IBM’s future is being built on cloud technologies and on Watson, and the two are destined to stick together.

Watson's cognitive services could theoretically be offered on other clouds. But when that possibility got mentioned during yesterday's third-quarter earnings call, CFO Martin Schroeter shot it down almost as bluntly as possible.

"No, Watson runs on our cloud and our technology," he emphasized.

The alternative would be for Watson to be more like a free agent, with IBM letting customers run the software on infrastructure from, say, Amazon Web Services.

Watson and IBM's own cloud — built partly off the SoftLayer acquisition — represent the foundation of the company's long-term plans. Like many other IT companies, IBM is in the process of retooling itself for a world where the cloud reigns supreme, and products are sold as subscription-based software.

"We are running a highly differentiated play here," Schroeter said. "We are building cognitive capabilities well beyond what others are doing with individual AI services, and we are building the platforms to help deliver that," he said.

However — again, like other IT companies — IBM is finding that subscriptions pose a business challenge. Revenues in the third quarter didn't drop as much as in previous quarters, but they still dropped.

For its third quarter, IBM reported revenues from continued operations of $19.22 billion compared with $19.28 billion for the same quarter a year ago.

Strategic initiatives, which include Watson and the cloud, recorded $8 billion in revenues, up 15 percent from the previous year. IBM Cloud, in particular, brought in $3.4 billion, up 42 percent year-over-year.

Net income was $2.85 billion, or $2.98 per diluted share, comparable to the previous year's $2.95 billion and $3.01 per share.

Non-GAAP earnings per share of $3.29 beat the analyst estimate of $3.24, according to Thomson Financial.