Heading for a serious cold snap in the clouds this winter

At a time when inflation leads to price increases to providers, the shadow of recession is more clear for 2023. Conditions that push customers to rationalize their spending.

The sky darkens for those who give clouds. While they were pushed to the front during the Covid pandemic, the new crisis affects them with full force. The explosion in energy prices forces them to change their prices upwards. In France, OVHCloud and Scaleway announced an average price increase of 10%. Announcements that come at a time when the government has decided not to keep the amount of electricity regulated at the cost of 120 TWh for 2023. It will decrease to 100 TWh (read the article Without help from the State, forced by the French clouds to increase their rates by 20% in 2023). Their American competitors drew earlier. In March 2022, Google Cloud announced an increase in its pricing. Ditto for Microsoft in the Microsoft 365 suite in August 2022. Unlike the European suppliers, both are suffering from the explosion of the dollar, which has risen from 0.8 to 1 euro since the beginning of the year. With the key of mechanical increase of 16% of the invoice for their customers in Europe. As for data center operators, Equinix and Telehouse raised their prices by 30%, and Interxion by 14% at the beginning of the year.

Companies are experiencing these increases firsthand. In general, they face rapid inflation (close to 10% in Europe), rising interest rates and falling household consumption. From there to consider reducing their costs in terms of the cloud, there is only one step, which has already been done. At the end of October, Amazon, Microsoft and Intel jointly announced that their customers are putting the brakes on spending in this area, such as in data centers. As a sign of this decline, the growth rate of Amazon’s cloud entity, AWS, has continued to fall over the past four quarters. From July to September, its turnover increased by 27.5%, compared to 33% in the second quarter and 39% in the same period of 2021. Below the forecasts of analysts (who expected +31%), it was the weakest ever growth recorded by AWS since publishing its results from 2014. In the process, the group’s share value fell by 16%.

Spending has dropped dramatically

The correction was more severe for Microsoft. In its last fiscal quarter, which ended September 31, 2022, its cloud activity (Azure) posted 35% growth, compared to 50% in the same period in 2021. Again, the result was below market forecasts forecast an increase of 36.5%. For Google Cloud’s quarterly turnover at the end of September, it increased by 38% in a year. A level that certainly exceeds market expectations, but which is in sharp decline relative to the 45% growth recorded last year. At Intel, the numbers overlap. The founder lamented a 27% drop in turnover from the production of chips for data centers in the third quarter of 2022. An activity that was partially affected by weak demand from Chinese companies.

“80% of companies will pivot their innovation efforts from creativity to resilience by 2023”

Unsurprisingly, the increase in server sales hit the second quarter of 2022 with a sequential increase in shipments of only 3.3%, against the +9% expected (according to Digitimes Research). And the trend should continue.

What about OVH? Since its IPO in October 2021, it has been the only pure European cloud player to publish its financial results. In its fourth fiscal quarter ended August 31, 2022, the Roubaix company increased its growth to 37.4%, compared to +25% at the end of its first fiscal quarter in 2022 following its IPO. OVH’s public cloud activity reached a total revenue of 33.8 million euros throughout the period. Against $20.5 billion for AWS in its quarter that ended on September 30. Faced with American behemoths, the Octave Klaba group wants to position itself for a long time as number 1 in the sovereign cloud in data in Europe.

FinOps in line of sight

At a time when CIOs are negotiating their budgets for 2023, all indicators are in the red, both in terms of cloud spending and server and data center front investments. “80% of companies will pivot their innovation efforts from creativity to resilience by 2023,” Forrester said in its forecast. “Rising costs, supply issues and the global shortage of technology talent are impacting the ability to deliver a positive customer experience. As a result, future IT decision makers will be more pragmatic when it comes to experiment with innovations to better meet the needs of their customers.” At the same time, the computing and storage infrastructures used by production applications are more rationalized than ever before. Key watchword: FinOps.

Leave a Reply

Your email address will not be published. Required fields are marked *