IBM And The Blockchain Bet

In the blockchain space, the announcements come fast and furious. The movement to bring all sorts of data and processes to the decentralized ledger model and to blockchain platforms is an inexorable one.

At the same time that press releases seem to accrue on a daily basis, earnings calls offer a bit of a progress report, where company management gives investors, analysts and observers of various industries a bit of insight into how certain initiatives are faring – and how they are contributing to top and bottom lines, or not.

International Business Machines, the tech giant known a bit more colloquially as IBM, has been among the firms investing both money and mindpower into blockchain, evidenced by a string of announcements across the last several months – and as evidenced, too, in a drive to file scores of blockchain-related patents.

As noted late last month via the website blocklr.com, some of the biggest companies in tech and beyond have been scrambling to patent IP tied to blockchain. Though most of the patents have come from China (as also detailed in PYMNTS), IBM is in fact tied with Mastercard for the second highest tally of blockchain patents in 2017. The company has said that its blockchain platform has more than 400 clients, using Hyperledger Composer and Hyperledger Fabric. Among recent announcements, the company had a patent accepted for using blockchain for database management.

And in terms of partnerships, IBM said that it has worked with the shipping firm Maersk to help streamline international logistics. The collaboration, known as TradeLens, uses smart contracts to handle bills of lading and other documentation. The companies said last week that the platform has handled 154 million shipping events.

Before that announcement, IBM said it is working with Walmart to improve the latter’s food business supply chain. And this week came the news that Visa is integrating open source blockchain code via Hyperledger Fabric, with a 2019 anticipated launch of Visa’s B2B Connect, the enterprise blockchain offering focused on cross-border payments.

The Earnings Commentary

With the slew of headlines in place, earnings reported by IBM also offered a bit of a prism through which to view blockchain.

The verdict seems to be: It’s a work in progress.

In terms of the headline numbers, IBM said that its cognitive computing segment, which brings a number of initiatives under one umbrella – ranging from artificial intelligence to blockchain to transaction processing technologies – was down 5 percent year over year to $4.1 billion. The cognitive solutions business is comprised of two segments: solutions software and transaction processing software.

The former business is what includes AI and blockchain, while the latter includes software that is tied to hardware and reflects what you might consider to be traditional computing initiatives. Transaction processing was down 8 percent year on year, and management noted on the call that solutions software was down 3 percent, as “secular shifts” in collaboration and commerce and talent management have impacted results.

Yet CFO Jim Kavanaugh pointed to AI and stated that “modernizing those [aforementioned] offerings to combat those [secular] changes” is underway, and growth is seen in both AI and blockchain.

On the call, Kavanaugh said that OPEX control – where expenses were down 4 percent year on year – allowed the company to make investments in a number of initiatives, among them blockchain. In general, said Kavanaugh, “we had good performance across these areas this [past] quarter.”

He noted that “in the emerging area of blockchain, this quarter our IBM Food Trust network for food safety went live, and Carrefour, one of the world’s leading retailers joined the network. We also jointly announced TradeLens with Maersk. Together, we will apply blockchain technologies to address inefficiencies in the global supply chain, and signed up over 50 ecosystem participants, and we now have over 75 active blockchain networks.” Later, Kavanaugh said, “we’ve got engagements in over 500 clients around global trade, universal payments, around trade finance, around food safety, etc. So, we see that part of the portfolio continue to improve.

“When you bring it all together, we expect with a strong pipeline that we would return IBM software back to an expectation of modest growth in the fourth quarter,” he told analysts. “And we’ll see as we get through fourth quarter, how that momentum will continue in 2019.”