Cloud spending stays strong — for now
Hello and welcome to Protocol Enterprise! Today: what Microsoft and Google Cloud’s earnings results tell us about the health of enterprise tech spending as the economy teeters, why New Orleans reversed itself to allow police to use AI-powered facial recognition technology and a notable development for Intel’s foundry business.
State of the cloud
Despite growing economic headwinds, Microsoft’s commercial cloud business and Google Cloud both hit quarterly revenue milestones for the three months that ended June 30, as demand for enterprise tech spending remained pretty strong.
Microsoft Cloud eclipsed $25 billion in quarterly revenue for the first time with 28% growth in the fourth quarter compared to the same period last year, as commercial bookings grew 25%. The closely watched segment includes sales of Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365 and other commercial cloud properties.
- Microsoft’s “intelligent cloud” revenue, which includes sales of older non-cloud enterprise tech products, increased 20% to $20.9 billion.
- Revenue for server products and cloud services grew 22%, driven by 40% growth in Azure and other cloud services, said Amy Hood, Microsoft’s chief financial officer, which was about a point lower than expected for the Azure segment.
- Still, “our cloud growth continues to outpace the market,” Hood said.
- Microsoft is seeing larger and longer-term cloud commitments and won a record number of deals exceeding $100 million and $1 billion in the quarter, according to Microsoft CEO Satya Nadella.
Google Cloud revenue, which includes Google Cloud Platform, Google Workspace collaboration tools and other enterprise services, surpassed $6 billion in quarterly revenue for the first time.
- Second-quarter cloud revenue hit $6.28 billion, a 35.61% increase from the same quarter of 2021. That puts the cloud provider on track for $25.1 billion in annual revenue.
- But Google Cloud reported a bigger net loss that rang in at $858 million for the quarter, up from $591 million in the same period last year.
- Overall Alphabet revenue climbed 12.6% to $69.69 billion quarter over quarter, while net income dropped to $16 billion, from $18.53 billion.
- “We'll continue to invest in areas like AI, Search and cloud, and we'll do it responsibly and in a way that is responsive to the current environment,” Alphabet CEO Sundar Pichai said.
Alphabet this month said it was slowing hiring and sharpening its focus, but that’s unlikely to affect Google Cloud CEO Thomas Kurian’s plans for the future.
- “We are focused on hiring engineering, technical and other critical roles, and we are working to improve productivity and ensure that the great talent we do hire is aligned with our long-term priorities,” Pichai said.
Microsoft is also likely to be cautious as we wait for further signs of the health of the economy, but investors felt a lot better as its earnings call went on.
- The stock rose 5% in after-hours trading after Hood projected a strong outlook for the second half, including increased growth for the cloud segments.
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Let the facial-recognition AI roll
It’s been less than two years since New Orleans outlawed facial recognition. But on Thursday, its city council voted to hand the keys to the controversial surveillance tool back to the city’s police department. Now, the NOPD can request use of facial recognition software licensed by the state to assist in investigations of crimes including murder, rape and even purse snatching.
The city’s new rules also allow police to use cell-site simulators — often called stingrays — that mimic cell phone towers to trick mobile phones into connecting to reveal unique IDs and locations.
Police in New Orleans used facial recognition over the years before the ban, but they never kept track of its efficacy.
“You have no data, sitting here today, telling me that this actually works, that it leads to arrests, convictions or clearance,” said New Orleans city council member Lesli Harris, one of two council members who voted against the facial recognition measure, during Thursday’s council meeting.
There was some data on facial recognition-related state spending, however. I crunched the numbers and state records show Louisiana has paid $3.5 million in the last two years to Idemia, a biometric identity and AI tech company based in France.
Police themselves don’t expect the use of facial recognition to prevent crime, but that doesn’t matter to council members and others who supported the reversal. Many point to the fact that New Orleans has the highest murder rate in the nation. “All I want is a safer city,” said New Orleans city council member Freddie King III, who voted to let police access the technologies.
Laws can be fragile and tech is often sold as a panacea. One has to wonder whether the uptick in pandemic-era crime across the country could affect other legislation restricting increasingly pervasive surveillance tech.
Ultimately, for New Orleans residents and visitors, surveillance never really went away with the ban. The mission to make New Orleans safer in 2017 inspired what went from just 20 surveillance cameras to what is now at least around 800, all networked into the city’s privately run Real-Time Crime Center.— Kate Kaye (email | twitter)
Time to build
Intel’s turnaround attempt under CEO Pat Gelsinger has a few moving parts, but one of the most important pieces is the plan to create a contract manufacturing business that one day might compete with the likes of TSMC and Samsung. To do that, Intel needs customers.
The company added a big one to its roster Monday, as it announced a deal with the Taiwan-based chip designer MediaTek to manufacture smart edge chips using one of Intel’s older manufacturing processes. MediaTek is well known for its smartphone systems-on-chip designs that rival Qualcomm’s products, but the company also has a large Internet of Things chips business, and makes many of the chips that power smart home devices.
MediaTek will likely use Intel for Wi-Fi chips at the moment, according to Baird analyst Tristan Gerra. The deal will not save Intel, he said, but it’s an important step.
Instead of giving up on older manufacturing equipment that has already been paid off, Intel can turn those older tools into profit, sparing itself from having to spend tens of billions of dollars on the new, most advanced chipmaking tools to generate business.
“This is really the only way for Intel to survive with their current business model,” Gerra said. MediaTek will also essentially teach Intel how to work with customers and run a contract manufacturing company, which it has not previously done successfully.
Intel worked hard to get MediaTek’s business, pursuing the chip giant for months. But the deal does make sense for MediaTek too. Mostly, it gives MediaTek access to a second significant source of chips beyond TSMC, and a bit of relief from its dependence on the supply chain around Taiwan. And if Intel is able to figure out its next-generation manufacturing tech, MediaTek will be at the front of the line to use it.
The key question is whether or not Intel can compete with TSMC on costs. Gerra said he suspects that initially Intel will absorb higher prices as it gets up and running to stay competitive.— Max A. Cherney (email | twitter)
Around the enterprise
South Korea’s SK Group announced plans to spend up to $22 billion in the U.S. on new chipmaking factories and other technology investments.AWS launched some new cloud security features as part of its re:Inforce security event in Boston.
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Thanks for reading — see you tomorrow!