Microsoft, IBM tout cloud services as key drivers of earnings strength

But exactly how much revenue IBM and Microsoft get from IaaS remains cloudy

It’s earnings season, which for publicly-traded technology vendors in the cloud market means it’s time to update investors on the momentum of emerging products helping to displace eroding revenue from legacy offerings.

For two technology vendor stalwarts – Microsoft and IBM - cloud computing has played a significant role in their earnings this quarter.

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Microsoft’s earnings beat analyst estimates with non-GAAP revenues of $22.6 billion. CEO Satya Nadella said the company’s commercial cloud unit now has an annualized run rate of $12.1 billion. Azure IaaS plus on premise server software revenues were $6.71 billion for the quarter.

IBM, meanwhile, reported that revenues from its cloud operations reached $11.6 billion, including $6.7 billion from “as-a-Service” offerings, up 50% from the same quarter a year ago.

That “aaS” line item is made up of IBM’s SoftLayer IaaS business, BlueMix PaaS offerings, as well as its broad set of SaaS apps, data and analytics as a service. The overall cloud figure includes revenues from consulting customers on hardware design and implementations that support cloud initiatives.

For both of these companies, the increase of cloud revenues is coming as their traditional legacy on-premises businesses revenues drop. “With commercial cloud revenue reaching approximately 15% of corporate revenue in CY2Q16, Microsoft has proven its ability to successfully migrate customers to cloud,” says TBR Inc. analyst Kelsey Mason. “On-premises software growth and margins suffer as a result, but a growing cloud base creates a myriad of opportunities to increase share of wallet.”

IBM said that cloud, analytics, mobile, social and security, what the company calls CAMSS generated 38% of the company’s overall revenues last quarter. But as CAMSS revenues continue to rise, the company’s overall revenues dropped. This quarter, revenues were down by 2.8% compared to the same quarter last year to $20.2 billion. “IBM will leverage its hardware capabilities, along with its CAMSS solutions, to encourage IBM hardware adoption for high-demand markets, such as cloud-based security and analytics, where IBM’s full stack of solutions can be leveraged to provide customers with holistic solutions,” TBR Inc. Analyst Krista Macomber said in a research note after IBM released the figures.

All these figures should be taken with a grain of salt though because the vendors are being opaque about their true cloud revenues. Both Microsoft and IBM lump their core cloud revenues in with other non-cloud revenues, so it’s difficult to get a true picture of their cloud revenue stream.

By comparison, Amazon reported in its most recent earnings in April that it generated $2.6 billion in revenue from Amazon Web Services for the quarter and it expects to be on a $10-billion annualized run rate for mostly IaaS. Amazon is set to release its next revenue updates July 28.

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