GOOG, MSFT & INTC – Cloud party.

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Cloud and mobile drive 3 for 3.

 Alphabet Q4 16.

• Alphabet reported excellent results driven once again by mobile advertising but was somewhat marred by a one-off tax payment.
• Q4 16A revenue-ex TAC / Adj-EPS was $21.2bn / $9.36 compared to consensus at $20.6bn / $9.63.
• If the one off tax payment is removed, Q4 16 Adj-EPS was $10.13, comfortably ahead of expectations.
• Alphabet stressed on the call that it was focusing on cloud and the enterprise but I think that this strategy will not work.
• This is because both Amazon and Microsoft are already far ahead and with a simple version of Office 365 now being free on phones and tablets, there is very little incentive to use Google’s office apps.
• Furthermore, Alibaba is aggressively expanding its AliCloud offering and has a very strong base in China upon which to base its international investments.
• Hence, I see Alphabet being driven by its consumer offerings which I do expect to slow somewhat in 2017.
• I continue to see all the growth as being already priced into Alphabet’s share price.

Microsoft FQ2 17.

• Microsoft reported good results as the legacy PC-based businesses held steady allowing very rapid cloud growth to show through in the numbers.
• FQ2 17 revenues / Adj-EPS were $25.8bn / $0.84 compared to consensus at $25.3bn and $0.79.
• Azure was once again the star of the show with revenues more than doubling YoY together with the prospect of much better gross margins as Azure begins to hit real scale.
• While Microsoft is going from strength to strength with regard to offering services for enterprise customers and prosumers, its consumer ecosystem continues to whither on the vine.
• As these businesses continue to be neglected, I can see a growing case for divesting Xbox, Mojang and even Internet Explorer as they could be worth more to someone prepared to really make something of them rather than just let them chug along.
• I still like Microsoft as these results show that there is still upside to be had from the perspective of offering services to enterprises and prosumers.

Intel Q4 16

• Intel reported reasonable results as the PC market declined by less than expected allowing chip sales in the data centre to boost revenues.
• Q4 16 revenues / EPS were $16.4bn / $0.73 compared to consensus at $15.8bn / $0.75.
• Lower profitability was largely driven by gross margins which have declines to 63.1% from 64.8% a year ago.
• Intel is under assault on all fronts as chip makers who are willing to accept much lower gross margins are working on creating data centre processors as well having another go at running Windows.
• Furthermore, almost everybody that is working on Artificial Intelligence is using NVIDIA processors to train their algorithms rather than Intel.
• In the data centre I still think that Intel is safe as using other processors requires all legacy software to be rewritten but I see risk in both AI and PCs.
• I think Intel has some time to address those threats but the time to step up is now.