Cloud computing drives massive growth for big U.S. tech firms

SAN FRANCISCO (Reuters) – Amazon.com Inc (AMZN.O), Microsoft Corp (MSFT.O), Alphabet Corp’s (GOOGL.O) Google and Intel Corp (INTC.O) are all putting their chips on the cloud computing business, and it is booming.

FILE PHOTO – A sign marks the Microsoft office in Cambridge, Massachusetts, U.S. January 25, 2017. REUTERS/Brian Snyder/File Photo

All four companies posted stellar quarterly earnings on Thursday, showing the strength of the shift in corporate computing away from company-owned data centers and to the cloud.

Microsoft’s Azure business nearly doubled, with year-over-year growth of 90 percent. The company does not break out revenue figures for Azure, but research firm Canalys estimates it generated $ 2 billion for Microsoft.

“The move to the cloud was one we felt Microsoft could always benefit from, and they’re showing us that they can,” said Kim Forrest, vice president and senior equity analyst at Fort Pitt Capital Group, a portfolio management firm.

Highlighting the quarter for Microsoft was a deal securing retailer Costco (COST.O) as an Azure customer. That came just two months after the close of Amazon’s acquisition of grocery chain Whole Foods, which has heightened unease among retail and e-commerce companies about working with Amazon, said Ed Anderson, an analyst with Gartner.

Tim Green, analyst with the Motley Fool, said Amazon could find it needs to make changes at some point at Amazon Web services. “Spinning off AWS at some point down the road might become necessary to prevent an exodus of customers,” he said.

Amazon Web Services is still delivering far more revenue than any of its peers. For the quarter, AWS raked in nearly $ 4.6 billion — a year-over-year increase of 42 percent. AWS may have missed out on Costco, but the company secured deals with Hulu, Toyota Racing Development, and most notably, General Electric.

Google Cloud Platform landed deals with the likes of department store retailer Kohl’s and payments processor PayPal. Like Microsoft, Alphabet does not break out revenue for Google Cloud Platform, but Canalys estimates the business generated $ 870 million in the quarter, up 76 percent year-over-year.

FILE PHOTO – The logo of Amazon is seen at the company logistics center in Lauwin-Planque, northern France, February 20, 2017. REUTERS/Pascal Rossignol/File Photo

Google Chief Executive Officer Sundar Pichai said Google Cloud Platform is a top-three priority for the company. He said Google plans to continue expanding its cloud sales force.

Canalys estimates the cloud computing market at $ 14.4 billion for the third quarter of 2017, up 43 percent from a year prior. Amazon holds 31.8 percent of the market, followed by Microsoft at 13.9 percent and Google with 6 percent, according to Canalys’ estimates.

The “cloud market will keep growing faster than most of the traditional information technology segment, as the market is still in the developing stage,” said Daniel Liu, research analyst with Canalys.

FILE PHOTO – The Google logo is pictured atop an office building in Irvine, California, U.S. August 7, 2017. REUTERS/Mike Blake/File Photo

Reflecting the overall growth of the market was the strong performance by Intel, which sells processors and chips to cloud vendors. In July, Intel launched its new Xeon Scalable Processors, which drove 7 percent year-to-year growth for the company’s data center group.

The big three cloud vendors also benefit from the decision by many enterprises to build their applications using more than one cloud vendor. Retailers Home Depot Inc (HD.N) and Target Corp (TGT.N), for example, told Reuters they use a combination of cloud providers.

“Our philosophy here is to be cloud agnostic, as much as we can,” said Stephen Holmes, a spokesman for Home Depot, which uses both Azure and Google Cloud Platform.

Some analysts expect cloud services growth to slow over time as competition increases.

Amazon, for instance, has said that price cuts and new products with lower costs on average are a core part of its cloud business. Additionally, Amazon Web Services saw usage growth outpacing that of revenue growth, said Amazon Chief Financial Officer Brian Olsavsky.

“Going forward, cloud services will become more of a commodity, and the prices will quickly compress,” said Adam Sarhan, CEO of 50 Park Investments, an investment advisory service. “For now though, it’s a great business with plenty of room for all to grow.”

Reporting by Salvador Rodriguez; Additional reporting by Jeffrey Dastin and Paresh Dave; Editing by Leslie Adler; Editing by Jonathan Weber

Our Standards:The Thomson Reuters Trust Principles.

Tech

SoftBank's big checks are stalling tech IPOs

LAGUNA BEACH, Calif. (Reuters) – Big cash infusions for startups from an ever-expanding group of financiers, led by SoftBank Group Corp (9984.T) and Middle East sovereign wealth funds, have extinguished hopes that the technology IPO market would bounce back this year.

These deep-pocketed financiers, which have traditionally invested in the public markets but are seeking better returns from private tech companies, have enabled startups to raise more money, stay private longer and spurn the regulatory hassles of an IPO even as they become larger than many public companies.

At The Wall Street Journal D.Live conference this week in Southern California, a number of venture capitalists, entrepreneurs, IPO experts and dealmakers spoke with Reuters about the surprisingly low number of IPOs and pointed to investors such as SoftBank for changing the business of startup financing.

“It’s not surprising if these companies get 10 term sheets,” said Nicole Quinn, an investing partner with Lightspeed Venture Partners, referring to formal offers of investment.

The result is a protracted IPO slump that has contributed to a 50 percent drop in the number of U.S. public companies over the last two decades, according to the Nasdaq. IPOs have fallen especially precipitously since 2014 – the year public market investors, including mutual funds, ramped up investment in private tech companies.

There are some signs of a more active fall for IPOs. Tech companies Switch (SWCH.N), MongoDB (MDB.O) and Roku (ROKU.O) have gone public in the past few weeks, with debuts from ForeScout and Zscaler ahead.

CORRECTION AHEAD?

Yet many investors are bracing for a market tumble after a sustained rally, raising questions about IPO opportunities for 2018.

Just 12 venture capital-backed tech companies went public in the United States in the first three quarters this year, compared to 27 for the same time period in 2014, according to IPO investment adviser Renaissance Capital.

The drought continues even though both the Dow Jones Industrial Average .DJI and Nasdaq Composite .IXIC are up more than 26 percent in the last year and market volatility is low, normally ideal conditions for an IPO.

Wall Street stock indexes have posted a string of record highs in recent weeks, and the Dow closed above 23,000 for the first time on Wednesday. [.N]

But Barry Diller, a longtime dealmaker and chairman of InterActiveCorp and Expedia Inc (EXPE.O), said the huge funding rounds had eliminated the traditional reason for an IPO.

“There is no reason to be public unless you need capital, and almost all these companies do not need capital,” Diller said.

SOFTBANK-UBER DEAL EYED

Increasingly, the big checks are coming from SoftBank, which in May closed a $ 93 billion investment fund.

So far this year, it has announced at least 14 investments in technology companies globally, including a $ 500 million deal with fintech company Social Finance and a $ 3 billion investment in shared workspace company WeWork, both private and already worth billions of dollars.

SoftBank is in the next week expected to finalize a highly anticipated deal with Uber Technologies Inc [UBER.UL] in which it, along with other investors, would purchase as much as $ 10 billion in Uber shares, most of them from employees and existing investors in a so-called secondary offering.

“This is the third liquidity option,” said Larry Albukerk, who runs secondary market firm EB Exchange and spoke to Reuters by phone. “It used to be IPO or acquisition.”

SoftBank’s deals are causing venture capitalists to “prepare for more M&A exits,” and fewer IPOs over the long term, said Jenny Lee, managing partner at GGV Capital.

Meanwhile, Nasdaq’s private market business, set up in 2014, facilitated more than $ 1 billion in secondary market transactions last year, according to Bruce Aust, vice chairman of Nasdaq.

Secondary transactions allow employees and investors to get some cash by selling to other private investors, removing a significant pressure to go public.

The flood of private capital, and the lofty valuations that have come with it, have, paradoxically, created another reason for avoiding an IPO, said Chris Clapp, a managing director with consulting group MorganFranklin.

“Many times with my clients I don’t think they would achieve the same valuation in the public markets,” Clapp said in a phone interview.

Meal delivery company Blue Apron Holdings Inc (APRN.N) took a 27 percent haircut when it went public in June and software company Cloudera Inc (CLDR.N) lost 53 percent of its valuation in its April IPO.

Snap Inc (SNAP.N), the owner of messaging app Snapchat, is down more than 10 percent from its IPO price in March.

Reporting by Heather Somerville; editing by Jonathan Weber and G Crosse

Tech

Brexit: What it means for Tech (but don’t panic)

Britain votes to leave the EU, but what does this mean for the technology industry? Let’s take a look at the situation in the United Kingdom of Great Britain and Northern Ireland.

But let’s keep this a politics-free zone, eh? In IT Blogwatch, British bloggers panic (or not).

Your humble blogwatcher curated these bloggy bits for your entertainment. Not to mention: don’t panic

To read this article in full or to leave a comment, please click here

Computerworld Cloud Computing

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Privacy group calls for a boycott of tech companies supporting CISA

Privacy advocates are stepping up their lobbying efforts against the controversial cyber threat information sharing bill currently in Congress after several tech giants indicated their support.

Activist group Fight for the Future criticized Salesforce for supporting legislation which would “grant blanket immunity for American companies to participate in government mass surveillance programs like PRISM, without meaningfully addressing any of the fundamental cyber security problems we face in the U.S.” Accordingly, Fight for the Future said it will abandon the Heroku cloud application platform within the next 90 days and encourages others to follow suit. The letter to Salesforce CEO Marc Benioff was posted on the site YouBetrayedUs.org.

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Lending a hand: Even more ways tech is delivering hope for humanity


Philanthropy isn’t only for the big guys. While tech giants Google and Apple announced their donation efforts last week, there is plenty of room for others. From multiple “Airbnb for refugees” popping up around the world to simply volunteering to be a human wifi hotspot, technology is being used as a vital tool for aid. With the latest numbers from the International Organization for Migration as a record-breaking 473,887 refugees and migrants from the Mediterranean to Europe just this year alone, everything helps. The past few weeks we’ve been presenting companies using technology with a humanitarian focus – here and…

This story continues at The Next Web


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