Sunday , November 29 2020

Cloud Lift: Amazon, Microsoft, Google, Apple and others find a common cushion in the crisis

Amazon Web Services accounted for most of Amazon's operating profit in the first quarter and provided the company with a financial cushion to overcome the COVID-19 crisis. (Amazon photo)

Jeff Bezos, Amazon's CEO, advises the company's shareholders to "take a seat" to prepare for the technology giant's ambitious spending on COVID-19 initiatives. Without Amazon Web Services, however, they could fall off their chairs.

The technology giant's cloud division accounted for more than 77% of Amazon's total operating income in the first quarter, the highest percentage in two years.

Amazon's total operating profit, as reported, decreased 10% to $ 4 billion. Without AWS, the company's operating profit would have been less than $ 1 billion.

Amazon's company-wide operating profit of $ 4 billion (represented by the blue bars) would have been about a quarter of the size (orange line) without Amazon Web Services in the first quarter. (GeekWire graphics)

And these cloud gains are a major reason Amazon has the financial license to spend an additional $ 4 billion on managing the crisis in the current quarter, according to Bezos.

Amazon's situation is unique in many ways, but the dependency on the cloud for profits during the pandemic reflects a general pattern for technology companies.

Apple, Microsoft, and Google’s results, released last week, show that they have benefited to varying degrees from their efforts to expand beyond their traditional businesses into cloud infrastructure and subscription services in recent years.

  • Sales of Microsoft commercial clouds increased 39% to $ 13.3 billionThis corresponds to 38% of the company's total revenue of $ 35 billion in the quarter. The commercial cloud includes Office 365 Commercial, Microsoft Azure and commercial parts from LinkedIn, Dynamics 365 and other Microsoft cloud companies.
  • Apple Services revenue for the quarter was a record $ 13.3 billionThat's more than double combined sales of Mac and iPad sales, and almost 23% of the company's total $ 58 billion in quarterly sales. The services include digital content and streaming, AppleCare, iCloud, licenses and similar forms of income.
  • Google Cloud revenue increased 52% to $ 2.78 billion in the quarter. With less than 7% of Google’s Alphabet parent’s $ 41 billion quarterly revenue, the cloud business is still fading compared to the company's online advertising business, but it is emerging as an important growth area.

In addition to these giants, other technology companies saw the benefits of diversifying their business. For example, Seattle-based network and security technology company F5 Networks has expanded beyond its traditional hardware appliances to build a growing software and service business. As a result, 65% of the $ 583.5 million quarterly revenue came from recurring contracts.

"In the past three years in particular, we have built a very strong foundation for recurring revenue," said François Locoh-Donou, President and CEO of F5, in an interview with GeekWire. "In times like these, recurring earnings are stickier because you ask customers to renew something, not buy new projects, etc. And I think that's why we have a lot of resilience."

This is one of the reasons why F5 can commit to avoiding COVID-19 layoffs for the rest of the fiscal year.

Oracle also sees the benefits of its cloud expansion and announces it last week Zoom has selected its cloud infrastructure to support an increase in usage. When asked by GeekWire, a zoom spokesman replied that the company continues to use Microsoft Azure and AWS.

Canalys graphic

But how long will the cloud be so comfortable? For all of these companies, the impact of the pandemic on longer-term business spending on technology projects is a big wild card.

"The increasing demand for online collaboration tools, e-commerce and cloud services for consumers has led to a sharp increase in cloud infrastructure consumption, which has benefited all major cloud providers," said research firm Canalys explained in a new reportThis shows that total spending on cloud infrastructure services grew 34% to $ 31 billion in the quarter. "However, this was offset by a slowdown in large, complex corporate migrations and transformative cloud projects, as companies brought all but the most important IT tasks to a standstill when the closures took effect."

This could be expensive. The major cloud providers are investing in new capital projects to increase capacity, partly to support remote working and emergency services during the pandemic.

Amazon official financial forecast for the June quarter illustrates the impending uncertainty – from an operating profit of $ 1.5 billion to an operating loss of $ 1.5 billion.

About Charlotte Polly Olsson

Charlotte Polly Olsson is a 53 years old personal trainer who enjoys relaxing, playing video games and cycling. She is generous and inspiring, but can also be very dull and a bit greedy.

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