Cloud computing drives growth for US tech firms

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Amazon.com Inc., Microsoft Corp., Alphabet Inc.’s Google and Intel Corp. are all putting their chips on the cloud computing business, and it is booming.

All four companies posted stellar quarterly earnings on Thursday, showing the strength of the shift in corporate computing away from company-owned data centres and to the cloud.

Under chief executive Satya Nadella, Microsoft’s cloud business—which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform—has emerged as a major source of growth. Revenue from Microsoft’s intelligent cloud business rose nearly 14% to $6.92 billion in Microsoft’s fiscal first quarter, ended 30 September. Analysts on average had expected $6.70 billion, according to financial data and analytics firm FactSet.

Revenue from Azure grew 90% compared to a 97% growth rate in the preceding quarter. The company does not break out revenue figures for Azure.

Azure’s strong performance helped lift the gross margin at Microsoft’s cloud business to 57%, said Stephanie Rodriguez, director of investor relations for Microsoft. Microsoft said its commercial cloud annualized revenue run rate reached $20.4 billion in the quarter. The technology company, based in Redmond, Washington, reported net income of $6.58 billion, or 84 cents per share, up from $5.67 billion, or 72 cents per share, a year earlier. Revenue rose 12% to $24.54 billion.

“The move to the cloud was one we felt Microsoft could always benefit from, and they’re showing us that they can,” said Kim Forrest, vice president and senior equity analyst at Fort Pitt Capital Group, a portfolio management firm.

Highlighting the quarter for Microsoft was a deal securing retailer Costco as an Azure customer. That came just two months after the close of Amazon’s acquisition of grocery chain Whole Foods, which has heightened unease among retail and e-commerce companies about working with Amazon, said Ed Anderson, an analyst with Gartner.

Tim Green, analyst with the Motley Fool, said Amazon could find it needs to make changes at some point at Amazon Web services. “Spinning off AWS at some point down the road might become necessary to prevent an exodus of customers,” he said.

Amazon Web Services is still delivering far more revenue than any of its peers. For the quarter, AWS raked in nearly $4.6 billion—a year-over-year increase of 42%. AWS may have missed out on Costco, but the company secured deals with Hulu, Toyota Racing Development, and most notably, General Electric Co.

Google Cloud Platform landed deals with the likes of department store retailer Kohl’s and payments processor PayPal. Like Microsoft, Alphabet does not break out revenue for Google Cloud Platform, but Canalys estimates the business generated $870 million in the quarter, up 76% year-over-year.

Google chief executive officer Sundar Pichai said Google Cloud Platform is a top-three priority for the company. He said Google plans to continue expanding its cloud sales force.

Canalys estimates the cloud computing market at $14.4 billion for the third quarter of 2017, up 43% from a year prior. Amazon holds 31.8% of the market, followed by Microsoft at 13.9% and Google with 6%, according to Canalys’ estimates. The “cloud market will keep growing faster than most of the traditional information technology segment, as the market is still in the developing stage,” said Daniel Liu, research analyst with Canalys.

Reflecting the overall growth of the market was the strong performance by Intel, which sells processors and chips to cloud vendors. In July, Intel launched its new Xeon Scalable Processors, which drove 7% year-to-year growth for the company’s data centre group.

The big three cloud vendors also benefit from the decision by many enterprises to build their applications using more than one cloud vendor. Retailers Home Depot Inc. and Target Corp., for example, told Reuters they use a combination of cloud providers.

“Our philosophy here is to be cloud agnostic, as much as we can,” said Stephen Holmes, a spokesman for Home Depot, which uses both Azure and Google Cloud Platform.

Third-quarter revenue for Alphabet, the parent company of Google, jumped 24% to $27.8 billion, above the average analysts’ estimate of $27.2 billion. Profit of $6.7 billion, or $9.57 per share, was well ahead of Wall Street estimates.

The third quarter was the 15th in a row in which Alphabet has shown double-digit, year-over-year consolidated sales increases. The pace is not slowing down, with the growth rate reaching its highest level in nearly five years. The third-quarter profit margin of 24% marked Alphabet’s highest since 27% in first quarter of 2013. reuters