As Microsoft soars on cloud, PC partner Intel seeks lift off | Reuters - Firstpost
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As Microsoft soars on cloud, PC partner Intel seeks lift off | Reuters

  Updated: Apr 22, 2016 04:00 IST

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SAN FRANCISCO Microsoft Corp (MSFT.O) and Intel Corp's financial results this week brought into sharp relief the onetime PC partners' attempts to gear up for cloud computing, where Microsoft is soaring and Intel has not quite taken off.

Chipmaker Intel (INTC.O) has seen its share price drop 2 percent over the last year, as software maker Microsoft’s stock has risen 30 percent. Microsoft's market capitalisation of around $439.68 billion is almost three times Intel's at $150.96 billion, compared to about double five years ago.

"Wintel" computers running Windows on Intel chips dominated the personal-computing era, which is slowly ending as more people turn to mobile phones for computing needs and corporations deemphasize desktops. Both Intel and Microsoft, run by relatively new CEOs Brian Krzanich and Satya Nadella, are betting their businesses on the cloud.

Microsoft's cloud business, a combination of services and software catering to corporations moving computing functions to remote data centres run by outside providers, is growing strongly, although analysts want more clarity. A category it calls "intelligent cloud," which includes traditional server software, grew 3 percent over the last year to $9.46 billion.

At Intel, in a quarter where the company announced plans to cut 12,000 jobs as it shifts away from the PC, data-centre business revenue rose 9 percent to $4 billion. That segment includes the chips powering cloud data centres, where the company says it is doing well.

“There’s this perception that Microsoft is more on the cusp and benefiting from this (cloud) trend,” said Dan Morgan, a fund manager at Synovus Trust Co who holds both companies in his portfolio. “Intel is still more drowned out,” meaning not as high-profile.

Microsoft’s best-known play in the cloud is Azure, a set of services for computing and storage as well as tools for software developers.

Azure is gaining ground on Amazon's AWS unit, the industry heavyweight in cloud computing services. Azure commands about 10 percent of the $23 billion market, estimates Synergy Research, compared with AWS’s 31 percent.

Intel has done well in its category, dominating the market for processor chips that are the brains of data centre computers, but the business faces major pressures.

Much of the difference in the companies' fortunes boils down to Microsoft’s fundamental business as a software company versus Intel’s as a hardware company, argues Nick Sturiale, a venture capitalist at Ignition Partners.

Clients are spending an ever-larger part of their technology budget on software, according to research firm Gartner. And Intel's customer base for data-centre chips is consolidating into a few big companies, including Facebook, Google, Amazon and Microsoft itself, from a much wider group.

“The cloud vendors are brutal price negotiators and have more power over Intel,” said Sturiale. Average prices of data centre chips fell 3 percent in the last quarter, although Intel said that reflected the fact that cheaper chips were gaining ground the fastest.

Intel could suffer as big data-centre builders like Facebook increasingly design their own data-centre hardware. So far, Intel has held its own, but one day its customers could extend their cost-cutting to chips.

In a call this week with analysts, Krzanich said Intel’s “top to bottom” understanding of the cloud-based data centre and keen eye on competitors would help it stay ahead.

“Always paranoid about the competition, always driving,” he said. “And you know that we live or die by the performance of our product.”

Intel makes other promising products, including chips for Internet-connected devices known as the Internet of Things. If a blockbuster consumer or business product in that market comes along, those chips could take off.

And Microsoft may be overemphasising how far it has come. Much of its “intelligent cloud” business comprises software for traditional on-premises servers and other businesses with little to do with the cloud. A spokeswoman said the segment’s name “is to align to the ambition” of building the cloud.

Microsoft also is good at playing up its cloud business. In its January earnings call with investors, the term “cloud” came up 59 times. In Intel’s call this week, it came up 11 times.

(Reporting by Sarah McBride,; additional reporting by Noel Randewich; editing by Andrew Hay)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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