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IBM Is Still No. 1, But Google Is Flexing Its Muscle

By Alex Dumortier, CFA – Jan 14, 2014 at 7:00PM

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While IBM is still on top in 2013, Google is now in the patent race.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks recouped some of yesterday's losses, as the S&P 500 gained 1.1% on Monday, while the narrower Dow Jones Industrial Average (^DJI 0.43%) was up 0.7%.

IBM (IBM -0.38%) may be "old tech", but it remains the undisputed leader in one key area: patents. For the 21st consecutive year, IBM obtained more U.S. patents than any other company, with a whopping 6,809 in 2013. (You might be surprised to find out the number two most prolific patent author: South Korea's Samsung Electronics, with 4,675.)

As Bloomberg notes, since computer-related patents can take up to three years to be reviewed, the most recent "class" of patents indicate where technology companies have been placing their bets in terms of R&D. For IBM, those areas include analytics (so-called "big data"), artificial intelligence, and cloud computing.

IBM's Watson computer, which achieved popular recognition when it beat all-comers on the game show Jeopardy! in 2011, is part of that effort. Watson analyzes large amounts of data to answer difficult questions in plain English, and it estimates the degree of certainty associated with its answer.

Last week, IBM said it will invest $1 billion to create a separate business unit for Watson with approximately 2,000 employees. The Wall Street Journal reported that Watson's business plan calls for $1 billion in annual revenue by 2018, which would make it the fastest business ever to reach that milestone at IBM -- though, admittedly, the Journal article highlights some of the struggles the company is facing in turning Watson into a commercial application. (Sign-up required to view the article.)

One company that is shooting up the ranks in terms of patents and a bona fide "disrupter" is search giant Google (GOOGL -0.49%), which was awarded 1,920 patents last year -- close to twice the total it had obtained in all previous years combined. That number put it just outside the top 10, the tenth spot going to another South Korean company, LG Electronics, which obtained 1,947 patents. However, expect Google to crack the top 10 in the next few years -- over the past two years, the company has ramped up its annual patent filings to roughly 4,500.

For Google, the race for patents is a response to the "patent wars" in the smartphone space that have pitted Samsung against Apple, for example. It's also a result of Google's forays into new areas in technology, including wearable devices, with Google Glass. This week's news that Google is acquiring Nest Labs, which produces "smart" thermostats for the home, suggests that drive is only just heating up. "Big tech" is on notice -- Google may be your next competitor.

Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends Apple and Google and owns shares of Apple, Google, and IBM. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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