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Cloud produces sunny earnings

HEAD IN THE CLOUDS:Amazon’s profits from cloud computing have turned it into a moneymaker, while Microsoft is moving toward the business and away from software

NY Times News Service, SEATTLE

The moneymaking machines at the core of Amazon.com Inc, Microsoft Corp and Alphabet Inc, the parent company of Google, are notably different, but the respective kings of online retailing, software and Internet search should all credit a relatively new line of business for lifting their financial results.

In their quarterly earnings reports released on Thursday, the three said cloud computing — through which they rent computing services and online access to software hosted in their data centers — was growing faster than their larger, older businesses.

The impact of cloud computing was particularly noticeable at Amazon, the leader in this still-young business. The profit Amazon could make on cloud-computing services is significantly bigger than in its retail sales, and that has helped turn the Seattle company from a consistent money-loser to a respectable moneymaker.

For the first quarter, which ended on March 31, Amazon said its total net income rose to US$724 million, or US$1.48 a share, from US$513 million, or US$1.07 a share, a year ago.

The company said the US$890 million in operating income from its cloud business, called Amazon Web Services (AWS), accounted for most of its overall profits.

However, the worry is that this cannot last forever, not with Microsoft and Google making big investments in their own cloud businesses while trying to undercut Amazon with lower prices.

That has not happened — at least not yet. While AWS revenue grew at a slower pace than in the past, it still rose a healthy 43 percent to US$3.66 billion.

Overall revenue at Amazon rose 23 percent to US$35.71 billion from US$29.13 billion in the same period a year ago.

The company’s results were well ahead of the US$1.12-a-share average earnings estimate and US$35.3 billion revenue estimate of analysts compiled by Thomson Reuters.

“There’s always this moment when people think: ‘Is the magic going to run out?’” Forrester Research analyst James McQuivey said. “It just hasn’t panned out.”

Microsoft — the No. 2 player in cloud computing — is steadily making the transition to that business, relying less on PC software, the company’s mainstay for decades.

Microsoft’s Azure cloud hosting business grew by 93 percent from a year earlier, and the cloud version of its productivity software Office 365 — sold to companies as an online service — grew by 45 percent.

“We’re seeing continued strong demand for our commercial cloud-based services,” Microsoft chief financial officer Amy Hood said in an interview.

Microsoft’s overall revenue rose 8 percent in the quarter, to US$22.09 billion. That was enhanced by US$975 million in revenue from LinkedIn, the professional networking site that Microsoft bought for US$26 billion in a deal that closed in December last year.

Net income rose 28 percent to US$4.80 billion. Its operating earnings per share, which excludes one-time gains, increased 16 percent to US$0.73 a share, ahead of the average analyst estimate of US$0.70 a share.

For Alphabet, cloud efforts are catching on, although it trails far behind Amazon and Microsoft. Alphabet does not break out cloud revenues, but its “Google other revenues” segment, which includes the cloud, jumped 49 percent from the first quarter of last year.

Alphabet chief financial officer Ruth Porat said in a conference call with analysts that the Google cloud platform was one of the company’s “fastest-growing businesses,” although she offered no details.

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