Cloud Earnings Update: Amazon, Huawei, Nokia, PTC

We're entering the heart of earnings season, when technology companies report actual numbers rather than marketing slides, which is always a refreshing moment of truth.

Let's run through some of the highlights of companies in the connected cloud, including Amazon, Facebook, Google, Juniper, Nokia, PTC, and others:

1. Amazon (AMZN): Topping the list of companies to watch is Amazon, which has demonstrated it can dominate the market for... anything. The ecommerce and cloud giant threw some cold water on the tech bull market when it reported that its earnings had plunged 77 percent, due to increased spending. The company reported earnings of 40 cents per share on revenue of about $38 billion during its second quarter, well below the expectations of $1.39. Shares experienced a two-day rout of about 6 percent.

This also meant that Thursday's news of Amazon founder and CEO Jeff Bezos becoming the world's richest man became fake news after only a few hours.

Amazon's quarterly revenue still grew 25 percent to $38 billion, pretty impressive and better than analyst estimates of $37.18 billion. While profit missed, this has been a pattern over Amazon's entire growth trajectory -- sacrifice profit to invest in the future. Amazon almost always spends like a fiend, with one of the most prolific capital spending plans in the world. Part of the spending boost came in the area of cloud, where Amazon Web Services (AWS) required a boost in capital spending. Capital lease costs rose more than 90 percent year-over-year, and more than 40 percent from the first quarter, to $2.72 billion in the quarter. Hiring costs rose as well. Bezos reported that Amazon has hired more than 30,000 new employees in the quarter. Its workforce has grown by more than 40 percent in the last year! So much for robots replacing jobs.

2. Huawei. In China, Huawei, which is a private company that still reports earnings publicly, indicated that growth is slowing. Huawei is a vast tech conglomerate targeting telecommunications and cloud infrastructure, as well as being the world's #3 smartphone maker. It reported sales for the first six months of the year were up 15 percent to 283.1 billion ($42 billion) Chinese yuan, compared with the year-earlier period. Last year Huawei was growing at a 40 percent rate.

Much of the slowdown can be attributed to the consumer business division, which was providing much of the growth a year ago. The consumer business booked 105.4 billion yuan ($15.65 billion) in revenue, showing 36 percent year-over-year growth, compared with 41 percent at this time last year.

There has been some hand-wringing in the trade press about these numbers, but it's a bit melodramatic, considering the company is approaching a $100 billion run rate. Let's compare with Western rivals. Huawei is going to do close to $90 billion to $100 billion in revenue this year with 30 percent growth or better. In comparison, Cisco is at a $50 billion annual revenue run rate with almost zero growth, and Ericsson does about $25 billion in revenue and is in the midst of a restructuring crisis following a 10 percent plunge in sales.

As I've written before, Huawei continues to spend healthy amounts on Research and Development (R&D), larger than rivals such as Cisco (CSCO). The company said in March that R&D spending reached 76.4 billion Chinese yuan (US$11 billion) in 2016.

3. Nokia. On Thursday Nokia's shares popped about 5 percent after the Finnish company reported profit of $574 million euros ($674 million), up 73 percent from a year ago and well above analyst estimates. Quarterly sales fell year-over-year to €5.6 billion ($6.18 billion) but investors were more interested in the fact that profitability was up.

The Nokia-Alcatel-Lucent merger appears to be proceeding well, with Nokia Chief Executive Rajeev Suri reporting market-share gains in some areas. And compared with Ericsson's recent struggles, Nokia looks like a gem.

Raymond James analyst Simon Leopold sums it up quite well:

"In light of the difficult market, Nokia's reduced outlook for Network sales doesn't come as a shock, and it maintained its operating margin forecast. Results were aided by the Apple settlement that included a €1.7 billion up front cash payment. We are encouraged by the trajectory and we are hopeful regarding the prospect for slight growth in 2018 helped by Nokia's product diversity and expansion into non-telco verticals. "

4. Google. The stock fell even though earnings beat expectations. The parent company Alphabet (GOOG) reported net income of $3.5 billion, or $5.01 per share, down from $4.9 billion, or $7 per share, from the equivalent period last year, all on a GAAP basis. Consensus earnings, according to FactSet, were $4.44. The earnings include the impact of a $2.7 billion fine from the European Commission. Revenue grew nicely to $26 billion from $21.5 billion in same quarter last year -- a 20 percent bump.

One interesting note on Alphabet/Google is the continued opacity in business segments. In the past Google has been vexed by the fact that most of its growth and nearly all of its revenue comes from its AdWords online marketing franchise (more than 90 percent of all revenue), with little revenue contribution in new areas such as enterprise cloud. Executives are pushing the story that YouTube is providing a huge growth engine, despite the fact that the company does not break out individual business-unit results, as pointed out in this interesting MarketWatch article.

The bottom line is that until Google gives more detail on its cloud business, it should be viewed as an online marketing company, along the lines of Facebook. Speaking of Facebook...

5. Facebook. Social media giant Facebook looks as if it will continue to fuel cloud infrastructure growth, as it sucks up the world's eyeballs. The king of cloud content generation and fake news reported that its user base grew by 17 percent year-over-year. Revenue increased 45 percent from the same quarter a year ago to $9.32 billion. Earnings came in at $1.32 a share, beating the forecast for $1.13.

6. Samsung. Meanwhile, in the case of impressive bouncebacks, Samsung has experienced a remarkable recovery from its exploding Note 7 problem. On July 26, it reported a record second-quarter profit of 14 trillion Korean won ($12.1 billion), a 72 percent year-over-year increase. Earnings were boosted by a boom in the memory chip sector as well as high demand for OLED screens for smartphones including its own phones as well as the Apple iPhone. Samsung shares were flat on the week, but the company announced an increase in its share buyback program.

7. PTC. Over in IoT world, PTC (PTC) experienced a setback in share price. The stock is off at least 10 percent from its recent 52-week highs after the company forecast fiscal fourth-quarter earnings of 33 cents to 38 cents a share on revenue of $303 million to $308 million. The company reported adjusted third-quarter earnings of 28 cents a share on revenue of $291.3 million. Analysts had estimated earnings of 28 cents a share on revenue of $290.6 million, according to MarketWatch.

PTC CEO James Heppelmann attributed the slowdown to struggles in Japan.

"However, after six quarters of very strong bookings momentum, sales execution issues in Japan drove booking results below our guidance range," said Heppelmann on the conference call. "Japan missed its plan by $11 million and bookings declined $12 million from a strong Q3 last year. Year-to-date Japans bookings are down $20 million versus last year, which is an issue that’s been a drag on otherwise great bookings performance so far this year."

Overall, the technology earnings has held a few surprises but no outright disasters. With economic growth flat-to-steady, it looks to me like Nasdaq and tech stocks will continue to drive the stock market toward new highs into the end of the year, with the bulk of economic growth occurring in the technology markets.