GOOG Alphabet Inc

By Dan Gallagher 

The cloud industry's biggest sugar daddy doesn't look like it will be sweetening the pot much this year.

Google said Wednesday that it is "reevaluating the pace of our investment plans" for the year as the internet giant owned by Alphabet Inc. looks to deal with the fallout of the coronavirus pandemic. The comments come from an email to employees from Chief Executive Officer Sundar Pichai. As a part of those plans, Mr. Pichai said the company will slow its pace of hiring and will also be "recalibrating the focus and pace of our investments" in areas like data centers and machines.

The last part could spell bad news for the large ecosystem of chip companies and other component suppliers that have benefited from Google's expensive race to catch up in the burgeoning cloud-computing business. The online advertising giant is well behind Amazon.com Inc. and Microsoft Corp. in terms of cloud-related revenues. But it has been the largest spender on the networks and technology that underpin those services, totaling $41.4 billion on data center capital expenditures over the last three years, according to estimates from the Dell'Oro Group. That compares with a respective $34.5 billion and $32 billion over that time by Microsoft and Amazon.

That pace of spending looked on track to continue this year. Recent results from chip makers Nvidia Corp. and Micron Technology Inc. -- whose fiscal quarters extended into 2020 -- both showed strong contributions from the data center side. Before the pandemic hit, Dell'Oro analysts were projecting combined data center spending from Google, Microsoft and Amazon to top $51 billion this year -- up 20% from 2019's levels.

But even tech's deepest pockets aren't immune to the effects of the pandemic and its aftermath. And Google's advertising business, which still accounts for more than 80% of its revenue, is particularly vulnerable in a downturn relative to the core businesses of its two main cloud rivals. Mark Mahaney of RBC Capital now projects that Alphabet's total revenue will slip 4% this year, which would be the company's first annual decline on record.

Not a bad time to trim some bills.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

April 16, 2020 13:33 ET (17:33 GMT)

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