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Protocol Enterprise

Hello and welcome to Protocol Enterprise! Today: IBM’s solid earnings report still needed a lot of help from an old friend, consider donating your old washing machine to a needy industrial behemoth near you, and why natural-language processing isn’t ready for clinical prime time.

Spin up

What’s old is new again: Demand for low-end chips built on older process technologies has increased so much during the chip shortage that Semi expects chip manufacturers to increase the number of chips built on 200mm wafers — a generation beyond the current 300mm wafers — by 21% from 2020 to 2024.

IBM says it’s a “different company”

IBM enjoyed one of its best days in recent years Wednesday, high on the feedback from the stock market after reporting earnings Tuesday afternoon that exceeded Wall Street’s expectations. But as the smoke clears, it’s not clear how much of the company’s momentum can be attributed to actual growth and how much is the result of external factors.

The numbers certainly were good, by IBM’s standards:Overall revenue was up almost 8%, excluding currency effects, and while net income declined 23%, earnings per share exceeded analyst expectations once the one-time factors were excluded.

  • Red Hat was once again the crown jewel in IBM’s portfolio, leading the company with 18% revenue growth during the quarter.
  • It’s hard to imagine where IBM’s software group would be without Red Hat, although that megapurchase did add significantly to the $54.2 billion in debt carried by the company.
  • Another bright spot was IBM’s Cloud Paks, its non-Red Hat automation, data and security software portfolio: Net retention rates for that software, an important measure of SaaS performance, crossed 100% during the quarter, which means IBM is renewing current customers and those customers are spending more money.

Yet it’s impossible to ignore how much of IBM’s growth was driven by currency effects and its continuing relationship with Kyndryl, the managed IT services provider it spun out last year as an independent company.

  • Revenue tied to Kyndryl, which was a huge part of IBM’s business model for years, accounted for half of the growth in its software division.
  • Overall, “about 50% of our contribution of growth came from Kyndryl and about 50% of our contribution came from our broader client segments,” said Jim Kavanaugh, IBM’s chief financial officer, on its earnings call as transcribed by Seeking Alpha.
  • IBM also recast its Q1 2021 software group revenue number from $5.4 billion as reported a year ago to $5.1 billion after restructuring the group and spinning off Kyndryl, making the software group’s performance during the last quarter look stronger.

Still, IBM executives remained bullish that they’ve figured out a way for the company to return to steady growth after years of flat-to-down revenue results.

  • Another mainframe refresh cycle is coming up at the end of the second quarter, which should lift the company’s overall results.
  • IBM expects revenue contribution from Kyndryl to decrease over the rest of the year as a percentage of its overall total but still raised overall revenue guidance for the year.
  • And as IBM’s longtime customers tiptoe into cloud computing the company thinks its consulting revenue will increase as those companies need help with the transition.

“IBM is now a very different company,” CEO Arvind Krishna said, a statement that has been said many times, many ways, by a parade of IBM executives over the last decade.

  • When the modern enterprise tech titans — AWS and Microsoft — report earnings next week, we’ll see just how much more work IBM has yet to do.

— Tom Krazit (email | twitter)


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Spin cycle

Anyone who has tried to buy a car or home appliance lately knows the chip shortage is still pretty bad. But it has become so dire that large industrial companies are buying washing machines in order to rip out the chips and repurpose them, according to ASML CEO Peter Wennink.

“Now, we could say that’s an anecdote,” he said on the company’s earnings call Wednesday. “But to be honest, it happens everywhere — it is 15-, 20-, 25-year-old semiconductor technology that is now being used everywhere.”

Wennink said that the Internet of Things is likely driving the demand for these older chips found inside home appliances.

The Dutch company makes lithography tools that chip giants such as TSMC, Intel and Samsung use to manufacture their most advanced processors. Wennink has a unique view of the semiconductor supply issues since ASML deals with a wide range of businesses around the world. And business is good: It reported a net profit of €695.3 million ($754.3 million) on sales of €3.53 billion.

ASML itself is struggling to build all of the tools its customers want, and is trying to figure out how to produce just over 700 lithography tools in total every year. Wennink said in the earnings call that he would be happy if he could fulfill 60% of the orders ASML has received this year. According to Bernstein analyst Mark Li, it is likely ASML will struggle to fulfill demand through 2023.

— Max A. Cherney (email | twitter)

3M: Medical transcription AI isn’t accurate enough for clinical notes

3M incorporates speech recognition and natural-language processing (NLP) in tools it provides that transcribe doctors’ conversations with patients, and help detect when keywords in those discussions correspond with disease classification codes used for insurance purposes.

But the company does not use those forms of AI to automate clinical notes, as companies including Microsoft’s Nuance do.

At this stage, NLP and speech recognition is not accurate enough to be used that way, said Jim Graham, director of AI sciences at 3M. “I don’t see a silver bullet out there today,” he told Protocol. In the future, if AI improves enough, the company might consider using it to automate clinical notes related to specific medical conditions or specialties, but there are no plans for that at 3M now, he said.

“We want to make sure that we are as accurate as [possible],” Graham said.

— Kate Kaye (email| twitter)

Around the enterprise

Okta said a final accounting of the Lapsus$ security incident affected just two customers, compared to the “hundreds” of customers it said were impacted last month.

The Five Eyes security group — Australia, Canada, New Zealand, the U.K. and the U.S. — warned of a fresh set of cyberattacks being planned by Russian hackers against critical infrastructure inside and outside Ukraine.


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Thanks for reading — see you tomorrow!

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