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Apple May Push Into Corporate Cloud Computing Vs. Amazon, Microsoft

Will Apple ( AAPL ) muscle in on Amazon Web Services? Apple’s huge data center build-out might be setting the stage for a jump into cloud computing services for enterprise customers, speculates Oppenheimer. Apple’s capital spending is expected to jump some 34% in 2016 to $15 billion, with about $4 billion going to warehouse-sized data centers packed with computer servers. Morgan Stanley this week said Apple might shift some cloud business away from AWS as competition in consumer products  intensifies with parent Amazon.com ( AMZN ). Oppenheimer analyst Tim Horan, in a research report, goes a step further, saying Apple might start its own infrastructure as a service (IaaS) business as it targets the corporate market. IBM ( IBM ) and Apple have partnered for enterprise marketing. “Looking at Apple’s capex trajectory and recent continued data center builds, we believe there is a possibility the company is setting up an infrastructure as a service offering,” wrote Horan.  “While we realize this is not Apple’s core competency, it is obvious it has built out its own CDN network and will continue to expand it. “It is also apparent to us that by building out an IaaS offering to businesses, Apple may be able to drive its hardware business into the enterprise. This would be an interesting development and is certainly a wild card.” Apple plans to open a massive data center in Mesa, Ariz. It also wants to expand a large data center in Reno, Nev. Amazon expanded into cloud computing by leveraging the massive Internet infrastructure that it had built to support its e-commerce business. Apple launched iCloud for consumers, but additional server capacity could be used for corporate cloud services. Aside from Amazon’s AWS, Microsoft ( MSFT ) and  Alphabet ‘s ( GOOGL ) Google are the biggest providers of IaaS services. The other big investor in data centers is Facebook ( FB ), as it whisks more video to mobile devices. “From (Facebook-owned) Instagram/WhatsApp to Google Hangouts, Web-scale consumer-facing companies are leveraging cloud computing and superior network architectures to become de facto communications companies, and they are spending the capital to do so,” Horan said. Apple has also built its own content delivery network, making it less dependent on  Akamai Technologies ( AKAM ), the leading provider of CDN services. Horan sees upside in data center expansion for companies such as Level 3 Communications ( LVLT ) and Zayo Group ( ZAYO ).

LinkedIn Outlook Tanks Stock, Though Q4 Earnings Beat

LinkedIn ( LNKD ) stock crashed to a three-year low early Friday after the company late Thursday gave guidance far below the Wall Street consensus estimate, while also reporting fourth-quarter earnings that beat. LinkedIn reported Q4 revenue of $862 million, topping the consensus estimate of $857.6 million and up 34% from the year-earlier quarter. The networking site for professionals reported earnings per share minus items of 94 cents, soundly above the consensus estimate of 78 cents, as polled by Thomson Reuters. LinkedIn stock gapped down 40% in early trading in the stock market today , near 113, its lowest price since January 2013. LinkedIn estimated Q1 revenue guidance at $820 million, well below the consensus of $866.8 million. It projects EPS of 55 cents, below the consensus of 74 cents. During the conference call, LinkedIn acknowledged that a reshuffling of product strategy will impact short-term revenue growth in favor of the long term. “We’re making good progress on our initiatives,” LinkedIn CFO Steve Sordello said in the conference call. “Our focus is on investing intelligently to capture the large, addressable opportunity ahead of us.” The earnings came at a challenging time for LinkedIn as it digests an acquisition and undergoes a workforce rebalancing, while also introducing new products. In December, LinkedIn rolled out its new mobile app, Voyager, designed to be faster and more intuitive for users. In April, LinkedIn paid $1.5 billion for Lynda.com, a video training website. LinkedIn said Q4 revenue from Lynda.com, which it puts in the category of Learning & Development, was $48.6 million, up 18% from the previous quarter. “We enter 2016 with increased focus on core initiatives that will drive leverage across our portfolio of products,” LinkedIn CEO Jeff Weiner said in the conference call after earnings posted. The business social network ended Q4 with 414 million members, up 19% from the year-earlier quarter and up 18 million from Q3. It topped the consensus estimate of 409 million. Unique visiting members grew 7% year over year to an average of 100 million per month, which is flat with Q3. That’s down from growth of 11% in Q3 and suggests LinkedIn is struggling to boost user activity on the website. The total number of page views among users in Q4 hit 37 billion, up 26% year over year but down 1 billion from Q3. LinkedIn has three revenue streams. The largest is Talent Solutions, used by companies to recruit employees. Revenue rose 45% to $535 million. Marketing Solutions, which sells ads, rose 20% to $183 million. Premium Subscriptions, fees paid by users for enhanced services, increased 19% to $144 million. For the year, LinkedIn expects revenue in a range between $3.6 billion and $3.65 billion. The consensus among analysts is $3.9 billion. It expects EPS in the range of $3.05-$3.20 per share, below the consensus of $3.67. “Our strategy in 2016 will increasingly focus on a narrower set of high value, high impact initiatives with the goal of strengthening and driving leverage across our entire portfolio of businesses,” Weiner said in the conference call. “Our roadmap will be supported by greater emphasis on simplicity, prioritization, and ultimate ROI and investment impact.” LinkedIn earnings contrast sharply with those of  Facebook ( FB ), which continued to show it’s king of social media with a fourth quarter report last week that soundly beat expectations on booming mobile ad revenue. Facebook revenue rose 52% to $5.84 billion from the year-earlier period. Monthly active users on Facebook came in at 1.59 billion. Twitter ( TWTR ) is set to report earnings after the close on Feb. 10. Twitter stock has lost about 60% of its value in the past 12 months on worries about slowing user growth and rising competition for online ad revenue. Image provided by Shutterstock .

Morgan Stanley Says Apple Stock Ripe For Picking

Apple ( AAPL ) stock has been knocked down by growth concerns in recent months. But it’s reached a level where the risk-reward balance looks attractive, Morgan Stanley analyst Katy Huberty said in a research report “Growth headwinds won’t subside in the near term,” Huberty said in a note Wednesday. “But risk/reward is attractive with upcoming iPhone refreshes, steady margins and low valuation.” She rates Apple as overweight with a price target of 135. Apple stock barely budged, closing up 0.03% at 96.38, on the stock market today . With iPhone sales poised to fall for the first time on a year-over-year basis this quarter, investors are debating the future of the business. Apple’s iPhone business faces headwinds, including a slowing China economy, price increases abroad as the U.S. dollar strengthens, fewer carrier subsidies and tough year-over-year comparisons, Huberty said. Apple’s share of the high-end smartphone market, however, still looks solid, she said. Another worry is that iPhone average selling prices and profit margins will decline, especially when Apple launches its rumored 4-inch iPhone 5SE in March. But Huberty expects the 4-inch iPhone to carry gross profit margins that are better than the company average and potentially in line to above margins for other iPhone models. She expects Apple to roll out two revolutionary iPhone features over the next one to two years that will show smartphone innovation is alive. They are foldable OLED displays and wireless battery charging. “OLED displays should allow Apple devices to offer better picture quality and become even lighter and thinner and/or offer longer battery life as OLED uses less power,” Huberty said. “Foldable OLED could enable smartphone-sized mobile devices that can open like a book to reveal a larger tablet-like screen inside.” Wireless charging will enable over-the-air charging of iPhones, Apple Watches and other devices, she said. However, foldable OLED and wireless charging are unlikely to be in the iPhone 7 due out this fall, she said. Yet even without those revolutionary technologies, the iPhone 7 should be able to drive high single-digit unit growth in fiscal 2017, which starts Sept. 25, she said.