US 'Big tech' report stellar cloud profits
October 27, 2017
Microsoft earnings for its first fiscal quarter to September 30 thumped investor expectations as the US software giant's profit rose by 16 percent from a year ago to $6.6 billion. Revenue meanwhile rose 12 percent to $24.5 billion for the one-time tech sector leader which has shifted its focus away from consumer software to a range of enterprise services.
Microsoft's cloud computing division Azure nearly doubled its business, with year-over-year growth of 90 percent, generating revenue of $2 billion for Microsoft in the quarter. The Redmond, Washington-based company said its cloud technologies now accounted for whole year revenue of some $20 billion and were key to the company's future.
"Our results reflect accelerating innovation and increased usage and engagement across our businesses as customers continue to choose Microsoft to help them transform," Microsoft chief executive Satya Nadella said in a statement.
Microsoft's "more personal computing" division which produces the Windows operating system, saw revenues virtually unchanged from a year ago at $9.4 billion. Highlighting the quarter for Microsoft was a deal securing retailer Costco as an Azure customer.
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Market research group Canalys has estimates that the cloud computing market grew 43 percent over the year boosting revenues from the business to a total of $14.4 billion for the third quarter of 2017 alone. But Microsoft is only the second strongest competitor in the market with a share of 13.9 percent. US online retailer Amazon is the undisputed ruler holding 31.8 percent of the market, with Google in third place at 6 percent.
Amazon rules
Amazon Web Services (AWS) is still delivering far more revenue than any of its peers. For the quarter, AWS raked in nearly $4.6 billion a rise of 42 percent over the year. The division secured deals with Hulu, Toyota Racing Development, and most notably, General Electric.
The company said that price cuts and new products with lower costs on average were a core part of its cloud business. In addition, AWS had seen usage growth outpacing that of revenue growth, said Amazon's chief financial officer Brian Olsavsky.
Overall, Amazon's third-quarter results defied expectations that it would invest nearly all of its earnings into new areas, showing a net income of $256 million. Revenue rose 34 percent to $43.7 billion in the third quarter, including $1.3 billion in sales from Whole Foods.
"This company has finally gotten itself to the point where it can sustain its spending growth and still leave some crumbs for shareholders," said Wedbush Securities analyst Michael Pachter.
As a result Amazon was the biggest winner on Wall Street on Thursday, jumping nearly 8 percent to trade above $1,000 per share again.
Business growth up in the air
In the quarter, Google parent Alphabet also landed some deals with its cloud computing division, Google Cloud Platform. Like Microsoft, Alphabet does not break out revenue for the division, but Canalys estimates the business generated $870 million in the quarter, up 76 percent year-over-year.
Google Chief Executive Officer Sundar Pichai said Google Cloud Platform is a top-three priority for the company, and that the company was planning to continue expanding its cloud sales force.
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Reflecting the overall growth of the cloud computing 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 percent year-to-year growth for the company's data center group.
However, some analysts expect cloud services growth to slow over time as competition increases. Adam Sarhan, CEO of 50 Park Investments thinks that prices will quickly compress as cloud services will become more of a commodity. "For now though, it's a great business with plenty of room for all to grow," he told the news agency Reuters.
uhe/nz (Reuters, AFP, dpa)