IBM (IBM) is set to top the list of patent holders for the 24th year in a row in the U.S. This is no ordinary feat. IBM is the only company to have ever exceeded over 7,000 U.S. patent grants during a single year. During 2016 year-to-date, IBM has already crossed the 7,000-patent mark for the third consecutive year.

Against this backdrop, IBM is fundamentally reorganizing its business, leaving behind the image of ‘hardware, software, services’ company to emerge as a leader in ‘cognitive solutions and cloud computing.’ Here’s a look at how IBM is transforming its business, changing its patent portfolio and re-inventing to be IBM 2.0.

Over the years of its existence, IBM has experienced multiple technology eras and the company believes that, “the next chapter is ushering in an entirely new era of human-organization-computer interaction -- embodied in cognitive solutions and the cloud platform.”

In 2014, IBM announced its plans to restructure the company by shifting its focus away from big computers, low-end servers, point-of-sales systems and software licenses to what it calls strategic imperatives -- data and analytics, cloud, mobile, social and cyber security.

Working in this direction, it took another leap forward by setting up the industry’s first cognitive organization -- IBM cognitive business solutions in October 2015. “Cognitive is an entirely new model of computing and includes technological innovations (not restricted to) in artificial intelligence, machine learning and natural language processing, and its embodiment is Watson” as per IBM.

IDC forecasts the global spending on cognitive systems to soar up to more than $31 billion in 2019. It further predicts that by 2018, “half of all consumers will interact regularly with services based on cognitive computing.”

IBM has channelized its patents and investments -- research and development, capital expenditure and acquisitions to back strategic areas such as cognitive computing, analytics, cloud and artificial intelligence. During 2015, 54% of its investments of $13 billion were directed towards strategic imperatives which cumulatively grew by 26%, earning $29 billion in 2015, contributing 35% to IBM’s total revenue. Nine months later, at the end of Q32016, they represented 40% of IBM’s revenue.

IBM’s patent portfolio equally reflects its transformation process; at the end of 2015, 31% patents belonged to this category of cognitive solutions and cloud computing which translated to more than 2,200 patents in the segment while way back in 1993, 27% of its patents were in hardware. In 20 years from 1992-2012, IBM received nearly 67,000 U.S. patents, the number reached 88,000 by the end of 2015 and is expected to exceed 95,000 by end of 2016.

Patents are a critical component of IBM’s growth strategy, they hold a lot of strategic worth; reflect commitment to innovation and creation of leading edge technological products and services, rightly timed patents complement first-mover advantage, beat competition by providing a monopolistic edge to start with and act like ammo to increase business value and generates income streams from its intellectual property.

Ginni Rometty, CEO, IBM has projected that 1 billion consumers will be reached via Watson by end of 2017, primarily through its partnerships across industries and companies, such as General Motors, Pfizer, BMW, Slack, Quest Diagnostics, Lotte Group, Apple, Twitter, Massachusetts Institute Technology (MIT) and many more.

Patents are a both a “cause and effect” of IBM’s bullishness on these emerging opportunities. With about one-third of its researchers dedicated to cognitive, and the work done by its inventors, is producing a wave of patent output in artificial intelligence and cognitive services and applications; eclipsing 1,000 AI patents during 2016 so far. This gives IBM a lead against companies which have just begun to work in the field of AI such as Facebook, Amazon, Apple, among others.

IBM’s path of business transformation isn’t without pain. It has experienced eighteen quarters of straight decline in revenue, although green shoots from its strategic imperatives are clearly visible. This has helped the company post better than expected results (lesser losses than expected) in each quarter and reinstated the confidence among investors that it is moving on the right path. IBM’s shares are up 21.39% year-to-date.

Final Word

Patents are like the seeds of technological innovations that were planted years ago with a futuristic vision in mind. IBM has been active in doing so and what we see today in practice are the saplings. The real rewards will come with time but IBM is making sure that it keeps planting those seeds for the future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.