Apple – Cloud Expansion, But Still Sub-Scale to the Other Four US Hyperscalers

Apple’s Cloud business remains locked between business models.  Apple monetizes the Cloud portion via hardware sales with little direct revenue coming from Cloud services.

While Apple announced a significant networking advancement with Nokia’s new data center switches, a substantial step in the right direction, we have yet to see a significant increase in organic data center spend.

Instead, Apple utilized other large IaaS providers for a lot of Apple’s features, which, to a certain extent, we see a conflicted to Apple’s vertical integration of the company’s portfolio.  We expect Apple’s organic data center spending to increase significantly over the next few years as the company further vertically integrates and competes directly with Google/Facebook on features and capabilities even though the three companies monetize them differently.   For example, computing is just as critical in Augmented Reality and Virtual Reality as the handset itself.