Pandemic fuels billion dollar growth for AWS, Microsoft, Google and more global cloud providers in Q1 2020

The COVID-19 pandemic has fuelled the growth of global cloud providers, including AWS, Microsoft Azure, Google Cloud and more in Q1 2020.

More businesses are moving to the cloud to enable remote working and ensure their operations continue. And that’s not all, cloud computing and storage is also needed to empower our leisure time in the age of lockdowns and social distancing through gaming, watching videos and shopping.

More businesses are expected to adopt cloud computing and providers are aiming to increase investment in constructing infrastructure, including data centers, to enable this growth.

In Asia Pacific, the demand for cloud solutions is at a record high for Q1 2020, jumping by 25% to a record US$1.7 billion in annual contract value.

Scott Bertch, Partner and Head of Information Services Group Asia Pacific, said: “We continue to see growth in the IaaS segment as more and more enterprises shift their workloads to the public cloud, or to a hybrid cloud environment.”

As a result, we are seeing significant growth and investments in Q1 2020 from global cloud providers, including AWS, Microsoft Azure, Google Cloud, Huawei Cloud, Alibaba Cloud, IBM Cloud and Tencent Cloud.

AWS makes history crossing US$10 billion revenue mark for the first time

Amazon Web Services continues to maintain its position as the largest cloud provider after it crossed the US$10 billion revenue mark for the first time in Q1 2020.

This represented a year-on-year net sales growth of 33%, which has slowed down from 41% in the same quarter of 2019. But the operating income from AWS grew by 38% from US$2.2 billion in Q1 2019 to more than $3 billion after expenses of US$7.1 billion in the first quarter of 2020. 

Jeff Bezos, Amazon’s Founder and CEO, said: “From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced.”

The total operating income for Amazon decreased to US$4 billion from US$4.4 billion in Q1 2019. AWS accounts for a huge 77% of their overall operating income.

Mr Bezos warned: “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances.”

AWS has helped medical researchers in the fight against COVID-19 with a centralized repository of curated datasets as well as enabling small businesses to use the cloud with an AWS Free Tier.

Mr Bezos added: “We expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”

The cloud provider also announced plans for three more AWS regions in Indonesia, Japan and Spain as well as making AWS Outposts available in Indonesia.

AWS now spans 76 Availability Zones within 24 geographic regions.

Microsoft’s solid quarter sees two years’ worth of digital transformation in two months

Microsoft’s Intelligent Cloud revenue increased by 27% to US$12.3 billion in the quarter ending March 31 2020, similar to the previous quarter.

The overall server products and cloud services revenue increased by 30%, but Microsoft Azure’s revenue growth slowed to 59% in FY20 Q3 compared to 62% in FY20 Q2.

Amy Hood, the Executive Vice President and Chief Financial Officer of Microsoft, said: “In this dynamic environment, our sales teams and partners executed a solid third quarter, with Commercial Cloud revenue generating $13.3 billion, up 39% year-over-year.”

As customers shift to working and learning from home during the pandemic, Microsoft has noticed an increase in cloud usage on Teams, Azure and Windows Virtual Desktop.

Satya Nadella, the Chief Executive Officer of Microsoft, said: “We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security.”

Microsoft’s cloud services have helped universities like Thammasat University in Thailand continue to teach their students, healthcare providers in creating more than 1,400 bots to assist millions in accessing critical health information and justice systems in the Philippines remain productive.

Google Cloud leads the charge to revenue growth and investment for Alphabet

Google experienced a 13% increase in total revenue, led by the continued strength in their Google Cloud Platform and G Suite offerings.

In Q1 2020, Google Cloud revenues increased by US$952 million to a total of US$2.8 billion. This represented a 52% year-over-year growth. The tech giant’s infrastructure, data and analytics products are said to be the largest drivers of growth for the cloud platform.

With this growth, the most sizeable headcount increases were found in Google Cloud for both technical and sales roles.

Sundar Pichai, CEO of Alphabet and Google, said: “We see businesses thinking deeper about the shift to digital … Cloud and productivity software for businesses of all sizes is a deep area of investment.”

In their Q1 2020 report, Google revealed that US$12.8 billion is not yet recognised as of March 31 2020 due to ‘performance obligations associated with commitments in customer contracts, primarily related to Google Cloud, for future services that have not yet been recognized in revenue’.

Google recognises that ‘pricing and delivery models are competitive and evolving’, which could lead Google to not attain ‘sufficient scale and profitability to achieve our business objectives’.

Google is devoting significant resources to develop and deploy their enterprise-ready cloud services by incurring costs to build and maintain infrastructure that supports cloud computing services. 

The cost of revenues in Q1 2020 increased by $2,970 million compared to Q1 2019. This was largely due to a rise in data center and other operation costs. But the tech giant may reevaluate the pace of their investment plans for data centers, servers and network equipment due to the COVID-19 pandemic and slowing or stoppage of construction.

> Check out the Q1 2020 data center landscape

Mr Pichai acknowledged customers of Google and closing some larger deals have been impacted by the pandemic, but is excited about the longer-term trend, as CEO-level staff are now thinking about shifting to digital in a deeper way.

Ruth Porat, CFO of Alphabet and Google, said: “With respect to the implications of the global crisis for Google Cloud, we’re proud of the accelerated traction we achieved across sectors.”

Google Cloud has helped governments deliver critical health and social services as well as retailers on demand forecasting, media and communications to enhance customer service and more.

Huawei Cloud boasts faster market share growth among all service providers

Huawei boasted the fastest growth among all cloud service providers, maintaining stable service growth to empower its rapid development.

Overall, Huawei generated approximately US$25.7 billion in Q1 2020, representing a year-over-year increase of 1.4% compared to a 39% increase in Q1 2019. Their net profit margin in the first quarter of 2020 was 7.3%, down slightly from 8% in the year before.

Huawei did not publicly release a detailed breakdown of this revenue, but this growth is said to be in line with expectations.

To date, Huawei Cloud has launched over 210 cloud services, operates in 45 availability zones with partners in 23 regions, including recent launches in Singapore and Latin America.

In a press release, Huawei stated: “A seed that survives the storm will sprout and then blossom. Even though it is impossible to know when the tides of this pandemic will turn, we at Huawei believe that this challenge will be overcome by standing together.”

Huawei’s cloud and data center arm continues to make advancements with a data center interconnect solution to help Singapore’s enterprise market cope with huge increases in data flows, especially during the pandemic, as well as innovative power solutions to ensure always-on reliability and efficiency.

Much like other cloud providers, Huawei Cloud has helped healthcare providers using AI, schools and colleges with distance learning and enterprises with free services.

Looking ahead, Huawei Cloud will enhance its AI cloud services, Kunpeng processors and 5G capabilities to increase its market share and help businesses achieve digital transformation.

Alibaba remains the cloud computing leader in Asia Pacific

Alibaba Cloud, the data intelligence backbone of Alibaba Group, maintained its leading position in the Asia Pacific cloud computing market for Q1 2020. The cloud provider revealed their revenue grew by 58% year-over-year to US$1.7 billion in the quarter ending March 31 2020 compared to US$1.15 billion in 2019.

Maggie Wu, Chief Financial Officer of Alibaba Group, said in a webcast: “Revenue growth of 35% year-over-year was driven by solid performance of our domestic retail businesses as well as robust cloud computing revenue growth.”

Alibaba Cloud’s revenue also increased by 62% year-over-year in the 2020 fiscal year to US$5.6 billion, driven by their public and hybrid cloud businesses. But Alibaba Group’s net income dropped by 99% year-over-year to US$49 million.

“Our overall business continued to experience strong growth, with a total annual active consumer base of 960 million globally, despite concluding the fiscal year with a quarter impacted by the economic effects of the Covid-19 pandemic,” said Daniel Zhang, Chairman and CEO of Alibaba Group.

During the pandemic, Alibaba Cloud’s business grew rapidly due to an increase in consumption of video content and wide adoption of remote working and learning.

Mr Zhang expects the pandemic will further accelerate digital transformation of enterprises with industries like public sectors choosing to move to the cloud.

Alibaba Cloud recently announced a US$30 million SME cloud adoption program along with US$28 billion worth of data center investments covering 21 regions, including Indonesia, Malaysia and Singapore to support digital transformation in a post-pandemic world.

Mr Zhang identified that the Software-as-a-Service market and wider ecosystem is more mature in the United States compared to countries like China where a developer ecosystem ‘is just starting to get going’.

To enhance cloud computing skills and ensure a cloud-ready future, the tech giant offers the Alibaba Cloud Academic Empowerment Program. Xiamen University Malaysia is one such organisation to partner with Alibaba Cloud for this program.

IBM sees continued cloud revenue growth to US$5.4 billion

IBM, the American-based multinational technology company, celebrated a total cloud revenue of US$5.4 billion in Q1 2020, which is up 19% year-over-year, but down from US$6.8 billion in Q4 2019.

IBM Chief Executive Officer, Arvind Krishna, said: “Our first-quarter performance in cloud is a reflection of the trust clients place in IBM’s technology and expertise today, and positions us to continue building an enduring hybrid cloud platform for the future.” 

IBM’s Cloud and Cognitive Software brought in revenue of US$5.2 billion with a 32% growth in Cloud and Data Platforms led by Red Hat for their cloud architecture.

IBM has a strong focus on deepening their understanding of clients’ journey to hybrid cloud and AI to create hybrid cloud as their fourth platform.

Mr Krishna said: “This is why services that clients rely on, to build and manage the hybrid cloud platform, is a massive opportunity for IBM. It’s nearly half of the $1.2 trillion hybrid cloud opportunity.”

IBM’s Global Technology Services, which includes Infrastructure and Cloud Services, pulled in US$6.5 billion, down 6% in Q1 2020.

Mr Krishna added: “I believe we are going through a shift to remote work, automation and application modernisation that will accelerate our clients’ shift to hybrid cloud. This gives me immense confidence in our future.”

IBM has worked with banks, health insurance companies and doctors deal with the pandemic and digitally transform using cloud and AI.

James Kavanaugh, the Chief Financial Officer of IBM, said: “While we expect near-term pressure on transactions, we continue to invest in new development and innovation for our hybrid cloud and AI strategy.”

Over the last 12 months, IBM Cloud has brought in US$22 billion in revenue, as IBM looks to take over the hybrid cloud market.

Tencent experiences cloud revenue growth, but slower than the previous quarter

Tencent, a leading provider of Internet value added services in China, saw a total revenue increase of 26% to US$15.2 billion in the first quarter of 2020 compared to Q1 2019. 

Their revenue from FinTech and Business Services, largely driven by WeChat Pay and their cloud services, increased by 22%. This is down from a 39% growth in the fourth quarter of 2019.

Mr. Ma Huateng, the Chairman and CEO of Tencent, said: “So far, our businesses have proved resilient and cashflow-generative, enabling us to increase our investment to fulfill our mission of ‘Tech for Good’.”

Tencent Cloud’s project deployment and new accounts acquisition for cloud business, which caused the decline in revenue. Tencent expects the cloud industry to remain challenging in the short term, but they will continue to increase investment to encourage digital transformation and greater adoption from offline industries and public sectors.

The cloud provider also recently became China’s first company with more than one million servers and have expanded into 26 geographic areas with 53 availability zones.

Mr. Ma Huateng added: “We are allocating time and resources, including over RMB2 billion of donations, to contribute to COVID-19 relief initiatives in China and globally.”

Tencent continues to expand its market share by growing the business across verticals, including tourism, Internet services and cloud gaming.

Tencent’s online gaming revenue grew by 31% year-on-year to US$5.2 billion, and this may increase even more with Tencent’s move into cloud gaming.

The Chinese tech giant also announced on Tuesday 26 May that it will invest US$70 billion over the next five years in new infrastructure, including blockchain, big data centers, supercomputer centers and internet of things operating systems.

Will global cloud providers maintain this growth in Q2 2020? Or will a more conservative approach towards investment and tech spending by customers take over? Watch this space for a round up of next quarter’s results.