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Amazon Cloud Posts Another Blowout Quarter

For its third quarter, Amazon Web Services reported sales of $3.2 billion, up nearly 55% from $2.08 billion for the year-ago period.

Operating income, excluding employee stock compensation, came in at $1.02 billion, up nearly 96% from $521 million for the corresponding 2016 quarter. Factoring in that compensation, profit was $821 million compared to $428 million last year.

The gist here is that AWS continues to grow at a nearly unbelievable rate, even as credible—and very deep pocketed—competitors including Microsoft (MSFT) and Google (GOOGL) have emerged. That seems to indicate an almost insatiable demand from businesses that want to offload computing and storage tasks to third-party providers, rather than build more of their own data centers.

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Asked how the company can remove remaining hurdles to big business adoption of its cloud, spokesman Darin Manney told analysts on the earnings call that the company will continue to help customers “move from on-premise and hybrid environments to AWS.”

A hybrid IT environment is one that runs some workloads on the customer’s own data centers and some on public shared infrastructure like AWS.

AWS Third Quarter Results

AWS will also keep adding data center facilities in new geographical regions, as it did earlier this quarter in Ohio, he said. Many big companies prefer to run computing jobs close to where their customers are. In some cases, countries mandate that citizen data be kept local, which is why Amazon, Microsoft, IBM (IBM) and others have all launched cloud data centers in Germany, which has strict data sovereignty laws.

Those who thought Amazon (AMZN) might slack off its practice of cutting prices should think again, said chief financial officer Brian Olsavsky. “Price reductions are a core part of our philosophy,” he said. “Not only do we cut prices on our existing services but we create new products that are cheaper than the competition,” he said.

One reason AWS took off like wildfire when it launched ten years ago, is that it let techies buy (or rent) the computing capacity they needed and only pay for what they used. That model made it much less expensive for startups to get rolling because they didn’t have to spend the bulk of their funding on pricey servers and storage arrays.

Amazon and VMWare Plan to Announce New Partnership

As another example of how Amazon wants to make it easier for big companies to utilize AWS, Olsavsky also cited the company’s recently announced partnership with VMware (VMW), which will run VMware’s cloud software on Amazon infrastructure. Companies of any size rely on VMware vSphere to pack more software applications on fewer servers in their own data centers. Making it easier to “forklift” those applications to AWS, as this deal promises, could be a big deal. The promised VMware Cloud on AWS is due in the middle of next year.

Despite all this cloudy goodness, Amazon shares fell in after hours trading. At press time, Amazon’s stock price was off more than 6% to $769.02. The reason? Parent company Amazon Inc. reported 52 cents earnings per share on revenue of $32.71 billion while analysts had expected 78 cents per share on revenue of $32.69 billion.