cloud computing industry is dominated by Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT). Each has enough branding, marketing firepower and advanced technology that IBM’s ability to gain profitable business at any scale may be very small. So far, the evidence is that this viewpoint is valid.
As Bob Dylan walks off stage in his Watson commercial, he seems frustrated. Watson can’t sing. That is not all it can’t do.