The A's have it -- not the forlorn baseball team, but Apple and Amazon.com, both of which reported record-breaking quarters. And now that most of the major tech companies have reported their earnings, the next 12 months are coming into focus.
Establishment tech companies like Hewlett-Packard, Dell, EMC, and Oracle that have paid lip service at best to the tectonic shift to the cloud will continue to struggle. But other mature outfits like Microsoft and SAP that are reinventing themselves will avoid joining the walking dead.
It's almost not news to report that Apple sold an ungodly number of iPhones -- 48 million, to be exact -- while making an $11.1 billion profit, and that Amazon sold $25 billion worth of stuff and continues to dominate the lucrative cloud business. But what really stands out in the report Apple delivered yesterday was a 40 percent increase in sales to business. This feat is partially dependent on partners like IBM and Cisco -- ironically, companies that keep losing server business to Amazon.
It's rather bittersweet that both of those old-school, enterprise-focused giants are playing the role of spear carrier for Apple, a company that not long ago couldn't get in the door of an enterprise. That's not to say that IBM and Cisco are zombies -- it will be a long time until they wither -- but both are swimming upstream as they struggle to redefine their businesses.
SAP and Microsoft soar in the cloud
That's not true of all old tech giants. It turns out that SAP, arguably a company with one of the lowest cool factors in techdom, delivered surprisingly good results because it is succeeding in moving its applications and services to the cloud -- a feat that rival Oracle hasn't been able to match.
Meanwhile, Microsoft -- a company the digerati love to hate -- has emerged from its Windows 8 midlife crisis and is building a solid business in the cloud with Azure and Office 365. Meanwhile, ever-so-hip Twitter is faltering and executives at troubled Yahoo are rushing for the exits.
Apple is fighting the law of large numbers, the common-sense rule that says percentage growth gets tougher as the base gets larger. That explains why despite its bravura quarter and strong outlook for the holidays, Wall Street was a bit unhappy and punished the company's stock when its fourth-quarter forecast wasn't quite what analysts expected.
SAP, though, is a beneficiary of the same principle: It's much easier to grow when you're starting with a small base. SAP said its cloud subscription and support sales during the last quarter more than doubled. That brought the total to about $664 million, and in the league where SAP and Oracle play, that's not a lot of money.
However, it shows that SAP, which once looked like it could be killed by Salesforce and other cloud providers, is moving in the right direction. In fact, analysts said the company is likely to boost cloud revenue by another 30 percent this year.
Overall, SAP's new license sales rose 4 percent in its fiscal first quarter, while Oracle's license sales fell 9 percent. That's not to say Oracle is doing nothing in the cloud; it is, albeit in a more traditionalist style. But Oracle is not shifting its traditional business as quickly as Wall Street would like, and it's being punished for that pokey pace.
Microsoft, though, is growing its cloud business faster than anyone expected. Daniel Ives, an analyst at FBR Capital Markets, said the company "hit it out of the park" with its profits. He was particularly happy with the company's cloud business, which grew 8 percent to $5.9 billion. "Cloud is the epicenter of the growth story," Ives told the New York Times.
Microsoft's cloud strategy even goes beyond Azure and Office 365. For example, in April, Microsoft finally made its SSD-based Premium Storage offering generally available. Thus, more businesses will be able to move demanding enterprise applications to the cloud, including workloads such as online transaction processing, big data, and data warehousing on SQL Server, MongoDB, and Cassandra, the company said.
Bye-bye, data center
The slow death of the PC market has obviously been very hard on companies like Dell and Hewlett-Packard (IBM was smart enough to bail years ago). But now the corporate data center is withering as enterprises move to the cloud.
So far this year, Amazon has snagged deals with Capital One, which is closing down five of its eight data centers as it moves its apps and tech into Amazon Web Services. General Electric intends to migrate more than 60 percent of the global workload into AWS, closing 30 of its 34 data centers. And Yamaha America will close all of its data centers and save $500,000 a year by shifting to Amazon's cloud. These are the types of core customers that have long generated profits for Dell, HP, EMC, and so on.
All of that activity ballooned AWS's revenue by 78 percent year over year in the recent quarter, generating $2.1 billion in sales versus $1.2 billion the year before.
Besides shrinking the server market (Amazon makes its own), competition from the cloud is taking a huge bite out of the market for storage -- setting up grim prospects for the merged Dell and EMC. Amazon is eating their lunch, and it's hard to see an end to that trend.
What we saw in the last few months isn't a one-off. The lesson is clear: Mature companies like Microsoft and SAP that can adapt still have plenty of life ahead of them, but old-line tech is in desperate trouble.