International Business Machines Corp. (NYSE: IBM) had the misfortune of releasing disappointing earnings in the middle of a market free fall. Its sharp 5% fall was one of four stocks that sank the Dow, posting the largest losses of the Dow 30. There was, however, one big bright spot in IBM’s otherwise lackluster earnings release. Its cloud computing segment is really taking off.
Put it this way: If IBM had spun off its cloud segment and it reported separately, the stock would have been way up in the midst of Wednesday’s carnage. Strategic imperatives for the data giant include cloud, analytics, mobile, social and security, which together grew 26% to $29 billion in sales, or 35% of total revenue. Isolating cloud revenue out of that, that alone is up 57% to $10.2 billion, adjusting for currency shifts.
The other three major cloud players do not match IBM’s market share, but all are growing. These are Amazon.com Inc.’s (NASDAQ: AMZN) Amazon Web Services, Microsoft Corp.’s (NASDAQ: MSFT) Azure and Alphabet Inc.’s (NASDAQ: GOOGL) Google for Work. While more exact numbers are available for Amazon and Microsoft, we’ll have to wait for Google’s first report as Alphabet on February 1 for a fuller picture.
Amazon Web Services
As of its latest report, sales for Amazon’s Web Services segment were up an impressive 78% to a quarterly total of $2.1 billion. That total accounts for 8.2% of total quarterly revenues, which is up from 5.7% last year. AWS includes computing, storage, database and other miscellaneous service offerings.
We shouldn’t expect Amazon to quickly overtake IBM, Amazon being primarily a retail company and IBM specializing in data services, where cloud computing is a natural fit with its expertise. However, AWS growth rates are still quite phenomenal. Whether this says more about the quality of Amazon’s cloud services or the exploding demand in the industry in general is the real question.
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