Cloud lifts Alphabet, Microsoft
Google’s parent company spent generously to catch up to platform leader Amazon
Alphabet Inc., Microsoft Corp. and Intel Corp., which all posted quarterly results Thursday, reinforced what’s become a truism in technology: the biggest growth is in businesses that deliver computing over the Internet.
Microsoft topped projections on the strength of rising customer signups for its cloud offerings such as Azure, which saw revenue almost double. Intel sales rose more than expected, helped by orders for processors that power data-centre servers — the machines at the heart of cloud computing.
While profit at Google parent Alphabet disappointed, the numbers also signalled that heavy spending to catch cloud leaders Amazon.com and Microsoft is paying off. Google’s Other Revenue line, which includes cloud computing, jumped 62 per cent to $3.4 billion (U.S.) in the fourth quarter.
“Our cloud business is on a terrific upswing,” Google chief executive of- ficer Sundar Pichai said Thursday during a conference call with analysts. “I definitely think we’re going to have a great year.”
What started a decade ago as an easy way for startups to run websites has turned into an increasingly popular way for companies of all sizes to access the software needed to run their operations. Many big technology companies are in a strong position to provide this because they already have huge data centres to support their own web services.
More than $1trillion in IT spending will be directly or indirectly affected by the shift to cloud during the next five years, Gartner Inc. estimated in July. “This will make cloud computing one of the most disruptive forces of IT spending since the early days of the digital age,” the research firm said at the time.
Stock prices reflect this optimism. Microsoft and Alphabet shares hit a record this week, and Intel stock recently came close to an all-time high set in October. In early trading Friday, Microsoft was up 1.6 per cent, Google was down 1.1 per cent and Intel gained less than 1 per cent.
Microsoft chief executive officer Satya Nadella has been working to reposition the company around such Internet services. In addition to ro- bust demand for Azure, consumers and corporations continue to purchase Office 365, a cloud-based version of the company’s productivity software that includes Word and Excel. Almost 25 million consumers are now subscribed to Office 365, Microsoft said, and sales increased 47 per cent in the fiscal second quarter.
Microsoft has been spending on data centres and adding products to win new cloud customers. Chief financial officer Amy Hood said in July that gross margins for the commercial cloud business would “materially improve” in the current year. That’s because previous years of investment are starting to pay off as those data centres support more customers.
Microsoft has pledged to reach annualized revenue of $20 billion in its corporate cloud business by the fiscal year that ends in June 2018. That metric stood at more than $14 billion at the end of the second quarter.
Intel’s fourth-quarter sales of server chips to cloud service providers jumped 30 per cent from a year earlier. Offsetting that, companies and government agencies spent 7 per cent less than they had in the same quarter in 2016 on equipping their in-house computer rooms, the company said.