Technology companies have seen mixed results this year, as an uncertain economy has left many reticent about spending heavily on new software or systems. There has been one exception: Demand is growing quickly for new Internet-based cloud computing services.
Recent earnings reports by industry giants such as IBM, Microsoft and Intel suggest that sales to corporate customers are holding up better than those to consumers.
“Things are probably more stable in the business segment and encouraging,” Microsoft Chief Financial Officer Amy Hood said during a question-and-answer session after an earnings call last week.
Quarterly revenue at Microsoft grew 16 percent, to $18.53 billion, compared with the three-month period a year ago, with revenue in the company’s devices and consumers segment growing 4 percent, and revenue from the commercial segment increasing 10 percent. Commercial cloud revenue grew 103 percent since the last quarter.
Some of the overall growth is tied to Surface tablet sales, which more than doubled since the last quarter, Gartner analyst Mikako Kitagawa said. “The surprise was that Surface did a really good job,” she said, outpacing gloomy sales forecasts from analysts.
Reports from the International Data Corp. and Gartner suggest that PC sales fell 8 to 9 percent.
Intel registered a decline in personal computing but similar gradual growth in commercial cloud revenue.
Although revenue for the third quarter grew to $13.48 billion, from $13.46 billion last year and $12.8 billion last quarter, Intel saw a marked decrease in revenue from its PC segment since last year — about 3.5 percent.
The business market “for PCs strengthened in the third quarter, and the consumer market in the U.S. and Europe appear to have bottomed out,” Stacy Smith, Intel’s chief financial officer, said during an earnings call last week.
Intel’s data center group, responsible for server equipment, saw 6.2 percent growth since the last quarter and 12.2 percent growth since last year. Cloud revenue was up 40 percent since last year — cloud storage grew 20 percent and high performance computing by 27 percent. This was driven by a “resumption of growth in the enterprise market segment,” Smith said.
But corporate technology spending could be stronger, Morningstar analyst Andy Ng said. Compared with previous quarters, businesses seem hesitant to spend on new technology across the industry. “Uncertainty with government spending hasn’t really helped at all.”
Intel’s PC head winds will probably persist, Ng wrote in a recent Morningstar report, especially because of competition from other technology companies and the increasing popularity of high-end tablets, which could be a substitute for personal computers. But these market struggles could be offset by growth in Intel’s server processor segment, he added.
IBM also saw cloud revenue growth but a drop overall. Quarterly revenue fell 4 percent, to $23.72 billion this quarter, compared with $24.7 billion a year ago. (Net income rose 5.7 percent percent, with $4 billion, or $3.68 a share, since the last quarter, driven by improvement in IBM’s productivity and shifts in currency exchanges, according to the company.)
IBM’s global cloud revenue was up 70 percent from the same quarter last year — in July, the company completed its acquisition of SoftLayer, a Dallas-based cloud firm. “For the first time, we delivered more than $1 billion of cloud revenue in a quarter, of which about $460 million is delivered as a cloud service,” Chief Financial Officer Mark Loughridge said in an earnings call last week. He also noted a slight decline in revenue from software helping businesses manage outsourced work.
IBM’s overall revenue drop can be explained in part by decreased demand in China, Loughridge said in the call. Revenue from China was down 22 percent since the last quarter, with a 40 percent drop in hardware, which makes up about 40 percent of IBM’s business in China. U.S. revenue was flat year to year.
“We were impacted by the process surrounding China’s development of a broad-based economic reform plan, which will be available in November,” Loughridge said. “In the meantime, demand from state-owned enterprises and public sector has slowed significantly as decision-making and procurement cycles lengthened.”