Jan 27, 2017
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Microsoft, Google and VMware prove the cloud is more than wet air

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Microsoft, Alphabet (Google) and VMware has all reported healthy results in the heat of quarterlies season, with cloud computing forming the weighty foundation for growth.

Starting with Microsoft, revenues across the business totaled $26.1 billion, a 1% year-on-year increase for the quarter, though the personal computing business is continuing to weigh heavy on the wider business. Elsewhere the story was a lot more positive.

Revenue in Intelligent Cloud business was $6.9 billion, an increase of 8% year-on-year, with the server products and cloud services side of things growing 12%, and Azure revenues jumping a very healthy 93%. The team also claim Azure compute usage more than doubled in comparison to the same period in 2015.

Satya Nadella’s bet on cloud computing does seem to have paid off, while it is also notable the team timed its entry into the market very effectively. Yes, Microsoft is still trailing industry leader AWS in the public cloud race, but it’s hybrid solutions give it a much more prominent berth in time where cloud computing is penetrating the mass market.

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

Revenues in the Productivity and Business Processes unit also saw a boost, growing 10% year-on-year to $7.4 billion, with LinkedIn beginning to pay its way. Here, the commercial Office and cloud services revenues increased 5%, but on the consumer side there was a 22% rise. Office 365 consumer subscribers now stands at 24.9 million. LinkedIn has been included in the financials for the first time, with the business contributing $228 million.

With Microsoft's wider berth of offerings, does this make it a more important vendor to enterprise CIO's than AWS?

  • Yes – Microsoft offers too much to ignore
  • No – AWS is more innovative and too important

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For Google’s parent company Alphabet, group revenues stood at $26.06 billion, a 22% jump, with the core search revenues contributing the vast majority once again, but the future prospects of the business are starting to look at bit rosier. Shares did in fact fall 2.5% following the announcement, which may indicate there might be a bit of nervousness in the progress the company is making.

The advertising business unit is not going to stop making money any time soon, but the group on the whole cannot solely rely on growth being produced by the sale of search ads forever. This in itself was the main reason for the creation of Alphabet, and the separation of the Google search advertising business to allow for more creative investments elsewhere.

Looking at Alphabet’s ‘other revenues’, which includes Play, cloud and hardware offerings, revenues increased 62% to $3.4 billion in the fourth quarter. It still pales in comparison to the dominant advertising business, but there is only going to be more money generated by the cloud segment and Google is putting itself into a strong position.

“Our growth in the fourth quarter was exceptional — with revenues up 22% year on year and 24% on a constant currency basis. This performance 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,” said CFO Ruth Porat.

The ‘other bets’ is another interesting area for the business, as while it is still costing the business a lot of cash, there does seem to be progress being made. Revenues increased to $262 million, compared to $150 million in Q4 of 2015, though the losses have also been trimmed from $1.2 billion in 2015 to around $1.1 billion in 2016.

The other bets include such ventures as Nest, self-driving cars and connectivity projects, and while this could be seen as a playground its creative engineers, Google execs seem to be taking a sterner line recently. Playtime is over, these ideas need to turn into business ideas for Google to establish market dominance in new areas.

Fiber has been put on hold, Titan has been scrapped, the satellite business is up for sale, self-driving cars spun out and AI is being stepping up across every product area. Google may seem like a fun and fluffy business from the outside, but reading between the lines over the last couple of months, things are starting to get serious. For self-driving cars, this was good news, for Titan it was very, very bad news.

Are you confident in Google's ability to diversify is business?

  • Yes – Google Cloud is the most interesting
  • Yes – it will eventually crack the connectivity market
  • Yes – Google Assistant and the smart home have brilliant prospects
  • No – it will always be a search advertising company

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Finally, VMware saw its share price jump almost 4% in late trading as revenues for the quarter of 2016 rose 9% year-on-year to $2.03 billion. Revenues across the year hit $7.09 billion, an increase of 8% from 2015, exceeding many analyst expectations.

“Q4 closed out a strong fiscal 2016 and was one of the most balanced quarters for VMware in years,” said Pat Gelsinger, CEO at VMware. “We’re very pleased with our strong product momentum and customer enthusiasm for our Cloud strategy. We believe we have the world’s most complete and capable hybrid cloud architecture, uniquely offering customers freedom and control in their infrastructure decisions.”

In fairness to Pat, he has every reason to be pleased with the performance of the business on the whole. The company has cracked the $7 billion barrier, and is looking in a strong position in the hybrid cloud market moving forward after announcing a partnership with AWS in October. Cosying up to the leader in the public cloud market is not a bad route to go, and we haven’t even fully addressed the opportunities which may be available now the company is a fully-fledged member of the wider Dell Technologies group.

Overall, Microsoft Azure is having a blinder, Google seems to be getting very serious with its diversification ambitions and the future is looking quite rosy for VMware.

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