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April 20, 2016updated 05 Sep 2016 11:06am

Mixed results show cloud success isn’t always easy: Intel cuts 11% of workforce to ease transformation as SAP sees profits jump

News: Traditional vendors face a struggle to keep hold of market share as CIOs pick AWS and Microsoft Azure as indispensable IT mega-vendors.

By James Nunns

The shift to cloud computing is having a positive impact on SAP’s financials, but it is about to severely damage Intel’s workforce.

The German software provider reported its Q1 2016 financial results in which a 38% rise in net profit for the quarter was seen.

For the period ending 31st of March, net profit stood at €572m compared to €414m during the same period last year.

Revenue rose by 5% to €4.73bn, partly driven by its continued shift to the cloud. SAP reported first quarter cloud subscription and support revenue grew by 33% year-over-year to €678m, while new cloud booking grew by 23% in the first quarter and reached €145m.

Despite the growth in cloud revenue, software licenses and support remain the main financial honey pot bringing in €3.17bn up 1%.

SAP’s shift to the cloud is being mirrored by a number of companies across the tech industry from software providers to chip manufacturers such as Intel.

Intel’s shifting focus to cloud comes as the company aims to counter the decline in the personal-computer market and its failure to capitalise on the switch to smartphones.

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As part of this changing focus, Intel is planning to cut 12,000 jobs, which equates to 11% of its workforce.

The company revealed the restructuring along with its 2016 Q1 results. CEO Brian Krzanich said that the move was tough but necessary in order to cut costs and free up money to invest in areas of the business that are growing.

The company hopes to save $750m this year, with annual run-rate savings of $1.4bn by mid-2017.

Intel’s failure to make in-roads into the smartphone market, which is dominated by rival chip maker ARM, has meant that Intel has been forced to focus on the cloud market, in this it is not alone.

IBM, like Intel, has been forced to move away from its original target customers by focusing on the new areas of cloud and data analytics.

Intel is now going all-in with cloud, hoping that its chips will be at the core of cloud providing data centres for the majority of cloud vendors. This is one of the reasons why it has played a much more prominent role in OpenStack.

In the Q1 2016 results Intel reported that its data centre group which includes chips for servers, saw sales rise by 8.6% to $4bn, suggesting that this is an area that is still seeing good growth for the company.

Both SAP and Intel are aiming to make themselves the go-to companies for their product areas in cloud. This is because there is continued growth in the cloud market and for many, a shrinking in traditional IT.

These two companies are of course not alone in this strategy and plenty of competition exists.

According to a survey by JP Morgan of 207 CIOs of enterprises with budgets of $600m or more, Microsoft and Amazon Web Services are viewed as the most critical and indispensable IT mega-vendor.

Analysts from JP Morgan found that the cloud computing wars are entering a new phase and it’s going to be good for AWS.
CIOs reported that 16.2% of workloads are currently running the public cloud, and that in five years 41.3% of workloads will run in a public cloud.

The report said: "In our view, a near- tripling of the public-Cloud-based workload mix represents a monumental architectural shift, which shows no signs of abating and is likely to create a major ripple effect across the entire technology landscape."

Microsoft came out strongly on top as the most critical and indispensable IT mega-vendor with 48.9%, but AWS came in second with 13% ahead of Cisco in third on 11.6%, Oracle 11.1% and SAP 9.2%.

JP Morgan

"AWS’s ranking sends a strong indication that threats to traditional, on-premise IT infrastructure vendors are serious," said the report.

As focus shifts to AWS, focus on some of the old guard fades. Asked who will lose market share to AWS and Microsoft Azure the respondents highlighted IBM as the number one to lose out, with 26.1% of the vote. Second was "HP", the report makes the assumption that respondents were referring to HPE, with 15%. Oracle came third (14.5%), Dell fourth with 12.1%, and EMC fifth with 11.6%.

The report said: "IBM, HP, and Oracle are the top 3 most at-risk vendors for losing share of IT budget as the world shifts workloads to IaaS vendors. These firms have some commonalities to the extent that they span Services, Hardware, and Software, often creating an enclosed infrastructure stack."

"In other words, you don’t see pure software-only vendors at the top of this list. IBM’s high potential share loss from IaaS adoption should not be surprising given they have among the highest share of on-premise infrastructure to defend."

The disruption for the traditional vendors will continue as the cloud market continues to grow, how quickly they move to quickly embrace the new world could be a decisive factor in whether or not they are still in business in 50 years time.

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