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Webscale Capex: 1Q21 Results & Outlook

The webscale sector of network operators shows no signs of slowing up.
After webscale network operator (WNO) revenues surged by 18% in 2020 to $1.7 trillion (T), growth accelerated in 1Q21. Total revenues for the quarter were $490.7 billion (B), up 37% year-over-year (YoY) from 1Q20. Over the last few quarters, demand for both cloud services and ecommerce has spiked due to COVID-19, and that appears to be continuing as the pandemic ebbs. In 1Q21, the most significant growth came at Amazon and Apple. Amazon’s revenues grew 44% YoY to $108.5B, while Apple rode the 5G iPhone wave to grow revenues by an incredible 54% YoY to $89.6B. The only webscaler to face revenue erosion was Fujitsu, whose $10.0B in 1Q21 revenues were 1.1% down YoY. Most of the webscale sector’s growth in 1Q21 was organic, not due to acquisitions. The most important exception is Alibaba. Its late 2020 purchase of grocer Sun Art was a major contributor to Alibaba’s 76% YoY revenue increase in 1Q21.
Technology-related spending also grew dramatically in 1Q21, although at more moderate rates. Webscale R&D expenses climbed 20.4% YoY to $49.5B. On an annualized basis, R&D spending was 10.2% of revenues in 1Q21, down a bit from 10.8% in 1Q20. Amazon’s YoY growth was largest on an absolute basis, with its “technology and content” expenses up 33.9% to $12.5 billion. Content development is a significant piece of this. Amazon made clear the importance of content late last month by announcing the acquisition of MGM Studios. For most webscalers, though, content is a small piece of R&D, overshadowed by software, services, and device-related spending. 
Capital expenditures for the webscale sector increased 28.3% YoY to $36.7 billion in 1Q21. On an annualized basis, webscale capex was $141.5 billion, up 29% YoY, and approaching half of what is spent by the telco market over 12 months. Webscale capital intensity remains far lower, though, amounting to 7.7% of revenues (annualized) in 1Q21, down slightly from 7.8% in 4Q20. The network/IT/software portion of capex has hovered around 43% of total capex for the last four quarters. In terms of growth, Amazon dominated the market...
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