IBM Watson Health Unit sale rumors resurface

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

In a story from January 5, Axiom reported that IBM has “resuscitated its sales process” for the Watson Health unit, citing unidentified people with knowledge of the situation. IBM hopes to sell Watson Health, which has failed to deliver the economic returns IBM expects since its inception in 2015, for more than $ 1 billion, the story continued.

An IBM spokesperson declined to comment when Corporate AI asked the company’s reaction to the reports.

The latest rumors follow rumors from February 2021 when The Wall Street Journal reported that IBM was trying to sell Watson Health because it was unprofitable despite having annual revenue of $ 1 billion. The move was being considered so that Big Blue could exit 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 CEO Arvind Krishna’s strategy to streamline the business and become more competitive in cloud computing, the Newspaper reported at the time.

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

At the end of 2021, IBM hired BofA Securities to find a buyer for Watson Health, according to the latest Axiom report. “The offers were due yesterday, according to a source who says IBM hopes to pick the winner by the end of the month.”

A strategic buyer and several private equity firms are said to be reviewing the potential purchase, the report continues.

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 also been a concern for IBM’s bean counters in the past. In April 2019, IBM halted development and sales of its Watson AI drug discovery tools, citing disappointing sales, according to a precedent Corporate AI story. With this decision, the company refocused its Watson Health offering on “clinical development” as it readjusted its market strategy. The move came amid reports of declining sales and growing skepticism about the usefulness of machine learning for complex medical research, the article reported.

Charles King, Analyst

Analyst Charles King, director of Pund-IT, said Corporate AI that although the reports are still just rumors, the claim that the potential sale could be linked to financial losses “has a sort of simplistic meaning” as most companies don’t want to continue supporting a losing operation .

“It’s important to keep in mind IBM’s history of divesting businesses that don’t provide the level of success the business needs to achieve the expected financial results,” King said. “This has been the case with the sale or split of its PC, hard drive, Intel server and, more recently, its global technology services group. In other words, a decision to sell or split off Watson Health is likely to be more nuanced than the simplistic “he’s losing money, so let’s get rid of it” narrative some analysts suggest. “

It’s also noteworthy, King said, that IBM is taking a different approach to becoming its competition by pulling out of the healthcare market.

“IBM’s primary goal is to develop and create business solutions, tools and services that businesses can use, rather than playing in these industries themselves,” he said. “When it comes to healthcare, this is a fundamentally different approach to Oracle’s recent acquisition of Cerner Corporation for $ 28.3 billion, which will make the company a major player in healthcare. electronic (DSE). “

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

Rob Enderle, Analyst

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

“It’s not IBM,” Enderle said. “If this rumor is true, it would mean that IBM chooses its battles and has determined, at least for now, that the healthcare costs of effectively solving this data access problem are for a while outweighing the benefits. in terms of revenue and that a more healthcare-focused business – which can spread those costs across a larger portfolio of healthcare offerings – would be a more viable path to success. “

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