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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Microsoft Corporation    MSFT

MICROSOFT CORPORATION

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Amazon, Microsoft Dial Up Efforts to Win Telecom Cloud Business -- Journal Report

11/10/2020 | 05:45am EST

By Aaron Tilley

The rollout of 5G networks isn't just a major business opportunity for smartphone makers and telecommunications providers. Microsoft Corp., Amazon.com Inc. and Alphabet Inc.'s Google also are ready to pounce.

Those tech giants are trying to capitalize on the massive investments telecom providers such as Verizon Communications Inc. and Vodafone Group PLC are making to upgrade their networks, by luring them to adopt their cloud-computing infrastructure. They are doing that with the promise of helping the telecom companies deliver 5G's faster speeds and higher data capacity more cheaply.

The competition for telecom customers is the latest battleground between Amazon, the leader in the cloud-computing market, and No. 2 Microsoft for market dominance.

"We're at a critical juncture," says Yousef Khalidi, who leads a newly formed unit within Microsoft's Azure cloud-computing service focused on the telecom business.

A running battle

Amazon stepped up its effort to secure telecom business two years ago. Verizon already was using Amazon Web Services cloud computing for internal, day-to-day corporate network functions but was starting to explore if there was potential to use the cloud for its telecom business, says Dave Brown, a vice president at Amazon Web Services, the largest cloud provider.

At the time, AWS didn't lend itself to that application, Mr. Brown says. AWS could operate only on its own data centers. To achieve the high connection speeds Verizon needed to run its communications networks, AWS would have to have servers closer to its customer. So Amazon devised a server it could park inside Verizon's own facilities and run cloud services from there.

Last year, Microsoft signed a broad alliance with AT&T, and last November the companies announced early progress in using Azure to deliver the telecom provider's 5G network in certain markets. Amazon Web Services announced a similar partnership with Verizon late last year.

Then this year, Microsoft agreed to acquire Affirmed Networks and Metaswitch Networks, which both develop software to help manage telecom networks. The software giant shelled out almost $2 billion combined on those deals, according to people familiar with the agreements, in part to keep pace with Amazon.

Google's cloud unit, a distant third behind Amazon and Microsoft, according to research firm Gartner Inc., also is trying to win a part of the telecom business. Google Cloud Chief Executive Thomas Kurian this year unveiled a strategy to secure telecom customers, including cloud software the telecom providers can run on their own networks.

A new network approach

The shift to the cloud for telecommunications was largely made possible by the emergence of a new way for the telecom companies to route data. For years, companies had to invest in expensive hardware from vendors such as Cisco Systems Inc. and China's Huawei Technologies Co. Then an approach called software-defined networking emerged. Effectively, it allowed telecom companies to use smart software and off-the-shelf hardware to run their service and replace the expensive networking gear.

"Software-defined networks are the future, hands down," says Dmitry Netis, managing director at Q Advisors LLC, an investment firm. "It makes the network more agile and allows carriers to bring in new workloads and use cases."

The partnerships between the telecom and tech companies aren't tension-free, though. "Telcos are looking at these partnerships warily," says Roy Chua, founder and principal at AvidThink, a research and advisory service. "Once they let them in, what does that mean?"

Among the issues that analysts say could arise are questions about sharing the revenue from new business generated by cloud-based networks; the possibility that the telecom companies will end up as simple conduits for data, or "dumb pipes" in industry parlance, with all the value of new services going to the cloud companies; and the possibility that the cloud providers could eventually offer their own networking services over the cloud-based networks.

Thierry Sender, a director at Verizon, says about the company's developing partnerships with cloud giants: "We're all trying to figure out how to best work together."

Mr. Tilley is a Wall Street Journal reporter based in San Francisco. He can be reached at aaron.tilley@wsj.com.

(END) Dow Jones Newswires

11-10-20 0544ET

Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET INC. 0.45% 1892.56 Delayed Quote.7.98%
AMAZON.COM, INC. -0.45% 3292.23 Delayed Quote.1.08%
AT&T INC. 0.35% 28.93 Delayed Quote.0.59%
CISCO SYSTEMS, INC. -0.75% 44.77 Delayed Quote.0.80%
GARTNER INC -0.59% 160.41 Delayed Quote.0.14%
MICROSOFT CORPORATION 0.44% 225.95 Delayed Quote.1.15%
VERIZON COMMUNICATIONS INC. 0.35% 57.47 Delayed Quote.-2.52%
VODAFONE GROUP PLC -0.45% 127.34 Delayed Quote.5.29%
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Financials (USD)
Sales 2021 158 B - -
Net income 2021 51 435 M - -
Net cash 2021 76 850 M - -
P/E ratio 2021 33,4x
Yield 2021 0,96%
Capitalization 1 708 B 1 708 B -
EV / Sales 2021 10,3x
EV / Sales 2022 9,21x
Nbr of Employees 163 000
Free-Float 99,9%
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Number of Analysts 38
Average target price 248,38 $
Last Close Price 225,95 $
Spread / Highest target 26,1%
Spread / Average Target 9,93%
Spread / Lowest Target -2,63%
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Satya Nadella Chief Executive Officer & Non-Independent Director
Bradford L. Smith President & Chief Legal Officer
John Wendell Thompson Independent Chairman
Kirk Koenigsbauer COO & VP-Experiences & Devices Group
Amy E. Hood Chief Financial Officer & Executive Vice President
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