Microsoft, Alphabet, Intel results buoyed by cloud boom

IT firms reposition themselves around such Internet services

NEW YORK • Alphabet, Microsoft and Intel, which all posted quarterly results on Thursday, have reinforced what has 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 sign-ups for its cloud offerings like 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.

Although profit at Google parent Alphabet disappointed, the numbers 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 US$3.4 billion (S$4.8 billion) in the fourth quarter.

"Our cloud business is on a terrific upswing," Google chief executive officer Sundar Pichai said on Thursday. "I definitely think we're going to have a great year."

What started a decade ago as an easy way for start-ups 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.

  • MICROSOFT


    NET INCOME
    $5.2b

    REVENUE
    $24.1b

    ALPHABET


    NET INCOME
    $5.33b

    REVENUE
    $26.06b

    INTEL


    NET INCOME
    $3.6b

    REVENUE
    $16.4b

    All figures for the fourth quarter in US dollars

    SOURCE: REUTERS

More than US$1 trillion in IT spending will be directly or indirectly affected by the shift to cloud computing during the next five years, research firm Gartner estimated last July. "This will make cloud computing one of the most disruptive forces of IT spending since the early days of the digital age," it added.

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.

Microsoft CEO Satya Nadella has been working to reposition the company around such Internet services. In addition to robust demand for Azure, consumers and corporations continue to buy Office 365, a cloud-based version of the company's productivity software that includes Word and Excel.

Almost 25 million consumers are subscribed to Office 365, Microsoft said, and sales rose 47 per cent in the fiscal second quarter. "As long as cloud is growing, people are happy," said Sanford C. Bernstein analyst Mark Moerdler, who rates Microsoft shares outperform.

"If margins are growing, people are even happier."

Microsoft has been spending on data centres and adding products to win new cloud customers. Chief financial officer Amy Hood last July said gross margins, a measure of profitability, for the commercial cloud business would "materially improve" in the current year. This is because previous years of investment are starting to pay off as those data centres support more customers.

Microsoft has pledged to reach annualised revenue of US$20 billion in its corporate cloud business by the fiscal year ending June 2018. That metric stood at more than US$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. "It's moving to the public cloud, it's moving to those areas at a faster rate than I think we expected," said Intel CEO Brian Krzanich on a conference call.

Amazon reports earnings next week and RBC Capital Markets expects the company's AWS cloud business to generate US$3.6 billion in fourth-quarter revenue, up 50 per cent from the year before.

Mr Moerdler said: "Amazon is much bigger, but still Amazon and Microsoft are pulling away from the pack."

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A version of this article appeared in the print edition of The Straits Times on January 28, 2017, with the headline 'Microsoft, Alphabet, Intel results buoyed by cloud boom'. Print Edition | Subscribe