International Business Machines Corp.’s artificial intelligence product Watson appears to be losing ground to competitors, and investors will likely want to know how that’s affecting the tech giant’s cognitive-solutions business.
IBM IBM, +1.32% is scheduled to report third-quarter earnings after the bell on Tuesday. While cognitive solutions, which includes Watson, is expected to be IBM’s poorest performing segment in this earnings report, it occurs in a seasonally weak quarter for IBM.
Analysts surveyed by FactSet expect cognitive-solutions revenue to decline 2% to $4.31 billion from the year-ago quarter, and that appears to be happening while IBM is losing business to competitors like Amazon.com Inc. AMZN, +4.03% and Microsoft Corp. MSFT, +3.46%
In a Morgan Stanley survey of chief information officers — 76 from U.S. IT companies and 24 from European companies, carried out in August and September — the firm found that 43% of CIOs are evaluating using AI and machine learning in their businesses, compared with 35% in the year ago period. But with that increase, IBM has lost its dominance, according to Morgan Stanley.
Of the CIOs surveyed, 27% preferred Amazon as a vendor, up from 24% in the year-ago survey. Preference for IBM fell to 24% of respondents from 33% in the year-ago survey. Microsoft remained in third place at 20%, up from 15% in the year-ago survey.
Also, 30% of respondents said they had an enterprise license agreement with IBM in the third quarter, down from 35% in the first quarter. But of those who had an ELA, 28% said they would renew at a higher price. The survey found that 53% expect to renew an ELA with IBM over the next 18 months, compared with 58% in the first quarter.