Cloud computing continues to grow
Earnings reports from the biggest providers of internet-based computing services Amazon, Microsoft and Google shows that these companies are grabbing a larger share of business technology spending, despite warnings from some of their suppliers that a hot corner of the industry might be cooling off. Cloud companies started the year facing concerns about whether they could sustain their growth in an environment of uncertain global economic growth and investment. And at the start of fourth-quarter earnings season last month, investors got some worrying news from companies that sell the networking equipment and computer chips that go into the data centers that underpin the cloud. Intel, Micron Technology and Juniper Networks were among those blaming lackluster results on slower spending by data-center customers.
With the earnings reports, investors are aren't as concerned. Google reported sales in its Google Cloud Platform of $6.49 billion in the fourth quarter, up 31 percent from a year earlier. Capital expenditures at Google increased 80 percent, to $6.8 billion. Even though Google's stock declined in extended trading on concerns about how the investments will affect profitability, much of the higher spending is tied to new data centers and related hardware, a sign that demand for cloud services is holding up.
Amazon reported that its web services division saw revenue grow 45 percent in the fourth quarter, the same pace as the previous period. There were gains at Microsoft's Azure cloud group, where sales expanded by 76 percent. Finance chief Amy Hood said the software maker wasn't seeing any signs of a slowdown in demand for internet based programs and services. Alibaba Group Holding reported an 84 percent growth in its own cloud unit.
Many analysts feel many businesses are opting to power their operations using software from the cloud computing, turning previously consumer focused companies like Amazon and Google into heavyweights in business technology use. Market researcher Canalys estimates that cloud infrastructure spending increased 46 percent in the December quarter to almost $23 billion, bringing total investment for 2018 to more than $80 billion. Synergy Research Group, which closely tracks information technology spending, last month increased its long-term forecasts for cloud-computing demand. Growth by companies' cloud units has slowed as their businesses matured but have so far haven't had a major pullback.
Part of the disconnect between cloud providers' rosy outlook and the caution from Intel and Micron could come down to differing expectations for what happens when a wave of data centers under construction come online. Analysts with Jefferies stated in a research note that data-center related revenue at Intel and its main competitors grew much faster than historical trends in the last year. After previous similar increases, growth leveled off for as long as a year as companies worked to fill their new server racks with customer workloads.
It was much easier to predict investment patterns from telecommunications companies like Verizon Communications and AT&T because they would be clear about what their capital spending plans were. That's not the case with cloud-computing providers, which tend to buy components for data centers unpredictably, and without a lot of lead time, favoring bulk purchases as they build new facilities or change the system design