- Apple is now investing $1 billion/quarter in cloud data centers.
- Some analysts fear that the company could be aiming at Amazon.com.
- This is far more likely an attack on Microsoft, and could lead to a deeper relationship with IBM.
Apple (NASDAQ:AAPL) is making another effort to get into cloud computing.
Analysts from Morgan Stanley (NYSE:MS) and Oppenheimer say Apple is now spending $1 billion/quarter on cloud data centers which, if continued, could quickly give Apple the kind of scale that Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet Inc-A (NASDAQ:GOOGL) have achieved in the market.
Until now, Apple’s participation in the market has been limited to iCloud, a consumer storage service tied to its iTunes music offering. Oppenheimer analyst Tim Horan has speculated the company may be aiming to create a cloud infrastructure play that competes directly with Amazon.
But a better hint on its plans may have come from a short blog post stating that it is upgrading its CloudKit software to allow creation of server-to-server scripts. The new Application Program Interface will let developers write code that interacts with their CloudKit databases, rather than waiting on user interaction.
At a minimum, the heavy investment by Apple would allow it to stop using Amazon.com for its own cloud efforts. More likely, Apple is planning to expand its enterprise sales, having seen them stall on clients’ inability to fully integrate Apple client hardware into fully-compatible cloud stacks.
What this means for IBM (NYSE:IBM) which has been Apple’s partner in seeking enterprise clients, is unclear. On the one hand, it could give IBM a powerful weapon in unlocking enterprise accounts. At its present market cap of $114 billion, IBM could also be an acquisition target for Apple, which was worth $650 billion just a few months ago, but is now down to $514 billion. A better market for Apple shares would be unlikely to impact IBM, which suffers from a far worse secular decline, and its hundreds of thousands of programmers could slip very neatly under the Apple umbrella.
For investors, meanwhile, Apple stock might as well be IBM at present price levels. The Price/Earnings multiple on the stock is down to 10. Take out the company’s enormous cash hoard and it’s below the 8.6 P/E of IBM. Investors worry that iPhone sales are rolling over, as iPad and Macintosh sales previously did, and Apple badly needs something that will get them excited again. Buying IBM for cash is something Apple could actually do. And it might even be accretive to Apple earnings.
In my view, however, Amazon.com should worry a lot less about this Apple move than Microsoft. Infrastructure sales may be the base of cloud, but even Amazon’s $8 billion/year in cloud revenue would be barely a blip on Apple’s $233 billion in revenue. To justify its cloud investment, Apple needs to generate enormous Software as a Service sales, not just infrastructure sales. It needs to become an enterprise standard. It’s Microsoft that is in its cross hairs.