Cloud services rule over gadgets in tech company finance reports
The biggest tech companies have unveiled their latest quarterly results showing a mixed picture across the board.
Recent figures from Alphabet (Google), Microsoft and Amazon all demonstrate the earnings potential of owning the infrastructure that powers the internet.
However, Apple and Samsung, whose primary business lies with consumer hardware, didn’t fare so well, while Twitter announced a restructuring that will result in the sacking of nine per cent of its workforce.
Alphabet reported a 20 per cent revenue jump to $22.5bn (£18.4bn), up from $18.7bn (£15.3bn) in the same quarter last year. The search giant’s earnings boost came as no surprise as it continues to grow in stature, but its primary financial drivers were found in its core search and YouTube businesses, with advertising sales rising by 18 per cent.
The company’s so-called ‘Other Bets’, which include its self-driving car business, Nest, and Google Fiber only made around $200m (£164m), a relative drop in the ocean. Although the long-term potential of some of these products remains to be seen, Google can afford to bankroll unprofitable technology in the interests of staying one step ahead of its competitors as these sectors mature.
Its cloud business, which drove a 38.8 per cent rise in the company’s ‘other revenue’, is also going from strength to strength with Google CEO Sundar Pichai even declaring that cloud will be “one of our largest areas of investment” in 2017.
Amazon failed to live up to its anticipated earnings despite the fact that its reported sales are up 29 per cent on the same period last year to $32.7bn (£26.8bn). Perhaps the weight of expectation was too much for even this tech behemoth to bear.
CEO Jeff Bezos suggested the launch of smart home assistant Amazon Echo in the US and UK, which is powered by artificial intelligence called Alexa, was a key part of its growth this year.
“Alexa may be Amazon’s most loved invention yet – literally – with over 250,000 marriage proposals from customers and counting,” he said. “Because Alexa’s brain is in the cloud, we can easily and continuously add to her capabilities and make her more useful. Wait until you see some of the surprises the team is working on now.”
Its cloud business is where the real success story lies, with Amazon Web Services reporting more than a 50 per cent year-on-year growth. Analysts highlighted the importance of this sector, even saying that it would constitute half of the company’s earnings in a few years.
Microsoft reported similar success with its cloud platform Azure, which grew 116 per cent year-on-year. The firm also said it expects to finish its acquisition of LinkedIn and the sale of its entry-level feature phone business in the second quarter of fiscal 2017.
The company is on a clearer path to success now after several years struggling with consumer backlash over its Windows 8 operating system and a rocky transition towards a more service-oriented software offering to consumers.
Microsoft’s stock price reached an all-time high following the results, finally beating the previous record set by the company in 1999.
Its age-old rival Apple is struggling to keep up after years of regularly thrashing Microsoft by releasing gadgets that proved more appealing to consumers, such as the iPhone and the iPad. During this quarter, the company finally released the iPhone 7, which controversially removes the headphone jack for the first time.
Although Apple saw increased revenues in Europe and Japan, its Chinese and American businesses suffered. In particular, China saw a 30 per cent sales decline year-on-year with iPhone, iPad, and Mac unit sales all dropping.
Global sales of the iPhone 7 eclipsed expectations by half a million, with the company selling 45.5 million units. Revenues were marginally lower than anticipated at $46.9bn (£38.3bn).
Some consolation may be found in the poor fortunes of Apple’s largest rival in the smartphone sector, Samsung. The South Korean company was expecting to post a modest increase in its operating profits compared with the same period last year.
Unfortunately the fiasco surrounding its Galaxy Note 7 smartphones, which were found to explode in enough cases to warrant the withdrawal of the entire product line, has dealt a major blow, hitting the reputation of the Samsung brand as well as its finances.
The company reported its worst operating profit in two years at 5.2 trillion won (£3.68bn), which represents a decline of nearly 30 per cent year-on-year.
Twitter’s earnings actually beat analyst expectations but it was also forced to announce that it would be cutting 350 people, or nine per cent of its global workforce, as part of a restructuring programme.
The company has struggled in recent years, with the number of daily Tweets dropping to an all-time low of about 300 million in January 2016 compared to about 500 million in September 2013.
In addition, Twitter also announced the shuttering of its ‘Vine’ video service after four years because of dwindling user numbers and presumably the high cost of maintaining a video-based social network. YouTube, for example, was only breaking even in 2015 despite having more than a billion users.