IBM CFO Tells Investors Goals Of Cognitive Transformation Are In Sight

IBM entered 2017 with the goals of the global business transformation it articulated more than three years ago still squarely in its sights, CFO Martin Schroeter told shareholders Thursday during the company's Q4 earnings call.

Big Blue is ahead of pace in achieving the targets it laid out around its strategic imperatives of cloud, analytics, mobile, social and security—$40 billion in revenue and 40 percent of overall revenue coming from those high-margin businesses, Schroeter said. But that doesn't mean the company's transformation will then be considered complete, or that IBM will ever stop transforming its business model, he added.

In 2016, IBM hit the 40 percent milestone for strategic imperatives, and derived $32.8 billion in revenue from those parts of its portfolio, with $40 billion projected by 2018. Those numbers convey the transformation strategy is working, Schroeter said.

[Related: IBM's Surging Cloud Revenues Offset Legacy Losses]

The tech giant based in Armonk, N.Y. closed out 2016 with $79.9 billion in annual revenue, a decline of 2 percent from the previous year.

IBM beat analyst expectations in the fourth quarter that ended in December, with revenue of $21.77 billion and non-GAAP earnings per share of $5.01—analyst consensus put revenue estimates at $21.66, and EPS of $4.88.

Those numbers propelled IBM to $13.59 earnings per share for the year, which also was better than predictions.

But after an initial after-hours spike following the release of Q4 financials, shares, which closed at $166.81, tumbled by more than 2 percent.

"We have a very clear point of view of what it takes to be successful with enterprise clients in this new era," Schroeter said. The ingredients are cognitive, cloud, and industry expertise, he said.

That fourth quarter was powered by solid growth in analytics, security and mobile products, Schroeter said.

The strategic imperatives grew year-over-year by more than 13 percent, and overall cloud revenues were up more than 35 percent.

Large investments in organic growth, 15 acquisitions, and partnerships over the last year brought IBM closer to reaching the business model it envisions for its future.

A large part of that vision is centered on the cognitive technology the company has spent years developing, much of it coming to market through the various Watson platforms, Schroeter said. But merely possessing "world-class cognitive technology is table stakes."

What sets IBM apart is its access to unique data sets that can be used to train cognitive platforms and solve real problems across industries like health care and financial services, he said.

It's that combination of cognitive technology, private data, the cloud platform and expertise in working with specific industries that make IBM's technology truly unique in the market.

"We're moving into a new phase," Schroeter said. "The debate about whether artificial intelligence is real is over."

Competition now among vendors will center around bringing to market enterprise solutions that provide businesses with the cognitive insights that can give them competitive advantages, he said.

Another emerging technology that will enable new business processes is blockchain, which can power and safeguard transactions.

IBM's blockchain platform introduces to the enterprise shared ledgers that ease the transfer of assets, from shipping containers to financial bonds to music. Blockchain increases transparency, audibility and trust, while reducing risk, he said.

In 2016, IBM built its blockchain platforms and services. This year, the company will start scaling its blockchain networks, he said.