Cloud growth slowdown looms, suggesting tech boom near peak | Tech Industry
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Investors seem to be getting the message. Amazon fell as much as 10% on Friday, Alphabet dropped 5.6% and Western Digital plummeted 22% after reporting results after the market closed Thursday. The ISE Cloud Computing Index has declined 11% in October, outpacing the S&P 500’s 7.8% drop.
Western Digital said cloud providers have spent more on storage in recent quarters than they need, for now, and a slowdown is natural. Even Intel Corp., the only large technology company to get a vote of confidence for its earnings announcement from the market Friday, agreed.
“I don’t expect that it will grow at 50% forever,” Intel Chief Executive Officer Bob Swan told analysts on a call late Thursday. “50% was our cloud growth in the quarter.”
Intel’s data center business, which provides server chips and other silicon to Google, Amazon and other major cloud companies, had growth of 26% in the third quarter, passing sales of US$6 billion for the first time. It racked up that number even as general corporate spending on computer networks slowed. Swan also reminded his audience that China is a large market and is “very important to the global supply chain.”
Amazon, the biggest online retailer, on Thursday reported a second consecutive quarter of sales that fell short of estimates — the first back-to-back revenue miss in almost four years. The company also gave a disappointing revenue and profit forecast for the busy holiday period. Even its highly profitable cloud-computing business, Amazon Web Services, didn’t grow as fast as it had in the previous three months.
Alphabet, too, missed quarterly sales estimates on Thursday and revenue growth from its main Google businesses came in at 22%, slower than the prior period.
While things might not continue to expand at the rate they’ve been surging forward at, companies like Google were keen to point out that their infrastructure continues to be a priority and is a competitive edge for them. Chief Executive Officer Sundar Pichai said his company is investing “in the long run.”
“On hardware, we always want to be at the forefront of computing,” Pichai said.
Microsoft has also said it will continue to invest in new products and data centers. As a result, capital expenditures will increase this fiscal year, but at a slower pace than last year, Chief Financial Officer Amy Hood said earlier this week in an interview.
Amazon CFO Brian Olsavsky said the company will be seeking to keep a lid on expenses and improve operating margins. “A lot of that is based on efficiencies of our data centers, not only for the AWS business, they’re also four our Amazon consumer businesses, who are AWS’ biggest customer,” he told analysts Thursday. “So we are really happy that again we’re seeking great cost performance in a number of areas across the business.”