Google vague on hardware performance as cloud surges

Google vague on hardware performance as cloud surges

It appears cloud and YouTube are outperforming hardware

Sundar Pichai (Google)

Sundar Pichai (Google)

Credit: Google

Google CEO Sundar Pichai over the last three years has touted the business prospects of what he has called "three of our biggest bets: YouTube, cloud and hardware."

On Monday, it appeared the first two bets are outperforming the third.

Google parent Alphabet separately listed YouTube and cloud revenue on its quarterly financial statements for the first time. But it gave no specifics on hardware beyond that sales declined, compared to a year ago, during a holiday period in which consumer electronics are a common gift.

Pichai, who gained the additional role of Alphabet CEO in December, and CFO Ruth Porat did not specify a cause for the downturn. A Google spokeswoman did not respond to a request to comment.

But the popularity of Google's more affordable smartphone and flattening demand for its speakers with voice assistant technology are two visible factors.

The executives described hardware as a continued investment focus, and to be sure, that business in its current form is just three years old compared with about nine for cloud and 15 for YouTube.

"Hardware is still in the early stages of delivering on our vision for ambient computing," Pichai said on Monday.

Porat called hardware a "multi-billion dollar business," equivalent to at least US$500 million a quarter.

YouTube revenue from ads and subscriptions rose from a year ago to US$5.5 billion during the fourth quarter. Cloud computing quarterly sales were $2.6 billion, up 53%.

Heavy competition

Early last year, Porat said Google's Pixel 3 faced fierce competition from rival high-priced smartphones, which could include Apple's iPhone and Samsung Electronics' Galaxy S series.

Google then released a device half the cost, the US$399 Pixel 3a. It has sold well, according to analysts and the company, but has meant some consumers are spending less with Google.

The Pixel 3a boosted Google’s smartphone sales to 4.1 million units in the first half of 2019, nearly as much as it moved in all of 2018, according to estimates from research company IDC.

The Pixel 4, released last fall, has fared worse. Retailers in January discounted it by more than US$200, steeper than price cuts a year ago for the Pixel 3.

About 2.7 million out of 375 million phones shipped during the fourth quarter globally were a Pixel variety, a "disappointing" performance, according to tracker Strategy Analytics.

Last May, Google rebranded several of its speaker products from Google Home to Google Next.

Demand for those devices also slipped. Google's market share fell through the first three quarters of 2019 as it shipped about 11.3 million speakers compared with 14.5 million units over the same period in 2019, according to market researcher Canalys. Echo gadgets gained in market share amid heavy television marketing. Other consumers continue to have privacy concerns about inviting into their homes speakers that can have internet-connected cameras and microphones.

Provisional data from Strategy Analytics across all of 2019 shows Google speaker shipments up 35%, boosted by fourth-quarter giveaway deals via partnerships with Spotify and others.

Pichai told financial analysts on Monday that the company's Nest Mini and Nest Hub Max sold well over the holidays. But a year ago, he described 2018 as a record for Google speakers, "with millions sold" over the holidays.

Google hopes to boost its hardware business with the acquisition of fitness tracker and smartwatch maker Fitbit, pending approval from antitrust regulators. Porat in a call with reporters on Monday said Google is still hoping to the close the transaction this year.

She added that the hardware business could face a setback if the outbreak of a new coronavirus in China leads to prolonged business shutdowns in Asia, where Google designs and manufactures devices.

(Reporting by Paresh Dave in San Francisco; Additional reporting by Munsif Vengattil in Bengaluru; Editing by Lisa Shumaker)

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