International Business Machines Corp. IBM -0.95% is exploring a potential sale of its IBM Watson Health business, according to people familiar with the matter, as the technology giant’s new chief executive moves to streamline the company and become more competitive in cloud computing.
IBM is studying alternatives for the unit that could include a sale to a private-equity firm or industry player or a merger with a blank-check company, the people said. The unit, which employs artificial intelligence to help hospitals, insurers and drugmakers manage their data, has roughly $1 billion in annual revenue and isn’t currently profitable, the people said.
Its brands include Merge Healthcare, which analyzes mammograms and MRIs; Phytel, which assists with patient communications; and Truven Health Analytics, which analyzes complex healthcare data.
It isn’t clear how much the business might fetch in a sale, and there may not be one.
IBM, with a market value of $108 billion, has been left behind as cloud-computing rivals Microsoft Corp. and Amazon.com Inc. soar to valuations more than 10 times greater. The Armonk, N.Y., company has said it’s focused on boosting its hybrid-cloud operations while exiting some unrelated businesses.
IBM last year signaled its new focus with the appointment of Arvind Krishna, who had run the company’s cloud and cognitive-software division, to succeed longtime CEO Ginni Rometty.
In October, IBM said it planned to separate a major part of its information-technology services operations, which will be the company’s biggest-ever business exit. The unit manages clients’ IT infrastructure and accounts for nearly a quarter of IBM’s sales and staff.
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.
The company spent billions buying up a collection of health-related businesses that are now part of IBM Watson Health, with the aim of combining them into a vast store of patient data and applying algorithms to extract useful insights.
IBM paid around $2.6 billion for Truven in 2016, almost $1 billion for Merge Healthcare in 2015 and around $230 million for Phytel, according to FactSet. Price tags for other acquisitions weren’t disclosed.
While the effort made strides in areas including oncology and genomics, it never became the cohesive business IBM envisioned and has lost key executives in recent years.
When it appointed Mr. Krishna CEO, IBM also named Jim Whitehurst —CEO of Red Hat, the open-source software company IBM acquired for about $33 billion in 2019—as its president, the first time in decades it has given an executive that title.
IBM saw the deal for Red Hat, the biggest in its history, as an opportunity to gain on competitors in cloud computing. It has said it is aiming for sustainable single-digit revenue growth after the planned spinoff of its managed-infrastructure business, which generates about $19 billion in annual revenue. IBM’s sales have fallen in more than two dozen quarters in the past decade.