Microsoft CEO Satya Nadella

Microsoft’s earnings report Tuesday showed slowing cloud growth in a reality check for Wall Street.
It’s caused analysts to rethink their expectations for the rest of the cloud industry, mainly AWS. 
However, Microsoft’s CEO and analysts think cloud is poised for a bounce-back after some hard times.

Microsoft’s cloud revenues are down, as is the growth rate of its Azure cloud platform, as customers pull back on spending and look to optimize their cloud tools, the company reported in its quarterly earnings report Tuesday.

The report took Wall Street by surprise, causing them to rethink their outlook for the rest of the cloud computing industry as well: “Redmond is the best barometer of enterprise spending in the world,” said Wedbush analyst Dan Ives in a note to clients, referring to the Washington city that houses Microsoft’s headquarters. 

Analysts at UBS, for example, said in its own research note that it was lowering its expectations for the market-leading Amazon Web Services cloud when Amazon reports earnings next week, based largely on the slowdown at Microsoft. Bernstein analysts wrote that Microsoft was the “canary in the coal mine” for cloud.

Even before those notes came out, however, Microsoft CEO Satya Nadella used Tuesday’s earnings report call to reassure Wall Street that the spending slowdown is due in large part a function of its customers choosing to optimize their usage of the company’s products for cost-savings, rather than abandoning it entirely. In the longer view, he doesn’t think that dynamic will last forever, as the economy bounces back.

“What we see is optimization and some cautious approach to new workloads and that will cycle through, but we do fundamentally believe on a long-term basis as a percentage of GDP, tech spend is going to go up,” Nadella said on the call.

Microsoft’s approach will be to make sure it continues “gaining share during this time,” helping build loyalty among customers by helping them stretch their IT spending dollars until they’re ready to reinvest in major new cloud projects. In the long term, Nadella suggests, this focus will help it gain market share once the situation changes.

Most analysts seem to agree with Nadella’s approach, arguing that the cloud spending slowdown is temporary and not reflective of any longer-term trend.

“We still think MSFT is well-placed to capture long-term opportunities,” Bernstein analysts wrote to clients.

Azure, and the other cloud providers, are in a normalization period after …read more

Source:: Business Insider

      

Microsoft CEO Satya Nadella says the great cloud slowdown won’t last forever as he shares his plan for a big bounce back

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