International Business Machines Corp IBM is expanding footprint in China. The company recently inked a multi-year partnership with Baheal Pharmaceutical Group to extend the usage of Watson for treating cancer patients in the country.
Baheal currently works with more than 12K hospitals across China, which is a significant number in our view. IBM hopes that Baheal’s extensive network will improve Watson’s adoption among oncologists in China, where cancer kills 2.3 million people annually.
We also note that the current agreement allows Baheal to introduce other Watson healthcare products (including Genomics) at a later date in China. This shows IBM’s intent to capture the burgeoning Chinese healthcare market, which is expected to reach $2.3 trillion by 2030. Per McKinsay & Co, China’s healthcare market is estimated to grow at a CAGR of 12% to reach $1 trillion by 2020, which is a massive growth opportunity for the company.
Saturated domestic market and weakness in Europe have been hurting its top-line growth for some time. In first-quarter 2017, revenues declined 2.8% year over year and 16.6% sequentially to $18.16 billion, which missed the Zacks Consensus Estimate of $18.49 billion.
International Business Machines Corporation Revenue (TTM)
International Business Machines Corporation Revenue (TTM) | International Business Machines Corporation Quote
Watson Adoption Continues to Improve
IBM continues to expand Watson offerings that are helping it to gain new customers. In the first quarter, the company added 50 new clients to Watson IoT Platform in the quarter.
IBM’s partnership with salesforce.com CRM combines Watson-Einstein. The collaboration will provide an insight on huge amount of data specifically related to the fields of health care, financial services and retail, which will boost presence in the rapidly growing artificial intelligence (AI) market.
Per an IDC report, worldwide spending on cognitive systems and AI is expected grow at a CAGR of 55.1% to reach over $47 billion by 2020. This presents significant growth opportunity for IBM Watson, which is anticipated to reach more than 1 billion people by the end of 2017. The company estimates the market for Watson on Cloud as a decision making support system to be worth nearly $2 trillion by 2025.
We believe that improving adoption of Watson will eventually boost IBM’s top-line, which will have a positive impact on share price. Notably, IBM has lost 8.4% as compared with S&P 500’s gain of 9.4% on a year-to-date basis.
China: A Key Catalyst for IBM
IBM’s approach in China has been conciliatory in the last couple of years. The company has been active in sharing technology with Chinese IT counterparts through partnerships and collaborations.
In 2015, IBM collaborated with 21Vianet to launch Bluemix cloud-based software development platform to China. Last year, IBM launched Watson for Oncology across 21 hospitals in China through a partnership with Beijing-based Hangzhou CognitiveCare.
In March, this year, IBM signed a collaboration agreement with Wanda Internet Technology Group to provide Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) to Chinese enterprises and businesses through a new company. Reportedly, IBM will have a share in revenues.
IBM also announced that it will introduce Watson services to China through this new partnership, starting with Watson Conversation services.
We note that these alliances have allowed the company to expand footprint in China, which has been a tough market to penetrate for U.S.-based businesses like Alphabet GOOGL and Facebook FB.
Zacks Rank
Currently, IBM carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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