Tuesday 22 August 2017

Tech firms that dominated the PC era now at risk of getting lost in the cloud

Chief executive Brian Krzanich of Intel Photo: Chris Ratcliffe/Bloomberg
Chief executive Brian Krzanich of Intel Photo: Chris Ratcliffe/Bloomberg
Chief executive Satya Nadella of Microsoft Photo: Andrew Harrer/Bloomberg

Sarah McBride

Financial results from Microsoft Corp and Intel last week brought into sharp relief the challenges the one-time PC partners face as they shift more of their emphasis to cloud computing.

Microsoft has seen strong long-term growth in parts of its cloud business, a combination of services and software catering to corporations moving computing functions to remote data centres run by outside providers.

Revenue for its flagship cloud services business Azure more than doubled last quarter, the company said, although the overall "intelligent cloud" division saw just 3pc revenue growth in the period.

Intel has a less clear path to growth for its cloud operations, and investors are sceptical.

Intel shares are down about 1pc over the last year. Microsoft's stock rose about 30pc.

'Wintel' computers running Windows on Intel chips dominated the personal-computing era, but this domination is ending as consumers switch to smart phones and corporations deemphasise desktops.

Both Intel and Microsoft, run by relatively new CEOs Brian Krzanich and Satya Nadella, are betting their businesses on the cloud.

At Intel, in a quarter where the company announced plans to cut 12,000 jobs as it shifts away from the PC, data-centre business revenue rose 9pc to $4bn. That segment includes the chips powering cloud data centres, where the company says it is doing well.

Microsoft's Azure is gaining ground on Amazon's AWS unit, the heavyweight in cloud computing services. Intel dominates the market for the processor chips that are the brains of data centre computers, but the business faces major pressures.

Much of the difference in the companies' fortunes boils down to Microsoft's fundamental business as a software company versus Intel's as a hardware company, said Nick Sturiale, a venture capitalist at Ignition Partners.

Clients are spending more of their technology budget on software, according to research firm Gartner. And Intel's customer base for data-centre chips is consolidating into a few big companies, including Facebook, Google, Amazon and Microsoft itself, from a much wider group.

"The cloud vendors are brutal price negotiators and have more power over Intel," said Sturiale. So far, Intel has held its own but could suffer as big data-centre builders like Facebook increasingly design their own data-centre hardware.

Microsoft may be simply better at flagging its successes. Much of its "intelligent cloud" business includes software that has little to do with the cloud. But in its January earnings call with investors, the term "cloud" came up 59 times. In Intel's call this week, it came up 11 times.

Reuters

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