Microsoft cloud leader Scott Guthrie says companies aren’t holding off on cloud spending as inflation mounts

Despite an uncertain economy with looming fears of a recession, Microsoft‘s top cloud executive Scott Guthrie has not seen organizations slow their efforts to move software programs to the cloud in the past few months.

His remarks suggest demand remains strong for cloud computing services that a handful of large technology companies provide to governments, schools, and businesses.

Slower consumer spending is sparking fears that a recession may be on the way. In July and August, retailers such as Dollar Tree and Walmart lowered their profit estimates to reflect consumers becoming more careful with their money because of higher prices for food, gas and other products.

Businesses are slowing spending on some types of software in anticipation.

Cloud software makers UiPath and Veeva have called for lower revenue in the quarters ahead because of a strengthening U.S. dollar and challenging economic conditions. Budget discussions are taking longer, and top executives are getting roped into conversations about deals, Rob Enslin, a co-CEO of UiPath, told analysts on a conference call last month.

But Guthrie said that doesn’t seem to be the case with Azure, Microsoft’s cloud infrastructure service.

“I’ve not seen the current situation cause people to pause cloud,” said Guthrie, executive vice president of Microsoft’s cloud and artificial-intelligence group, in an interview with CNBC.

An energy crisis has broken out across Europe this year following Russia’s invasion of Ukraine, with Russia claiming that sanctions led to pumping issues. The price of gasoline and electricity shot up. Executives responsible for information technology have taken notice.

“Are we seeing people accelerate to the cloud because of the energy crisis? I think the answer is definitely yes,” Guthrie said. “Similar to Covid, I think what we saw with Covid at the beginning, in particular.”

Guthrie said he hasn’t heard companies saying they would slow their use of cloud computing because of the higher energy costs.

“If you think about the current situation in Europe right now, where the energy prices are going up dramatically, if you can reduce your workloads on prem, and you can move it to our cloud quickly, you can reduce the power draw you need, and that translates into real economic savings,” he said.

That’s been a discussion topic among executives at Paris-based health care company Sanofi, which uses cloud services from Amazon, Google and Microsoft. “We saw increases in energy costs upward of 65% in some regions year over year,” said Sam Chenaur, vice president and global head of infrastructure and cloud at Sanofi.

A metric of efficiency called power-usage effectiveness, or PUE — the energy required for a facility divided by the energy used for computing — is very high at Sanofi, while it’s much lower for Azure, Chenaur said. Microsoft’s global PUE number works out to 1.18, according to a recent blog post.

“If anything, I think from a data center migration perspective, the cloud economics are a lot more compelling now than they probably were even in years past, and they were already compelling, you know,” Guthrie said.

Sanofi began a major transition to the cloud 18 months ago, becoming more reliant on cloud-based virtual desktops that contractors and employees could use from any computer after Covid began, Chenaur said. Now Sanofi intends to add Azure resources in five locations around the world, said Hamad Riaz, CEO of Mobiz, a technology services provider working with Sanofi.

“I would say that we are on a quest to lower overall costs in IT, so we can free that money up, so we can develop more drugs and medicines for patients,” he said.

Other companies might look to cloud to deliver more services because of higher demand in a recession. For example, Zoom Video Communications, which competes with Microsoft’s Teams communication app, leaned on cloud to deal with millions of new users who wanted to hold Zoom video calls in 2020.

“I think we are going to see different companies in different geos kind of respond to challenges, and not just the energy crisis, but if you think about supply chain and a lot of the supply chain reconfiguration that’s happening around the world, or when you think about inflation and interest rates,” Guthrie said.

Still, not every company is moving to the cloud as quickly, because many are facing financial difficulties, Guthrie said. Coinbase, Snap and Shopify are among the companies that have each cut at least 1,000 employees this year. Coinbase CEO Brian Armstrong told employees in June that a recession seemed to be starting, and a recession could kick off a new bear market in digital currencies.

Meanwhile, Microsoft’s finance chief, Amy Hood, was more cautious on the company’s earnings call in July. She told analysts to expect Azure growth to slow to 43% in constant currency from 46% in the second quarter. Microsoft is not immune from current economic forces, CEO Satya Nadella said.

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