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WellPoint Inc. (WLP), one of the top U.S. health benefit providers, recently announced that it wants to use IBM’s Watson system for patient diagnostics, a new milestone in patient healthcare. Watson is an artificial-intelligence computer system that can answer questions posed in natural language. IBM (IBM) developed Watson over the past four years and named it for the company founder, Thomas Watson. The system made its debut in the spotlight on the quiz show "Jeopardy!” and beat two human competitors, winning a prize of $1 million.

Witness the latest big experiment in the healthcare industry's use of technology to make recommendations on patient care and diagnostics, courtesy of IBM. WellPoint and IBM will populate Watson with medical information as a start. The system will then be made available to physicians to diagnose such conditions as cancer, diabetes and kidney disease. Cancer will be the first area that Watson will focus on.

WellPoint’s point to some extent is that the computer can assess 200 million pages of data in less than three seconds, that medical information availability is doubling every five years (a pace that can overwhelm providers), and that technology can manage the diagnostics process better then humans can. Doctors will be able to access the Watson application on a computer or hand-held device before, during or after visits. WellPoint likely will make it available free of charge.

IBM as a powerhouse of profits

While there are skeptics who question a computer’s ability to provide patient diagnostics, there is not much to be skeptical about IBM’s performance as a company. While other high tech firms such as Google (GOOG), Apple (AAPL), Facebook, and Microsoft (MSFT) hit the spotlight often, IBM quietly operates under the radar, primarily selling its products and services to business, quite effectively and with handsome profits.

IBM had revenues of $99.9 billion last year, exceeding Google and Apple combined. By 2015, they expect to add about $30 billion more in annual revenues (30% growth in 4 years). In 2010 IBM was the seventh most profitable company in the U.S. while Microsoft was fourth and Apple was eighth. In September they were the fourth highest valued company by market cap in the U.S. (Apple and Microsoft were both valued higher). IBM’s market cap at the time was $199.4 billion. It’s now $206.60 billion.

Since January 1 of this year, the company’s stock price has risen 11% while the Dow has fallen 5%. It’s currently trading at approximately 172.99 on volume of 11,049,058, with a 52wk Range of 128.43 - 185.63 and a target of $192.00. Its P/E is (ttm):14.05, EPS (ttm):12.32, and Div & Yield are 3.00 (1.90%)

A quick look at second-quarter 2011 diluted earnings says plenty:

Revenue: $26.7 billion, up 12 percent (5% adjusting for currency)

Net income: GAAP: $3.7 billion, up 8 percent;

Operating (non-GAAP): $3.8 billion, up 11 percent;

* Pre-tax income:

GAAP: $4.9 billion, up 7 percent;

Operating (non-GAAP): $5.0 billion, up 10 percent;

Gross profit margin:

GAAP: 46.4 percent, up 0.9 points;

Operating (non-GAAP): 46.8 percent, up 1.2 points;

Diluted EPS:

GAAP: $3.00, up 15 percent;

Operating (non-GAAP): $3.09, up 18 percent.

IBM produces its long-term revenue from Services, Software, Licensing, and Financing of its Mainframe systems, primarily to very large corporations and governments. Other business units produce memory chips, data mining operations, and energy systems-grid systems. Q2 2011 produced Software revenue up 17 percent, Systems and Technology revenue up 17 percent, mainframe revenue up 61 percent, Services revenue up 10 percent, and Full-year 2011 Operating (non-GAAP) EPS expectations raised to at least $13.25 from at least $13.15.

For the 18th year in a row, IBM ranked #1 in companies receiving U.S. patents, with 5,895 granted. The company expects to spend $20 billion in acquisitions between 2011 and 2015. While IBM help legitimized the PC computer industry in the early 80’s with the IBM PC, they officially ended their consumer related business in 2005 with the sale of their ThinkPad division to Lenovo. Since then, ‘under the radar’ has been the rule, but their profitable ways have not been lost upon investors or the markets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Why IBM Still Matters