Recovery trickles up the IT stack

Intel, whose microprocessor sales are seen as a leading indicator for demand higher up the value chain, enjoyed a glittering 288% rise in net income on the back of a 44% increase in sales during its most recent quarter.

Revenues for the chipmaker reached $10.3 billion during the three months ending 27 March 2010, while profits soared to $2.4 billion.

“A year ago, at this time, the industry was in the midst of a sharp correction with many expecting it to continue for an extended period,” said Intel CEO Paul Otellini in a conference call with investment analysts. “Now a year later the industry has nearly fully recovered.”

Otellini attributed Intel’s performance to “incredible” demand for its products. Unlike during its most recent quarters, this demand came from business customers as well as consumers. “We are seeing signs of corporate demand returning which we believe will continue to improve given the age of the corporate PC fleet,” he said.

VMware’s virtualisation software operates at the hypervisor level, between the operating system and the underlying hardware components. Here, the company said in April 2010, “pent-up customer demand” helped drive revenue up 35% to $633.5 million for the first quarter of its financial year. 

VMware’s license sales rose 21% to $312.1 million during the quarter, while maintenance and support revenue shot up 52% to $267.2 million. Net income rose 12% to $78.4 million.

In a conference call with analysts, VMware CEO Paul Maritz claimed that the growth figures were evidence of the widespread shift in IT towards cloud computing, at the root of which lies the virtualisation of commodity servers.

“We remain convinced that the industry is at the beginnings of a major and far-reaching transition from the PC client-server era to the cloud era and that virtualisation offers the bridge between the two,” he commented.

Maritz acknowledged that its key competitors, most notably Microsoft, are stepping up their attempts to dislodge its dominance of the virtualisation market. “We are more than holding our own versus our competitors, but we also know that they are determined and have deep pockets,” he said. “So while we remain fundamentally positive, we know that we cannot relax and we need to resist the temptations of exuberance.”

Despite its ambitions at the hypervisor level, Microsoft’s second quarter revenue increase – up 6% year-on-year to $14.5 billion – was very much driven by its operating system business, where sales rose 28% to $4.4 billion. 

Again, demand came from businesses as well as consumers: the business segment of the operating system division grew sales 15%, the consumer segment by 35%. “Business customers are beginning to refresh their desktops and the momentum of Windows 7 continues to be strong,” said COO Kevin Turner. 

This effect was counterbalanced by more modest performances in the company’s server and tools division, where sales grew 2%, and its business software arm, where sales dropped 6%. Turner said that the company is seeing “tremendous interest in our market-leading cloud services for business” although the company did not provide specific revenue figures for its cloud-based software platform Azure.

For SAP, whose business applications software sits at the very top of the enterprise IT stack, the recovery has come later than most, but the German company finally showed signs of a comeback in its first fiscal quarter of 2010. 

Revenues grew 5% to ?2.51 billion for the period, driven by an 11% uptick in software license sales to ?464 million and an 11% rise in revenues derived from software services (i.e. maintenance) to ?1.39 billion. This growth was offset by a 14% decline in the professional services business – which includes consulting and training – to ?557 million.

The overall sales uptick combined with SAP finally paying off the costs of its recessionary redundancy programme meant that net income shot up 97% to ?387 million for the quarter. 

“As growth is coming back on the agenda and business in IT interests are converging, SAP is uniquely positioned to help customers transform and grow,” the company’s co-CEO Bill McDermott told analysts in a conference call.

Cloud visibility

One of the era-defining success stories in the IT industry of late has been the unexpected launch of online retailer’s cloud-based IT infrastructure services. But because of the company’s gigantic size, it hasn’t broken out the financial figures for Amazon Web Services, so market watchers have been denied an important indicator of end-user adoption patterns. 

In April, though, it emerged that investment bank Citigroup believes that AWS will earn the company around $650 million during 2010, based on its pricing model and estimated usage. 

If true, this would confirm that Amazon far outstrips its competitors in the so-called ‘infrastructure-as-a-service’ market. Hosting provider Rackspace, for example, earned $56 million from its cloud business – which includes hosted email and SharePoint as well as cloud-based servers – during 2009, although it expects that figure to grow significantly in 2010. Savvis, meanwhile, earned just $7.4 million from cloud services in 2009.

Peter Done

Peter Done is managing director of Peninsula Business Services, the personnel and employment law consultancy he set up having already built a successful betting shop business.

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