Hello and welcome to Protocol Enterprise! Today: as consumer demand for semiconductors plummets, cloud tech vendors can’t get enough chips, third quarter cloud vendor market share numbers are in and what could follow in the evolution of US policy towards AI in China.

Silicon-hungry hyperscalers

The semiconductor industry is currently experiencing a boost: in the space of a few weeks, consumer chip sales have gone from boom to bust, perhaps one of the fastest changes in recent memory.

Earnings season so far has reinforced this trend, and reports from companies such as Texas Instruments suggest the crisis could spread to other markets, such as industrial applications. But that’s not the case for the data center: Major US hyperscalers such as AWS, Google, Meta and Microsoft released quarterly report cards this week, and the verdict was broadly positive, even though their revenues weren’t. are not increasing as rapidly as before.

  • Cloud computing revenue growth is slowing, but after years of 30-40% growth, it was clear it was coming, according to Maribel Lopez of Lopez Research.
  • “There’s a major rationalization going on in the market — ‘we have five cloud providers, how is that possible? Shouldn’t we have two? Lopez said, echoing a common conversation she currently has with businesses.

But slowing revenue growth hasn’t translated into a massive reduction in data center expansion plans major cloud providers so far. Jefferies chip analyst Mark Lipacis wrote in a client note that the feedback from Google, Meta and Microsoft was positive for data center chip companies such as Nvidia, AMD, Marvell and Broadcom.

  • Meta, in particular, is increasing its spending on new infrastructure by 12% to $36.5 billion amid the company’s forecast.
  • In its earnings call this week, Chief Financial Officer David Wehner said Meta’s AI applications require significantly more expensive server and network equipment and have been a major contributor to increased spending plans.
  • Bernstein’s chip analyst Stacy Rasgon noted in an interview that Meta’s data center projects have come under intense scrutiny because nearly all of its revenue comes from advertising, which has been affected by the downturn in the economy. Among the big tech companies, it would have been more likely to make cuts.

Other hyperscalers also talked about increasing their data center expenses.

  • Google executives have discussed spending more on technical infrastructure, and servers are the most important component.
  • Azure’s revenue slightly exceeded Wall Street expectations, but Microsoft executives said capital spending would increase sequentially based on strong customer signals.
  • Amazon also released some good news: Executives said they expect a $10 billion year-over-year increase in technology infrastructure to support AWS’s rapid growth.

Even though there is continued strength among hyperscalers, Intel doesn’t seem ready to take advantage of it. Nothing better sums up the cost of years of technical errors at Intel than its latest quarterly data center and AI bulletin: the single-stream segment has stopped generating profits and its revenue has plummeted. 27% to $4.2 billion in just one year. from.

  • According to data from Jefferies, just five years ago Intel owned nearly 100% of server processor sales.
  • As recently as the third quarter, Nvidia and AMD now account for about half of total quarterly CPU and GPU sales to data center customers, and veteran Intel also brings in about half.
  • Big wins for AMD and Nvidia represent a huge problem for Intel in the long run.
  • Referring to the company’s consumer business, Dylan Patel, chief analyst at SemiAnalysis, joked, “I don’t care about a dollar in customer revenue, give me 10 cents in data center revenue.”

— Max A. Cherney (E-mail | Twitter)

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Google Cloud takes a step

Google Cloud moved up the cloud provider market share rankings this week after announces 38% revenue growth for Google Cloud Platform services, Google Workspace collaboration tools, and other enterprise services.

Third-largest cloud provider Google now has 11% market share, up from 10% last quarter, according to a report published yesterday by Synergy Research Group. AWS and Microsoft’s market shares held steady in the top two spots at 34% and 21%, respectively.

Overall, enterprise spending on cloud infrastructure services totaled more than $57 billion in the third quarter, an increase of more than $11 billion from the same period last year, according to Synergy. . And according to numbers reported by the Big Three in their quarterly results, there’s a lot more in the pipeline.

Alphabet’s backlog, which represents customers’ contractual commitments for future services and is primarily related to Google Cloud, reached $52.4 billion at the end of September, from $51.2 billion in June, according to a quarterly report filed with the SEC. The cloud provider expects to book about half of that amount as revenue over the next 24 months.

Amazon’s backlog of revenue, which is mainly related to AWSgrew up at $104.3 billion of $100.1 billion from the end of June to September. The average remaining life of its long-term contracts is 3.8 years and AWS said it was unable to determine the rate at which it would recognize this revenue because “the amount and timing of recognition revenue largely depends on customer usage, which may extend beyond that. the initial contractual clause.

Microsoft reported $183 billion of performance bonds remaining. Of that, $180 billion was related to its commercial revenue, which includes Azure and other cloud services, Office 365 Commercial, the business side of LinkedIn, Dynamics 365 and other commercial cloud properties. That figure was down from the $189 billion reported in June, but the company expects to accrue about 45% of that revenue over the next 12 months.

— Donna Goodison (E-mail | Twitter)

A reserve force of American AI?

For some companies operating in AI, data, or emerging technologies — especially those unrelated to China — the latest news from Washington must look promising.

The U.S. Departments of Commerce and Defense and the White House National Security Office are working as a team to deliver offensive blows to China’s tech industry while signaling more protections for the industry, including greater fusion of government with private sector technology.

“We have a full assessment of China underway. I meet with my staff once a week and say, ‘Okay, what do we do next?’ said Alan Estevez, Commerce Undersecretary for Industry and Security in the U.S. Department of Commerce’s Bureau of Industry and Security in a speak yesterday. The next step, as also signaled by the White House and the Defense Department, includes efforts to harness Chinese capabilities in artificial intelligence, biotechnology and quantum, he said.

It remains to be seen what a regulatory approach to curbing the open source-centric AI research and development ecosystem looks like in practice.

Meanwhile, a new National Defense Strategy document from the Department of Defense explains that the United States follow the industry lead in AI and autonomous technologyand human-machine interfaces of military relevance.

And it aims to increase opportunities for private sector integration. “We will increase the availability of scholarships, internships and rotational assignments – including in the private sector – to develop the skills of our workforce, provide a wide range of experiences, create opportunities for collaboration and transmit best practices in the Department”, the announced plan.

-Kate Kaye (E-mail | Twitter)

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Thanks for reading – see you Monday!