AWS growth accelerates, showing its importance to all Amazon • The Register

Amazon.com has taken the unusual step of leading its quarterly results webcast with discussion of performance at Amazon Web Services.

The e-commerce giant gets most of its revenue, unsurprisingly, from retail sales. But the Amazonian cloud generates much more profit. In this quarter, Amazon’s operating income was $14.672 billion – $9.334 billion of it from AWS.

The cloud biz delivered that outcome on $26.3 billion revenue, but Amazon’s entire Q2 revenue was $148 billion. AWS is therefore of enormous interest to Amazon’s investors – especially as in recent quarters its growth has been slower than the 29 percent delivered by rivals Microsoft and Google.

President and CEO Andy Jassy’s opening canned quote in Amazon’s earnings announcement [PDF] is “We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth.”

That reacceleration saw revenue growth reach 18.8 percent, up from the 17.2 percent recorded last quarter – still behind Microsoft and Google, but picking up pace.

Jassy also pointed out AWS is on track for $105 billion annual revenue. That’s more than Dell, and bigger than HPE and Cisco combined.

The CEO pointed out that the majority of the world’s business tech remains on-prem, and suggested AWS can capture plenty more market share as customers “flip” to the cloud. He claimed Amazon has evidence the move is accelerating, as customers are again looking at new cloud projects after a couple of years spent optimizing their cloudy rigs to control costs.

Amazon announced its results on the same day that Intel disappointed investors by revealing a profit and revenue plunge and pausing dividend payments. Jassy heaped on some more pain for holders of Chipzilla scrip by saying that AWS customers want a better price/performance outcome – but that Amazon can’t deliver it with x86 silicon.

“It’s hard to get that price performance from existing players unless you decide to optimize yourself for what you’re learning from your customers and you push that envelope yourself,” Jassy said. “And so we built custom silicon in the generalized CPU space with Graviton … and that has been very successful for customers and for our AWS business is it saves customers about – up to about 30 percent to 40 percent price performance versus the other leading x86 processors that they could use.”

Jassy explained Amazon developed its Trainium and Inferentia AI silicon for similar reasons – and to address customer concerns about supply constraints for GPUs.

The CEO was at pains to point out that AWS is still a friend to Nvidia, and boasted the Amazonian cloud possesses “the broadest selection of Nvidia instances available.” But he also delivered a line to chill Nvidia boss Jensen Huang and AMD CEO Lisa Su: “We’ve heard loud and clear from customers that they relish better price performance.”

Ads, vids, and sats

Once the cloudy chat concluded, Jassy moved to discuss Amazon’s ad business, which is doing very nicely. Jassy thinks it will do even better once it’s properly integrated with its Prime Video Netflix knock-off. He promised ads on Prime won’t just raise awareness, but also drive sales or subscriptions.

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A word about Amazon’s stores came next: they’re growing at nine or ten percent, even as consumers remain nervy.

The Project Kuiper satellite broadband scheme was also mentioned, with Jassy revealing satellite manufacturing has accelerated and that his sales teams “continue to feel significant demand for the service from enterprise and government entities.”

Amazon expects to start shipping production satellites late this year. Jassy said Amazon execs “continue to believe this could be a very large business for us.”

Jassy also predicted a fine future for all of Amazon, but the earnings call included many mentions of cost control – with actions such as changes to logistics operations, in the service of both better margins and improved customer experience.

Cloud infrastructure logistics

The CEO also singled out logistics smarts as critical to AWS.

Asked how AWS will balance customer enthusiasm for AI with the challenge of not over-investing in infrastructure, he replied “I think one of the least understood parts about AWS over the last 18 years has been what a massive logistics challenge it is to run that business.”

Jassy pointed out that AWS now spans 35 regions and 110 availability zones – therefore operating around the latter number of physical datacenters – offers 200 cloud services, and multiple variants of each. He rated the challenge of getting the right resources in place to make it all work in the right quantities as “quite difficult.”

“If you end up with too little capacity, then you have service disruptions, which really nobody does because it means companies can’t scale their applications. So most companies deliver more capacity than they need.”

But doing so means “the economics are pretty woeful and you don’t like the returns of the operating income.”

AWS’s results, he said, speak for themselves in terms of the org’s ability to manage logistics challenges.

“We have built models over a long period of time that are algorithmic and sophisticated that land the right amount of capacity,” he boasted, adding “we’ve done the same thing on the AI side” and claimed to be confident AWS can ride out bursty or lumpy enthusiasm for AI.

Investors didn’t love what they heard, as revenue was $700 million short of market expectations. Guidance of Q3 sales falling between $154 and $158.5 billion represents eight to eleven percent growth – also less than markets hoped for – sending shares down seven points in after-hours trading. ®