Advanced Computing in the Age of AI | Saturday, January 22, 2022

IBM Watson Health Unit Sale Rumors Resurface 

Rumors about the possible sale of the allegedly underperforming IBM Watson Health unit are garnering headlines for the second time since February 2021, even as IBM continues to remain silent on the topic.

In a Jan. 5 story, Axiom reported that IBM has “resurrected its sales process” for the Watson Health unit, citing unidentified persons who are familiar with the situation. IBM hopes to sell Watson Health, which has not brought in the economic returns expected by IBM since it was started in 2015, for more than $1 billion, the story continued.

An IBM spokesman declined to comment when EnterpriseAI sought the company’s reaction to the reports.

The latest rumors follow the February 2021 rumors when The Wall Street Journal reported that IBM was trying to sell Watson Health because it was unprofitable despite bringing in $1 billion in annual revenue. The move was being eyed so that Big Blue could get out of the healthcare market and focus its operations and sights on the lucrative cloud computing market.

The company’s potential interest in selling Watson Health continues to be seen as part of a strategy by CEO Arvind Krishna to streamline the company and become more competitive in cloud computing, the Journal reported at the time.

That original story said that IBM was studying alternatives that could include a sale to a private-equity firm or industry player or a merger with a blank-check company.

In late 2021, IBM hired BofA Securities to find a buyer for Watson Health, according to the latest Axiom report. “Bids were due yesterday, according to one source who says IBM hopes to select the winner by month's end.”

One strategic buyer and several private equity firms are said to be looking at the potential purchase, the report continued.

The Watson Health unit integrates AI, analytics and data to create augmented intelligence for hospitals, insurers and pharmaceutical companies.

IBM Watson Health’s financial performance has been a concern for IBM’s bean-counters in the past as well. In April of 2019 IBM halted the development and sales of its Watson AI drug discovery tools, citing disappointing sales, according to an earlier EnterpriseAI story. With the move, the company shifted the focus of its Watson Health offering to “clinical development” as it readjusted its market strategy. The move came amid reports of declining sales and growing skepticism about the utility of machine learning for complex medical research, the story reported.

Charles King, analyst

Analyst Charles King, principal of Pund-IT, told EnterpriseAI that while the reports are still only rumors, the claim that the prospective sale could be related to financial losses “make a kind of simplistic sense” because most companies do not want to continue supporting a money-losing operation.

“It is important to keep in mind IBM's history of divesting businesses that are not delivering the level of success the company needs to deliver planned financial results,” said King. “That has been the case in the sale or spinoff of its PC, HDD, Intel server and most recently its global technology services group. In other words, a decision to sell or spinoff Watson Health is likely to be more nuanced than the simplistic ‘it is losing money, so let’s get rid of it’ narrative some analysts are suggesting.”

Also notable, said King, is that IBM is taking a different approach to some competitors by getting out of the healthcare market.

“IBM's main focus is on developing and building commercial solutions, tools and services for enterprises to use, rather than playing in those industries itself,” he said. “In regard to healthcare, that is a fundamentally different approach than Oracle's recent acquisition of Cerner Corporation for $28.3 billion, which will make the company a major player in electronic healthcare records (EHR).”

In that deal, “Oracle paid a substantial premium for an established company and expertise in a lucrative industry which is likely a smart move given the continuing pressures on its traditional database applications businesses,” said King. “IBM's situation and history are considerably different, making a concerted effort to build a large-scale healthcare-specific business unlikely.”

Rob Enderle, analyst

Another analyst, Rob Enderle, principal of Enderle Group, agreed that for IBM, the difference between it and competitors like Oracle is that IBM is not dedicated to the healthcare market.

“That is not IBM,” said Enderle. “If this rumor is true, it would mean that IBM is picking its battles and had determined, at least for now, that healthcare costs to address this data access problem effectively are exceeding for some time the revenue benefits and that a company more focused on healthcare – which can spread these costs across a more extensive portfolio of healthcare offerings – would be a more viable path to success.”

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