Big Tech Earnings Day and the JEDI is with Amazon

The big tech companies are continuing to see huge tailwinds from the pandemic

The big tech companies are continuing to see huge tailwinds from the pandemic that is causing massive societal and business change from the massive digital cloud and AI transformation happening.  The tech boom continues.

Big tech is having a wonderful year and the money is flowing all around. Apple is swimming in cash as iPhones are flying off the shelves. Smartphone chipmaker Qualcomm has new CEO and posts blowout numbers. Facebook continues to print money from its’ user’s data. Amazon Web Services wins a legal victory in the contested $10 billion JEDI contract to modernize our warfighters. 

During the global crisis, Apple raking in the cash while iPhones are flying off the shelf

Apple Inc. beat market expectations today with its latest quarterly earnings report, but the company warned that it’s facing supply shortages in its current quarter.

For its fiscal second quarter ended March 27, Apple reported revenue of $89.6 million, up 54% year-over-year, and quarterly earnings of $1.40 per share. Analysts had been predicting a profit of 99 cents a share on revenue of $77.4 billion.

The revenue figure was driven by growth across Apple’s entire portfolio of products. Mac revenue in the quarter jumped 70% from a year ago, to $9.1 billion. Meanwhile, iPad revenue rocketed 79%, to $7.8 billion, up 78.9%. Other product revenues rose 24%, to $7.83 billion.

Despite a report in March that suggested Apple was cutting iPhone 12 production by 20% on weaker-than-expected demand, iPhone sales were again strong. In the quarter Apple booked iPhone revenue of $48 billion, up 66% year-over-year. The revenue was notably down from $65.6 billion in sales in the previous quarter which came following the debut of the iPhone 12 in October.

Apple’s services revenue was also strong in the quarter, up 24% year-over-year, to $16.9 billion. Apple services include Apple TV+, Apple Music, the App Store, iCloud and software sales. Apple Chief Financial Officer Luca Maestri told analysts on an earnings call that Apple now has more than 660 million paid subscriptions across its services division and that video, music, games, and advertising all had their best quarter yet.

“This quarter reflects both the enduring ways our products have helped our users meet this moment in their own lives, as well as the optimism consumers, seem to feel about better days ahead for all of us,” Apple Chief Executive Officer Tim Cook said in a statement.

Shortages

Apple stock rose more than 2% in after-hours trading, but it could have been bigger if not for a warning about potential supply shortages.

Not only did Apple not provide official guidance for the following quarter, Cook said on the earnings call that supply shortages could constrain growth in both the Mac and iPad ranges. “We expect to be supply-gated, not demand-gated,” Cook said. Apple Insider reported that Maestri also warned that Apple expects to see greater seasonal revenue declines heading into the June quarter.

The warning on supply issues at Apple is not a complete surprise. A report April 8 already detailed issues with the iPad and Mac lineup.

The issue is part of a broader global chip shortage that is affecting all players in the market, driven by a COVID-19 pandemic supply chain crunch and a soaring demand for products such as laptops and mobile devices that can facilitate remote work. According to comments from Intel Corp. CEO Pat Gelsinger earlier this month, the shortage could continue into 2023.

Others are more optimistic about Apple’s ability to obtain chip supply.

“I think the big story on Apple is that it can get ahold of components while others cannot,” said Moor Insights & Strategy analyst Patrick Moorhead. “The 79%-70% iPad-Mac growth indicates that its supply chain team excelled when many others didn’t. Apple makes strategic, multibillion-dollar capital expenditures to increase its chances of getting enough chips and displays.”

Qualcomm delivers blowout earnings and revenue easily beating expectations.

Smartphone chip giant Qualcomm Inc. delivered a blowout quarter today with earnings and revenue that easily beat Wall Street’s expectations combined with triple-digit operating income growth.

The company reported a second-quarter profit before certain costs such as stock compensation of $1.90 per share on revenue of $7.94 billion, up 52% from a year ago. Wall Street had been looking for a profit of $1.67 per share on revenue of $7.6 billion.

The report sent Qualcomm’s stock up 5% in after-hours trading.

Qualcomm Chief Executive Steve Mollenkopf, who will step down from the role on June 30, said the strong results were “driven by sustained demand for smartphones globally and our ability to increase the scale of our non-handset revenues.”

The lion’s share of Qualcomm’s income is derived from smartphone handset chips, and the company has previously said the global rollout of 5G networks presents a big growth opportunity for it, all the more so as nations emerge from COVID-19-related lockdowns and people begin to travel more.

Qualcomm’s CDMA Technologies business, which includes chips for handsets as well as radio frequency front-end, “internet of things” and automotive components, raked in $6.28 billion in sales, beating Wall Street’s consensus of $6.26 billion. Within that segment, handset revenue came to $4.07 billion, up 53% from the same period a year ago but below Wall Street’s forecast of $4.23 billion.

The company’s other main business, Qualcomm Technology Licensing, which covers its mobile technology patent royalties, reported $1.61 billion in revenue, up 51% from a year ago.

Analyst Patrick Moorhead of Moor Insights & Strategy said Qualcomm delivered a “monster quarter.” He was especially impressed with its 256% operating income growth and 273% net income growth.

“It was a great way for Mollenkopf to close his Qualcomm career,” Moorhead said. “Both QCT and QTL are taking advantage of the rising demand for 5G smartphones available at nearly every price point.”

Moorhead heaped praise on Qualcomm’s other business segments too, noting the 39% revenue growth in RF chips, 40% growth in automotive and 71% growth in IoT.

“These numbers likely make Qualcomm the largest smartphone RF provider and one of the largest IoT chip manufacturers,” he said. “In QTL just keeps the hits coming adding 10 more 5G licenses and taking fully advantage of the new China opportunities.”

Holger Mueller of Constellation Research Inc. agreed that Qualcomm was firing on all cylinders in the first quarter, noting that we rarely every see 50% revenue growth at a company that’s already in the $5 billion-plus revenue range. “When all revenue segments are up, and the weakest one is up only by 39%, it is clearly very good timesl,” he said.

Mollenkopf, who will be replaced as Qualcomm’s CEO by its current President Cristiano Amon (pictured), said he was leaving the company in a strong position for continued growth and remains confident in its ability to execute on its future opportunities.

In a conference call, Amon told analysts that one of his first jobs will be to try to help alleviate the global shortage of computer chips that has reportedly caused Apple Inc. to scale back the production of some MacBook and iPad models. The shortage has affected other industries too, notably the automotive sector, but Amon said he expects supply conditions to improve by the end of the year.

“Despite the industrywide semiconductor supply shortage, we’re utilizing our scale and working across our entire global supply chain to maximize our ability to capture this opportunity,” Amon said. “We expect material improvements by the end of the calendar year due to planned capacity builds and multi-sourcing initiatives.”

Mueller said it will be interesting to watch the transition at Qualcomm as Mollenkopf hands over the reins to Amon. “From a succession perspective, we have a 52-year old handing over to a 50-year old, so it seems both will have at least another decade ahead of them. The question then is, what is next for Moellenkopf?” Mueller asked.

For the next quarter, Qualcomm provided an optimistic forecast and raised its guidance for 3G, 4G and 5G handset shipments. It’s modeling earnings of between $1.55 and $1.75 per share on revenue of $7.1 billion to $7.9 billion. That’s well ahead of Wall Street’s forecast of $1.52 per share in earnings on $7.11 billion in sales.

Facebook profit nearly doubles as it is having a great year crushing revenue

Benefiting from the easing of the COVID-19 pandemic, Facebook Inc. today reported its first-quarter profit nearly doubled on much better-than-expected revenue.

The social networking giant, which also counts Messenger, WhatsApp and Instagram among its properties, said it earned a first-quarter profit of $9.5 billion, or $3.30 a share, up 94% from a year ago. Revenue jumped 46%, to $25.4 billion.

Analysts had forecast Facebook would earn a profit of $2.37 a share on revenue of $23.7 billion.

Like Alphabet Inc., which reported a big upside earnings surprise on Tuesday, Facebook benefited this past quarter from lapping a sharp downturn in ad spending a year ago in the thick of the early pandemic. That benefit could continue into the second quarter, but Chief Financial Officer David Wehner has said the second half is likely to see a slowdown thanks to ad spending rebounding in 2020’s second half.

Facebook shares were rising more than 5% in early after-hours trading after the earnings release. In regular todaying today, they closed up about 1.2%, to $307.10 a share. The stock has risen nearly 50% in the last year.

In a conference call with analysts, Chief Executive Mark Zuckerberg (pictured) said the company plans to keep pouring on the gas, especially in areas beyond advertising that constitutes nearly all its revenue currently. “Our business has been performing better than we expected in the last couple of quarters,” he said. That’s prompting the company to invest more in some areas: augmented and virtual reality, which Zuckerberg views as the next computing platform, commerce, business messaging and creators.

Facebook also reported daily active users of 1.88 billion, slightly above analysts’ average forecast of 1.89 billion, according to FactSet. Monthly active users came in at 2.85 billion, just a hair below analysts’ 2.86 billion estimate. Zuckerberg added that more than 2.7 billion people use one of its apps daily.

Wehner said advertising revenue was driven by a 30% increase in the average price of an ad from a year ago, as well as a 12% increase in the number of ads served.

“After Snap reported strong earnings last week and Google reported big wins yesterday, it’s no surprise to see Facebook’s revenues skyrocket thanks to huge ad investments from brands,” said President and Chief of Strategy Yuval Ben-Itzhak, president and chief of strategy at social media marketing firm Socialbakers. “After a year of pandemic-related spending cuts and bounce-backs, it’s encouraging to see steady investment in ads across Facebook’s platforms.”

Ben-Itzhak said Socialbakers’ most recent data found that global ad spend on social media jumped 60% from a year ago, while Instagram’s audience grew 10%. “One thing that doesn’t look set to change anytime soon is that Facebook remains the most reliable place for brands to be seen and heard,” he said.

Wehner provided considerable guidance, saying that ad growth would be driven mostly by price for the rest of this year.

“We expect second-quarter 2021 year-over-year total revenue growth to remain stable or modestly accelerate relative to the growth rate in the first quarter of 2021 as we lap slower growth related to the pandemic during the second quarter of 2020,” he said in prepared remarks. “In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to significantly decelerate sequentially as we lap periods of increasingly strong growth.”

In addition, he said, “we continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recently-launched iOS 14.5 update, which we expect to begin having an impact in the second quarter. There is also continuing uncertainty around the viability of transatlantic data transfers in light of recent European regulatory developments, and like companies across a wide range of industries, we are closely monitoring the potential impact on our European operations as these developments progress.”

As for expenses, Wehner said he expects them to total $70 billion to $73 billion this year, more than its prior outlook of $68 billion to $73 billion. That will be driven by new hires, infrastructure and the costs of its consumer hardware such as its Oculus virtual reality headsets. Facebook is expecting capital spending to be $19 billion to $21 billion, down from its previous estimate of $21 billion to $23 billion.

This year likely will bring more challenges to the company. “Other looming threats to Facebook’s business, such as Apple’s app tracking ID being introduced with iOS 14 and increasing regulatory pressure in multiple countries, have not become material yet but may have a larger impact in the second half of 2021,” said Martin Garner, chief operating officer of market research firm CCS Insights.

“Now, users will likely see less relevant ads, meaning brands could see weaker return on investment,” Ben-Itzhak added. “But this isn’t a death knell for Facebook’s ad revenues. If it can overcome this hurdle – perhaps by giving users more control over the content they want to see – both brands and consumers will benefit, not to mention Facebook itself.”

Judge blocks latest move to dismiss Amazon’s JEDI cloud contract protest

Amazon Web Services Inc. won a small victory in its ongoing legal fight to block the U.S. Department of Defense’s decision to award the Joint Enterprise Defense Infrastructure cloud contract to rival Microsoft Corp. when a judge today declined to dismiss its protest lawsuit.

The JEDI contract, which could be worth up to $10 billion over the next 10 years, remains in limbo as U.S. Court of Federal Claims Judge Patricia Campbell-Smith issued a sealed decision that prevents Microsoft and the DOD from getting work underway on the contract.

Under the JEDI contract, Microsoft is supposed to provide the DOD with cloud computing infrastructure and services that are designed to modernize its information technology systems.

The U.S. Pentagon surprisingly awarded the contract to Microsoft in October 2019 following a long procurement process, though Amazon was widely expected to win. Amazon immediately protested the DOD’s decision, and its legal challenges have stalled work on the contract ever since.

Amazon’s protest centers on two main claims — first, that the DOD “consistently and repeatedly made prejudicial errors” at every step of the procurement process “that systematically favored Microsoft,” and second, that this occurred because of “improper influence” from former President Donald Trump.

The DOD’s and Microsoft’s motion to dismiss Amazon’s protest apparently focused on the second complaint but failed to convince the judge to drop it.

“The record of improper influence by former President Trump is disturbing, and we are pleased the Court will review the remarkable impact it had on the JEDI contract award,” said an Amazon Web Services spokesperson. “AWS continues to be the superior technical choice, the less expensive choice and would provide the best value to the DoD and the American taxpayer. We continue to look forward to the Court’s review of the many material flaws in the DoD’s evaluation, and we remain absolutely committed to ensuring that the Department has access to the best technology at the best price.”

Today’s decision means the case will rumble on, but Microsoft said in a statement that it changes little.

“Not once, but twice, professional procurement staff at the DOD chose Microsoft after a thorough review,” said Microsoft Head of Communications Frank Shaw. “We’ve continued for more than a year to do the internal work necessary to move forward on JEDI quickly, and we continue to work with DOD.”

Analyst Charles King of Pund-IT Inc. told SiliconANGLE that today’s ruling suggests there’s more than enough meat on the bones of Amazon’s claims to let a judge and jury sort them out. “That’s generally bad news for Microsoft but even worse for the DOD, especially if evidence exists that shows the agency willingly or unwillingly succumbed to pressure from the Trump White House,” King said.

However, the legal wrangling has made the DOD impatient, and today’s ruling means there’s a very real chance it may decide to abandon the JEDI contract altogether in favor of a new procurement process.

FedScoop reported in January that the DOD sent an “information paper” to Congress explaining that if the Court of Federal Claims rejects its motion to dismiss Amazon’s lawsuit, that could “elongate the timeline significantly,” forcing it to reassess its strategy entirely.

“Regardless of the JEDI Cloud litigation outcome, the Department continues to have an urgent, unmet requirement for enterprise-wide, commercial cloud services for all three classification levels that also works at the tactical edge, on scale,” DOD Chief Information Office John Sherman told FedScoop in January. “We remain fully committed to meeting this requirement — we hope through JEDI — but this requirement transcends any one procurement, and we will be prepared to ensure it is met one way or another.”

King said that abandoning the JEDI project and restarting the procurement process could provide some cover for those involved in the decision to award the contract to Microsoft. “It also makes sense from a technological perspective since the IT industry, vendors and the cloud marketplace have all changed substantially since JEDI was a mere Baby Yoda proposal,” he added.

Constellation Research Inc. analyst Holger Mueller said the ongoing delays were likely hurting the DOD and having a negative impact on its systems, purchasing, and costs planning. He said he too would welcome a decision to abandon JEDI.

“The DOD’s original request for proposal was done with outdated criteria to award the JEDI contract to a single infrastructure as a service provider,” Mueller said. “We have known for many years now that the best practice for mission-critical operations is a multi-cloud deployment. So it would benefit U.S. taxpayers if the DOD issues a new request for proposal and then makes a decision to select the top three cloud vendors and quickly gets the U.S. military started with the cloud.”

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