October 28, 2022
Photo: Narumon Bowonkitwanchai via Getty Images
Hello and welcome to Protocol Enterprise! Today: while consumer demand for semiconductors plummets, cloud tech providers can’t get enough chips, the third-quarter cloud provider market share numbers are in, and what might come next in the evolving U.S. policy toward AI in China.
The semiconductor industry is experiencing whiplash at the moment: Within the span of weeks, consumer chip sales have gone from boom to bust, perhaps one of the fastest shifts in recent memory.
Earnings season thus far has reinforced that trend, and reports from companies such as Texas Instruments suggest the slump may be expanding into other markets, such as industrial applications. But not so for the data center: Large U.S. hyperscalers such as AWS, Google, Meta, and Microsoft issued quarterly report cards this week, and the verdict was positive overall even if their revenue isn’t growing as fast as it once was.
But slowing revenue growth hasn’t translated to massively scaled back data center expansion plans from the big cloud providers just yet. Jefferies chip analyst Mark Lipacis wrote in a client note that the commentary from Google, Meta, and Microsoft was positive for data center chip companies such as Nvidia, AMD, Marvell, and Broadcom.
The other hyperscalers talked about expanding their data center spending too.
Even if there’s continued strength among the hyperscalers, Intel doesn’t appear poised to take advantage. Nothing can sum up the cost of years of technical mistakes at Intel better than its latest data center and AI quarterly report card: The once-flush segment has ceased to turn a profit, and its revenue fell 27% to $4.2 billion from just a year ago.
Many business leaders aren’t sure where to begin when it comes to migrating to the cloud. To help organizations adapt to this revolution, Capital One launched Capital One Software, a new enterprise B2B software business focused on providing cloud and data management solutions.
Google Cloud inched up in the market share rankings for cloud providers this week after reporting 38% revenue growth for Google Cloud Platform services, Google Workspace collaboration tools, and other enterprise services.
The third-largest cloud provider, Google now has 11% share, up from 10% in the last quarter, according to a report yesterday from Synergy Research Group. AWS’s and Microsoft’s market shares remained steady in the top two spots at 34% and 21%, respectively.
Overall, enterprise spending on cloud infrastructure services totaled more than $57 billion in the third quarter, an increase of more than $11 billion from the same period last year, according to Synergy. And according to figures reported by the Big Three in their quarterly earnings, there’s a lot more in the pipeline.
Alphabet’s revenue backlog, which represents customer contract commitments for future services and is primarily related to Google Cloud, grew to $52.4 billion as of the end of September, from $51.2 billion in June, according to a quarterly report filed with the SEC. The cloud provider expects to recognize about half of that amount as revenue in the next 24 months.
Amazon’s revenue backlog, which is primarily related to AWS, grew to $104.3 billion from $100.1 billion from the end of June through September. The average remaining life of its long-term contracts is 3.8 years and AWS said it was unable to determine the pace at which it would recognize that revenue because “the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term.”
Microsoft reported $183 billion in remaining performance obligations. Of that, $180 billion was related to its commercial revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties. That number was down from $189 billion reported in June, but the company expects to recognize approximately 45% of that revenue in the next 12 months.— Donna Goodison (email | twitter)
For some companies operating in AI, data, or emerging technology fields — particularly those without any ties to China — the latest news out of Washington must look promising.
The U.S. Commerce and Defense Departments and White House National Security office are working as a tag team delivering offensive blows to China’s technology industry while signaling more protections for industry, including more government fusion with private sector tech.
“We have a whole China assessment going on. I meet with my staff once a week and say, ‘Okay, what do we do next?'” said Alan Estevez, undersecretary of commerce for industry and security at the U.S. Department of Commerce Bureau of Industry and Security in a talk yesterday. What’s next, as also signaled by the White House and Defense Department, includes efforts to rein in China’s AI, biotech, and quantum capabilities, he said.
It remains to be seen what a regulatory approach to curbing AI’s open-source-centric research and development ecosystem looks like in practice.
Meanwhile, a new national defense strategy document from the Defense Department explains that the U.S. will follow industry’s lead on AI, autonomous tech, and human-machine interfaces with military relevance.
And it aims to boost opportunities for private sector integration. “We will increase the availability of fellowships, internships, and rotational assignments — including in the private sector — to grow the skills of our workforce, provide a broad range of experiences, create collaboration opportunities, and carry best practices back to the Department,” the plan stated.
VMware patched a severe vulnerability in its Cloud Foundation and NSX Manager products after exploit code was released earlier this week.
The flexibility of the cloud helps companies like Capital One unlock access to their data with performance that can scale instantly. But this flexibility and scale can also create a unique challenge for organizations and users who are not proficient in cloud optimization.
Thanks for reading — see you Monday!