Dive Brief:
- Microsoft is extending the life of its server and network equipment assets in its cloud infrastructure from four to six years, CFO Amy Hood said during the company’s Tuesday FY-2022 Q4 earnings call, for the period ending June 30.
- Extending the depreciable useful life of the infrastructure will save an estimated $1.1 billion in the first quarter of FY-2023, which began in July, Hood said.
- The company expects savings to extend to $3.7 billion in the full fiscal year, according to Hood.
Dive Insight:
Software improvements, technological advances and more efficient operation of servers and network equipment will allow Microsoft to keep existing cloud infrastructure running for the additional two years, Hood said. This will translate to immediate savings for the company and will position Microsoft to rein in cloud cost for consumers as well.
“We are incenting even our own field to ensure that the bills for our customers come down,” CEO Satya Nadella said during the earnings call.
The savings from extending server life by 50% should allow Microsoft to weather unfavorable macroeconomic conditions without having to hike rates, according to Sid Nag, research VP at Gartner.
“Cloud providers are preparing for impending macroeconomic and inflationary pressures,” Nag said. “If they can reduce capital expenditures then they can preserve operating margins without having to raise prices.”
Forecasts for cloud spend remain bullish, despite a bear market. End-user public cloud investment is expected to grow more than 20% this year and next, according to the latest Gartner analysis, rising to over $600 billion in 2023, from just under $500 billion this year.
“That’s significant,” Nag said.
Microsoft posted earnings of $51.9 billion in its Q4 earnings report, with revenue from Azure, Intelligent Cloud and cloud services fueling a 2% net income gain.
Microsoft ranks second in the global IaaS public cloud market, with a 21% market share, trailing Amazon’s 39% market share, according to June report by Gartner. But Microsoft is gaining ground. Its cloud division grew by more than 50% in 2021, compared to Amazon’s 35% growth rate.
