Shares of International Business Machines Corporation IBM have underperformed the broader Zacks Computer Integrated Systems industry over the last 12 months. While the industry generated a return of 38.4%, the stock gained 27.3%.
The underperformance of the stock could be attributed to the ongoing and heavily time-consuming business model transition to the cloud. Further, sluggish IT spending, particularly in on-premises and data center hardware, and foreign exchange volatility remain the primary concerns. Also, intensifying competition in the cloud is a major headwind.
Nevertheless, IBM's strategic initiatives, including Big Data & business analytics, cloud computing, mobile and social business are expected to drive growth. In addition, the company’s policy of making strategic acquisitions will lead to incremental revenues, strengthen its technology leadership, resulting in a more favorable mix of business. The acquisitions have also increased its scale of operations globally.
The company recently announced a partnership with Panasonic Automotive, Panasonic’s automotive technology division at the Consumer Electronics Show and introduced the Panasonic Cognitive Infotainment system.
The objective of the product will be to deliver the original equipment manufacturers and fleet providers a number of cognitive vehicle solutions that would combine IBM Watson’s cognitive abilities along with Panasonic’s infotainment dexterity.
Notably, Panasonic’s current infotainment solution is capable of voice recognition for answering questions, provide recommendations and driving directions. It also features e-commerce capabilities. IBM intends to incorporate a smart vehicle monitoring system into the platform that would inform the driver of any anomalies in the vehicle, in advance.
International Business Machines Corporation Price and Consensus
What Does this Mean for IBM?
Notably, this is yet another win for IBM’s Watson which is increasingly seeing adoptions across many industries.
During Dec 2016, IBM’s Watson was adopted by the Lotte Group to drive innovation across its business verticals (read more: IBM's Watson to Enable Lotte Gain Insight into Customer Data). Also, during the same time, IBM’s Watson was adopted by Unruly, a British ad tech company to build a new cognitive powered psychographic targeting tool in order to make digital video ads more audience targeted and thus more effective (read more: IBM Watson to Make Unruly's Digital Video Ads More Targeted).
Per an IDC report, worldwide spending on cognitive systems and artificial intelligence is estimated to be over $47 billion by 2020, from $8 billion at present. The segment is projected to grow at a CAGR of 55.1%.However, with the presence of big players like Alphabet GOOGL owned Google’s DeepMind, Amazon’s AMZN Amazon AI and Microsoft’s MSFT Microsoft Artificial Intelligence and Research Group, stiff competition persists.
Given IBM Watson’s growing popularity, we anticipate to see more of such adoptions in the future, which will definitely have a positive impact on the company’s bottom line.
At present, IBM carries a Zacks Rank #4 (Sell).
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