CloudEnterprise ITFeaturedRead This

AWS customers stamp on the brakes, eye contract renegotiations

AWS customers are prioritising cutting their bills, Amazon executives confirmed on a Q3 earnings call  – with growth falling back to a “mid-20%” rate towards the end of the quarter. That’s down from 37% in Q1.

That figure has “ informed how we’re thinking about the guidance ranges” heading into Q4 Amazon said. 

Amazon shares crashed nearly 20% after it also predicted a slump in consumer demand, wiping over $200 billion from its share price in one of the biggest single-day tech routs ever as economic confidence plunged.

“With the ongoing macroeconomic uncertainties, we’ve seen an uptick in AWS customers focused on controlling costs” said CFO Brian Olsavsky, hinting at the release of “additional ways for [cloud customers] to manage their budgets and optimize in what is shaping up as a tough economy” at its REINVENT conference.

AWS slowdown

The shift to cost control has hit AWS’s margins, as has the volatility in energy prices in recent years. 

“[We need to] balance investments versus renegotiating pricing with the long-term customer commitments, all [are] headwinds to the business, offset by increasing productivity and efficiencies in our data centers, which drive profitability” admitted Olsavsky on the Q3 Amazon earnings call late Thursday (October 27).

Pushed for more detail on AWS customers he said: “What we see is customers are looking to save money versus their committed spend. We have options for them to do that. They can manage workloads better. 

“They can switch to lower-cost products that have different performance profiles. They can switch to Graviton chips that have higher cost performance ratios… we think the benefit of cloud computing is really showing up right now, because we allow customers to turn what can normally be a fixed expense into a variable expense, and they can let us manage the highs and lows of inflation and other cost of electricity and everything else.”

Airbnb’s AWS costs were getting out of hand. Here’s what it did…

Unlike a dip in 2020, however, when demand for cloud services dropped sharply at some companies and spiked at others “that dynamic is not in place right now, and I think everyone is just cautious and they want to, again, watch their spend. And as CFO, I appreciate that, and we’re doing the same thing here at Amazon” he added. 

Challengingly for Amazon, this slowdown comes as it has committed to “an approximately $10 billion year-over-year increase in technology infrastructure, primarily to support the rapid growth, innovation and continued expansion of our AWS footprint” as part of its $60 billion capital outlook for full-year 2022. 

That combination of massive capital outlay and customer spending reduction left one analyst wondering politely “ if you think that CapEx tied to data centers and the AWS ramp can ultimately step back?”

“We probably cut about one-third of our [overall Amazon] budget from what we originally thought for 2022 while still focusing our capital dollars really on the AWS business” said the Amazon CFO on the call.

He re-emphasised: “We’re also taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.”

AWS net sales increased to $20.5 billion in Q3, up 28% year-over-year, excluding the impact of foreign exchange, and now representing an annualized sales run rate of $82 billion, Amazon said. 

Git yo’selves follow The Stack on LinkedIn for more newsy goodness

Tags

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
Close
Close