Thursday, June 4, 2020

For cloud giants, usage soars but technology investment delays hobble revenue growth

For cloud giants, usage soars but technology investment delays hobble revenue growth

As lockdown orders force billions of individuals to figure , learn and play from home during the novel coronavirus outbreak, usage has surged for the cloud computing services that power video conferencing, streaming television and online games.

The world's three leading cloud services providers - Amazon.com Inc's Amazon Web Services, Microsoft Corp's Azure and Alphabet Inc's Google Cloud - have all seen demand for his or her services jump.

In particular, peak daily usage for Google's Meet videoconferencing tool has shot up 30-fold since January while the amount of daily users for Microsoft's Teams chat system has quite doubled to 75 million since early March.

But at an equivalent time, the businesses have seen a drop-off in new contracts from big clients for server storage and to overhaul technology, company executives and analysts said in the week . The massive, multi-year deals normally account for a greater portion of revenue than contracts for workplace software like Teams and Meet.

Delays in fixing new servers and generous free trial offers also capped sales growth within the half-moon .

For instance, Microsoft said it put limits on what proportion cloud computing new customers could consume thanks to equipment shortages due to lockdowns.

"We're generally utilizing servers and infrastructure that we'd already bought...because the power to urge tons and plenty of new servers in with the availability chain out of China was constrained," Microsoft Chief treasurer Amy Hood told Reuters in an interview.

The cloud provider sector saw first-quarter revenue growth of about 34%, but the 37% growth within the fourth quarter, consistent with research company Canalys. It added there had been little change in market share for the highest three within the $31 billion global industry.

"Cloud investment within the worst-affected vertical segments, like hospitality, aviation, construction, tourism and manufacturing, is being scaled down or delayed," Canalys said during a report on Thursday. "This has offset a number of the short-term growth enjoyed during the quarter."

Whether the cloud providers see a lift to overall revenue growth from the pandemic within the current quarter or later this year remains unclear.

Businesses and governments have begun to transition from rolling out emergency measures to preparing for re-opening in the coming months, but their virus-hammered budgets could curtail spending and force cloud providers to extend giveaways.

Market researcher IDC last week downgraded its forecast for global IT spending in 2020 to a 2.7% decline compared with a previous estimate of a 3.6% rise because of the pandemic.

DELAYS ABOUND
Microsoft Azure, which is No. 2 in cloud revenue after Amazon Web Services, saw its sales rate of growth slow the foremost , at 59% within the first three months of the year from 62% in the prior quarter, company data showed.

One of Microsoft's biggest sources of revenue is large businesses tackling complicated technology problems, like moving entire financial software systems to Microsoft’s cloud from their own servers.

Microsoft executives said in the week that while large companies like Anheuser Busch InBev NV are continuing with these migrations, growth in consulting revenue that always accompanies these complex projects had tapered as customers postponed projects.

As much as a fifth of Microsoft's cloud revenue could face volatility within the coming quarter due to those delays, the corporate said.

Google Chief Executive Sundar Pichai also said in the week that it's taking longer to shut cloud deals but didn't offer revenue guidance.

In the first quarter, revenue for Google Cloud, which incorporates sales of storage services also as workplace software, grew 52% from a year earlier compared with 53% within the prior quarter.

John Dinsdale, a chief analyst at Synergy Research Group, said though some buyers are delaying, their plans to adopt more cloud services haven't changed.

"The signs for the leading cloud providers remain very positive," he said by email.

Amazon, which saw Amazon Web Services revenue growth drop to 33% within the first quarter from 34% 1 / 4 earlier, pointed to a rise in future spending commitments from customers as evidence its business remains healthy.

But pandemic-related restrictions and shortages may crimp future revenue growth. Google said it could face delays on developing new data centers, and Microsoft's Hood told Reuters that construction delays for data centers will persist.

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