IBM has recently delivered a string of disappointing quarters, and announced recently that it would take a multibillion-dollar hit to offload its struggling chip business. But Will Knight writes at MIT Technology Review that Watson may have the answer to IBM's uncertain future.
IBM's vast research department was recently reorganized to ramp up efforts related to cognitive computing. The push began with the development of the original Watson, but has expanded to include other areas of software and hardware research aimed at helping machines provide useful insights from huge quantities of often-messy data. “We’re betting billions of dollars, and a third of this division now is working on it,” says John Kelly, director of IBM Research, said of cognitive computing, a term the company uses to refer to artificial intelligence techniques related to Watson.
The hope is that the Watson Business Group, a division aimed making its Jeopardy winning cognitive computing application more of a commercial success, will be able to answer more complicated questions in all sorts of industries, including health care, financial investment, and oil discovery; and that it will help IBM build a lucrative new computer-driven consulting business.
But Watson is still a work in progress. Some companies and researchers testing Watson systems have reported difficulties in adapting the technology to work with their data sets. “It’s not taking off as quickly as they would like,” says Robert Austin. “This is one of those areas where turning demos into real business value depends on the devils in the details. I think there’s a bold new world coming, but not as fast as some people think.”
IBM needs software developers to embrace its vision and build services and apps that use its cognitive computing technology. In May of this year it announced that seven universities would offer computer science classes in cognitive computing and last month IBM revealed a list of partners that have developed applications by tapping into application programming interfaces that access versions of Watson running in the cloud. Big Blue said it will invest $1 billion into the Watson division including $100 million to fund startups developing cognitive apps. “I very much admire the end goal,” says Boris Katz adding that business pressures could encourage IBM’s researchers to move more quickly than they would like. “If the management is patient, they will really go far”.
GlobalFoundries Inc. has agreed to acquire International Business Machines Corp.'s microelectronics division. Under the terms of the agreement, GlobalFoundries will become "the exclusive server processor semiconductor technology provider [to IBM] for 22 nanometer (nm), 14nm and 10nm semiconductors for the next 10 years."
The largest contract chip maker, Taiwan Semiconductor Manufacturing Company, quadrupled its capital spending in the last five years from $2.5 billion to $10 billion. If you are a company like IBM you have to look at those numbers and ask yourself, does it make sense to take a loss in chip making when you could just buy them from someone else?
IBM's answer as of today is no, it doesn't.
By divesting themselves of their semiconductor manufacturing business, IBM is cutting loose a business that is losing them money, but it is also a necessary step to enable the consolidation of manufacturing rather than a dissolution of the business entirely. Though in better shape than IBM's business, GlobalFoundries has their own struggles with technology and volume, so taking on IBM's business will allow the two businesses to be consolidated and ideally a larger, stronger semiconductor manufacturer to emerge.
Overall then, the deal sees GlobalFoundries taking on everything related to semiconductor manufacturing from IBM except for IBM's semiconductor R&D division, which IBM will hold on to.
GlobalFoundries spun out of AMD in 2009. IBM had been negotiating the transfer of its chipmaking division for some time, and has already sold off its PC and x86 server businesses to Lenovo. IBM has attempted to bolster its Power chips by licensing the architecture through the ARM-like OpenPower Consortium. Earlier this month, IBM announced Power8 servers that would incorporate Nvidia GPU acceleration.
Robert Cringley has just posted an extended essay on how IBM can be turned around.
If there's one company that Cringley understands, it's IBM. He's done his research on this company and apparently has dozens of contacts inside the company, plus many more former employees who departed either voluntarily or as part of an "RA" (Resource Action = layoff).
I expected Cringely to go ballistic when CEO Ginny Rometty dropped a three-part bombshell on the financial markets last week: 1) IBM missed its expected revenue and earnings estimates for the quarter by a huge margin; 2) IBM was selling its semiconductor manufacturing business to Global Foundaries; and 3) Rometty was giving up on the infamous "Roadmap 2015" to $20 earnings/share established by her predecessor, Sam Palmisano, which Rometty had been following diligently since she took over the reins in 2012.
Instead, Cringely reacted in a measured way, writing a pair of short analysis pieces for Forbes; the first on how the IBM server business (the high end business the company retained, not the commodity business sold to Lenovo) will be at a huge cost disadvantage over the next 10 years, even after the sale of the microelectronics division to Global Foundaries; second, how IBM's software and services businesses have been badly damaged by frequent waves of layoffs, so that opportunities for revenue growth too often come from tightening enforcement of software licenses and similar gadgetry.
Now, a week after the announcement, comes the longer reaction piece. Bear in mind that Cringley is a journalist and blogger, not a management consultant or financial analyst, so his advice won't be confused with a bound report prepared for management's eyes only by McKinsey & Co. Cringley's prescription follows...