Cloud vendors have finally acknowledged that a slowing economy has affected their profits, but Microsoft CEO Satya Nadella sees a weaker global economy as the chance to prove the need of public cloud.
Public cloud allows Microsoft customers to control ramping up and ramping down based on demand, which could also help customers with growing energy costs, Nadella said during Microsoft’s latest quarterly earnings call.
“The thing, though, from a customer perspective – the best way for them to align their spend with what is uncertain demand is to move to the cloud,” Nadella said. “So we see the value prop of the cloud. So the big winner in all of this will be public cloud because public cloud helps businesses offset the risk of demand risk.”
How is Microsoft performing?
While Microsoft Chief Financial Officer Amy Hood handled much of the financial bad news during the company’s earnings report for the first quarter of the company’s 2023 fiscal year – a quarter that ended Sept. 30 – Nadella still had plenty of measures to show the company’s growth with established and new products.
Azure Arc has more than 8,500 customers, more than double a year ago, Nadella said. Azure Machine Learning revenue has increased more than 100 percent for four quarters in a row. And GitHub is at $1 billion in annual recurring revenue with more than 90 billion people using the service.
At least three investment banks reported confidence in Microsoft’s long-term abilities.
“Our thesis remains that the cloud and underlying Office 365/Windows ecosystem is going to comprise a bigger and bigger piece of Redmond going forward and will ultimately spur growth and margins (and the multiple) into FY23/FY24 despite this downturn,” Wedbush wrote in a report Wednesday. “We believe the shift to cloud is still less than 50% penetrated and represents a massive opportunity for Nadella & Co. going forward.”
It continued: “Our conversations with customers and partners underscores our confidence that MSFT can ride out this economic storm and ultimately be in a stronger position in the other side with cost cutting and strategic measures already in place.”
A Wednesday report by investment bank KeyBanc said that “despite the cyclical headwinds to Azure and Windows/ PCs, we remain bullish long term on MSFT‘s hyperscale cloud and integrated infrastructure stack, application development platform, and expanding business application portfolio.”
A report from Credit Suisse said that although a deceleration in small and midsize business consumption and headwinds to Microsoft’s Enterprise Mobility + Security business
“will likely continue to weigh on near-term growth, we view the negative impact of the currently elevated optimization cycle as more temporary. Similar to past optimization cycles that weighed on growth for ~1-2 quarters, an upswing in new workloads then followed that drove growth back toward more normalized trends.”
Here’s more of what Nadella had to say during Microsoft’s latest earnings call.
Wade Tyler Millward is an associate editor covering cloud computing and the channel partner programs of Microsoft, IBM, Red Hat, Oracle, Salesforce, Citrix and other cloud vendors. He can be reached at [email protected].
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