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IBM looking to sell Watson Health for a second time

by John R. Fischer, Senior Reporter | January 10, 2022
Artificial Intelligence Business Affairs Health IT
IBM is reported to be looking to sell Watson Health for a second time and exit the healthcare sector
IBM is rumored to be taking a second stab at selling Watson Health and hopes to take home $1 billion from the transaction.

The corporation is looking to get out of the healthcare industry due to being unable to turn a profit, despite spending more than $4 billion in acquisitions to grow Watson Health, according to the news site, Axios.

Shares for the company rose this week following the news, jumping more than 1.5% to $140.30. This was just below its 52-week high, according to Seeking Alpha.
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The company previously tried to sell Watson Health in early 2021 as part of new CEO Arvind Krishna’s plans to streamline the company and make it more competitive in cloud computing where it trails behind rivals Amazon and Microsoft.

Morgan Stanley led the process, with Watson Health generating roughly $1 billion in annual revenue, despite being unprofitable, reported The Wall Street Journal at the time. The company’s cognitive applications revenue, which includes Watson Health, was $1.5 billion in the fourth quarter of 2020, a decrease of 2% year-over-year. Shares also slipped 6.6% due to poor cloud and cognitive software performance.

At the time the company was considering selling to a private-equity firm or industry player, or merging it with a blank-check company. "Watson was one of IBM's highest-profile initiatives in recent years and a big bet on the growing healthcare sector, though results disappointed in part because physicians were hesitant to adopt artificial intelligence," read The Wall Street Journal.

While the effort to find a buyer then was unsuccessful, IBM hired BofA Securities to find one in late 2021. Bids were due this week, one source told Axios, adding that IBM was looking to choose one at the end of the month. Among the contenders is allegedly one unnamed strategic buyer and several private equity firms, who may strategically break down the division in hopes of generating profit.

A manufacturer of AI, analytics and data tools for augmented intelligence in hospitals, IBM Watson Health has underperformed financially since it first launched in 2015. In April 2019, IBM stopped the development and sales of its Watson AI drug discovery tools due to poor sales and then shifted focus to clinical development, according to EnterpriseAI. This was attributed to growing skepticism around the use of machine learning in complex medical research.

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