International Business Machines Corp.


IBM -1.12%

agreed to sell the data and analytics assets from its Watson Health business to investment firm Francisco Partners, the companies said Friday.

The deal is the latest step by IBM to refocus its core business around the cloud. The Wall Street Journal reported last year that IBM was exploring a sale of its healthcare-analytics business as a way to streamline the computing giant’s operations and sharpen its focus on computing services provided via the internet. The Watson Health business uses artificial intelligence to analyze diagnostic tests and other health data and to manage care.

IBM had big aspirations for its Watson artificial intelligence to help in medical research and improve patient outcomes, but the technology’s impact has fallen short of early hopes. Partners and clients have moved away from projects that were built around Watson technology in recent years, although IBM had spent billions of dollars making acquisitions to bolster the business.

“IBM took a risk of becoming a disrupter in the complex health care industry but was only able to garner limited success,” UBS analyst

David Vogt

said in a note Friday. He added that the Francisco transaction probably wouldn’t have a big financial impact for IBM because of the unit’s limited success.

IBM said that the deal wouldn’t weaken its commitments to other artificial-intelligence technology and to healthcare clients that use its IT services. Terms of the sale weren’t disclosed.

Shares of IBM closed Friday at $129.35, down 1.1%. The stock has fallen 3.2% so far this month.

IBM has been reshaping itself around an emphasis on cloud platforms that can serve companies across industries, moving away from sector-specific products like Watson Health. In 2020, the company named

Arvind Krishna

as its chief executive, choosing a leader who had previously run the company’s cloud and cognitive-software division.

Mr. Krishna’s appointment built on efforts to gain ground on the cloud-computing businesses of rivals such as

Microsoft Corp.

and

Amazon.com Inc.

A year earlier, IBM bought open-source software company Red Hat for about $33 billion in another move aimed at growing IBM’s cloud-computing prowess.

In November, IBM completed the spinoff of its

Kyndryl Holdings Inc.

IT-services business as the segment tried to stem a declining revenue trend.

“In the last couple years, we’ve been on an accelerated transformation of the company,” Chief Financial Officer

James Kavanaugh

said last month.

IBM’s hybrid-cloud business has been adding customers, but its growth faced a hurdle in slower corporate IT spending last year. The company’s cloud and cognitive-software business missed internal growth targets in last year’s third quarter, Mr. Krishna told analysts in October. IBM is slated to post its fourth-quarter results next week.

Francisco, based in California, has previously invested in healthcare companies such as

GoodRx Holdings Inc.,


GDRX -6.11%

Zocdoc Inc. and Capsule Corp.

Corrections & Amplifications
James Kavanaugh is IBM’s chief financial officer. An earlier version of this article incorrectly spelled his last name as Kavanuagh. (Corrected on Jan. 21)

Write to Matt Grossman at matt.grossman@wsj.com

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