Cloud gives financial boost to Alphabet, Microsoft and Intel

Cloud computing is making significant contributions to driving the revenues for companies in the technology sector, according to quarterly results posted by Alphabet, Microsoft and Intel

Cloud computing has boosted quarterly financial results for Google parent Alphabet, Microsoft and Intel as businesses increasingly turn to cloud for a wide range of services.

Microsoft reported revenue of $24.1bn and profit of $5.2bn for the quarter ending 31 December 2016, an increase of 2% and 4% respectively compared with the same period a year ago.

Cloud-delivered software and services made significant contributions to the reportedly better-than-expected revenue and profit growth for the quarter.

The company’s intelligent cloud segment revenue grew 8% to $6.9bn, with server products and cloud services revenue up 12% and Azure revenue up 93%, while Azure compute usage more than doubled year-over-year.

Although the personal computing segment fell 5% to $11.8bn, mainly due to lower phone revenue, Microsoft reported that Windows commercial products and cloud services revenue was up 5%, while the productivity and business processes segment – which includes LinkedIn – grew 10% to $7.4bn. 

Microsoft said since its acquisition on 8 December 2016, LinkedIn had contributed revenue of $228m for the quarter.

Further underlining the value of Microsoft’s investment in datacentres and switch to cloud-based software, the company reported Microsoft Office 365 commercial revenue growth for the quarter of 47%.

Gaming revenue fell by 3% on lower Xbox console revenue, but Microsoft said Xbox software and services revenue was higher and Xbox Live’s active users for the quarter grew 15% to 55 million.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said Satya Nadella, CEO at Microsoft. “Accelerating advancements in AI [artificial intelligence] across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

Alphabet’s cloud business on ‘upswing’

At Google parent Alphabet, investors reportedly said profit for the quarter was disappointing despite an 8% increase to $5.3bn on revenue of $26bn, but overall results show that investments geared to providing cloud-based services are paying off.

Although Google advertising revenue still accounts for 86% of Alphabet’s revenue, Google’s “other revenue” segment, which includes cloud computing, jumped to $3.4bn for the quarter, an increase of 62% compared with the same period a year ago.

“Our cloud business is on a terrific upswing,” Google CEO Sundar Pichai told analysts on a conference call, with more than 3 million companies reportedly subscribing to Google’s GSuite cloud services. “We’re going to have a great year.”

The growth in cloud and other areas is important for Alphabet as web and mobile ads drop in value, as shown by the 15% fall in Google’s earnings-per-click compared with the same period the year before.

While Alphabet’s “other bets” are still losing money, revenue from segment increased by 75% year-over-year, climbing to $262m for the quarter. The segment posted losses of nearly $1.1bn.

Alphabet CFO Ruth Porat said the company’s 22% increase in revenue for the quarter year-on-year was led by mobile search and YouTube.

“We’re seeing great momentum in Google’s newer investment areas and ongoing strong progress in Other Bets,” she said.

Intel boosted by cloud

Intel reported better-than-expected record revenue of $16.4bn, an increase of 10% compared with the previous year, but profit of $3.6bn, which was down 1%.

Revenue was boosted by orders for processors that power datacentre servers responsible for cloud computing services.

Intel’s fourth quarter sales of server chips to cloud service providers increased 30% from a year earlier, according to Bloomberg.

Intel said its datacentre group revenue was up 3% year-over-year and up 4.4% compared with the previous quarter to $4.7bn.

“It’s [because of] moving to the public cloud and moving to those areas at a faster rate than we expected,” Intel chief executive Brian Krzanich said on a conference call.

Although the PC market is still down, Intel’s main Client Computing Group reported revenue of $9.1bn for the quarter, an increase of 4% compared with the same period a year ago.

Intel is slowly building its internet of things (IoT) group, which reported quarterly revenue of $726m, an increase of 5% year-over-year.

Leading the cloud

In July 2016, Gartner predicted more than $1tn in IT spending will be directly or indirectly targeted away from traditional IT delivery models and to the cloud between now and the year 2020.

Share prices reflect this optimism, with Microsoft and Alphabet shares recently hitting record levels and Intel’s share price coming close to an all-time high set in October 2016, according to Bloomberg.

Amazon is soon due to report earnings and Bloomberg reports that analysts expect the company’s Amazon Web Services (AWS) cloud business to report a 50% year-on-year increase in quarterly revenue to $3.6bn.

Analysts said while Amazon’s cloud business is much bigger than Microsoft’s, both companies are beginning to emerge as the market leaders.

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