Talking AWS, VMware & Broadcom, Apple, Synopsys, Salesforce, Pure Storage, Zoom, NVIDIA, HP, Open AI

By Patrick Moorhead - December 1, 2023

On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:

  1. AWS re:Invent 2023
  2. VMware & Broadcom Together…Finally
  3. Apple Abandoning Home-Grown Modems?
  4. Salesforce Q3 Earnings
  5. Synopsys Q4 Earnings
  6. Pure Storage Q3 Earnings
  7. HPE Q4 Earnings
  8. Zoom Q3 Earnings
  9. NVIDIA Q3 Earnings
  10. HP Q4 Earnings
  11. Open AI Debacle Resolved?
  12. Dell Q3 FY 24 Earnings

For a deeper dive into each topic, please click on the links above.

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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.

Transcript:

Patrick Moorhead: We are back with The Six Five and we are live. Episode 194. We haven’t been canceled yet. Maybe we’ll make it to episode 200. I have no idea. Dan and I rolled in last night from AWS Reinvent and then Dan decided to get up at 3:00 AM and go to …

Daniel Newman: Nashville.

Patrick Moorhead: Nashville. Dan, I got to tell you. You get the gold star award. If we were in class today, I would put a big gold star right on your homework, maybe on your forehead.

Daniel Newman: Second-hardest worker you know. Second-hardest working person you know.

Patrick Moorhead: No. You’re number one, buddy.

Daniel Newman: How about integrity? Am I high integrity?

Patrick Moorhead: It’s all the above, dude. I wouldn’t be starting up all these businesses with you if it’s not the case.

Daniel Newman: You know how awesome the next week’s going to be? We can’t tell everybody, but I think it’s going to be amazing. I stopped. There’s no sensor needed. I almost said effing awesome because that’s actually how awesome it’s been and we’ve held our tongues here on this show. We don’t curse because it’s a family show.

Patrick Moorhead: It is.

Daniel Newman: There’s really not a better word to describe how exciting these next couple weeks are going to be.

Patrick Moorhead: I totally agree. So hey, guess what, fans? We decided to spend Thanksgiving with our families. So we have the 12/5.

Daniel Newman: 12/5.

Patrick Moorhead: We’re talking AWS, VMware Broadcom, Apple Synopsys, Salesforce, Pure Storage, HPE Zoom, NVIDIA HP, OpenAI, and Dell Tech.

Daniel Newman: We’re going to do it in 50 minutes.

Patrick Moorhead: That’s right.

Daniel Newman: 50 minutes. Five.

Patrick Moorhead: Call my number baby. AWS reinvent 2023. Literally this is going to be a hard one to get through in any meaningful small amount of time. But there were semiconductors, there was serverless, a ton of storage, and a lot of generative AI. Dan, I’m going to seed the homegrown silicon view. I wanted to talk about alliances with NVIDIA. Okay? A big deal, right? So first and foremost, AWS sat on the sidelines with NVIDIA’s DGX Cloud and the two companies came together on Monday with an optimized version that uses EFA versus NVIDIA’s networking.

Daniel Newman: What is EFA Pat?

Patrick Moorhead: Elastic Fabric Adapter baby. Okay? Think of a homegrown fiber channel or low latency ethernet. That is the deal. And as we know with generative AI, it’s about the cluster performance and the amount of memory you can share together. They also agreed to do the Grace Hopper Superchip. AWS cluster capability. And that’s a big deal. And by the way, project siba, I hope I’m saying it correctly, 16,000 GH 200s. In the GH 200 it has increased memory over that. 65 exaflops and it uses the superchip and NVIDIA’s going to use it themselves. So four new instances. So yes, AWS has their own silicon, which Dan is going to talk about in addition to maybe some other stuff like Q and bedrock and guardrails, event app architecture, but they’re clearly getting or staying aligned with NVIDIA.

Daniel Newman: You’re good?

Patrick Moorhead: What else you got, Dan? We good? That’s it for me baby.

Daniel Newman: I was getting ready to send the tweet ’cause you know the show’s out. Everybody needs to know the show’s out. Listen, everybody was waiting with bated breath and yes, Jensen Huang and Adam Selipsky got on stage, shook hands, told stories, sung songs, built AI factories together and then two slides later, Adam Selipsky showed a trillion parameter highest performing, lowest power consuming Trainium two that the company is now bringing to the market. This follows the second-generation Inferentia. It also went alongside with its newest fourth generation Graviton. Not to mention its X number generation of Nitro. This company has been doing silicon, it’s going on a decade now. And look, this is a really interesting inflection for the company. AWS is a meet the customer where they are company. It will and always will. I genuinely believe this offer all variants of silicon on demand to the customers based on the types of workloads, the different performance requirements, power usage, provenance, cloud strategy.

And this year though, really the showstoppers were those two things. Graviton4 with incredible generation to generation improvements. Pat, incredible improvements. You’re talking high double-digit percentages of efficiency, increased performance metrics. And on top of that, Pat, it really is the best economics, which if you’re an AWS user and you have workloads that are favorable to an ARM environment, that’s a really, really good thing. I think the company probably didn’t lean into the sustainability aspect as much as I would’ve ’cause these are really big numbers and big improvements. And I also think the company shows its very diplomatic approach in terms of how it really does focus more on its own generational improvements than necessarily doing any sort of compares to other companies.

Patrick Moorhead: Yeah. Yeah. I think we both agree that they can make the buying process easier for customers.

Daniel Newman: They could. They could. But having said that, I think they really respect their partnerships, just to the point of you starting off talking about NVIDIA. And over time what I think happens is you see, like serverless, which isn’t really serverless, certain workloads will perform well on certain silicon and that will in time ultimately drive more and more workloads to their own silicon and this is a story to the market. This is a story to Wall Street. This is a story to investors because it adds a lot of value, a lot of margin. And remember, AWS is the number one contributor to keeping the entire Amazon running. It pays for all of it. So the company does have to think about how it’s building AWS in the platform to add a lot of value. The Trainium solution, Pat, and just a quick note ’cause I know we got a lot of topics so we got to keep this train rolling, but this is a very high performance piece of silicon and they will continue to advance.

I think they understand NVIDIA’s inherent advantages. It’s further along in software, it’s further along in certain development and certainly with developer circles, but Trainium is not being built to be a second choice. You have to be very clear. It’s being built to be able to be used as a very efficient, very price performant piece of silicon for training. And of course inference is already there. This is going to be a really interesting competitive competition to watch over time because of course NVIDIA demand will always be there. You have to be under a rock to not see how well that company’s doing. But AWS is not bowing down. And of course now with Microsoft, Google, Oracle, and every other hyperscaler on the planet, introducing their own versions of silicon, I don’t think AWS has to be quite as apologetic for it anymore either, which is going to make it even more interesting as you see them trying to compete with Microsoft, for instance, on their homegrown silicon and having to worry about talking to competition more readily. All right, Pat. I could talk for a lot longer about this, but I think we keep going.

Patrick Moorhead: Just final comment on Graviton4. It takes them to the last bastion of performance, which is scale up, which is typically the area of ERP, database, stuff like that. SAP HANA isn’t certified on Graviton4, but it is on all the other Gravitons.

Daniel Newman: Good call. Good call. I think you might’ve put that out in the ether. So it’s also-

Patrick Moorhead: I did. Check out Dan’s and my content. We’ve got a lot of videos as well. I had 75,000 people read my content about Graviton4 and I’d like to add another 10 or 20,000 to that. So hey, let’s move forward, Dan. VMware and Broadcom together finally.

Daniel Newman: Well listen, I never get any private messages from you when I talk too long. So what I’m going to do here is I’m going to make this one really fast. Hey everybody. The deal for Broadcom to acquire VMware is done and everything that we said would happen now has happened. Look for the upcoming and impending divestitures. Look for continued thinning of the herd. I did hear a rumor that it will be a Palo Alto campus. I can’t say where I heard that ’cause I actually don’t remember, but I heard that big beautiful campus-

Patrick Moorhead: Beautiful.

Daniel Newman: Will be the location of the new Broadcom, which obviously its software business will be led by the acquisition of VMware, of course to partner, but Pat, not a lot to say here. Look, apparently the PAC that came over here, that little dinner and the shaking hands and it was about 48 hours later, the rubber stamp went across and this deal closed. So Pat, I still stand by my thing. Good for the market. It will be a better acquisition than people think and it will actually end up being really good for VMware shareholders because if there’s one thing Hock Tan knows, and you and I had the exclusive sit down interview, which published right after the event, if there’s one thing that gentleman knows is he knows how to drive returns to shareholders while keeping companies on the right growth trajectory.

Patrick Moorhead: In Hock Tan’s blog, engineering first, 50% goes into R&D. Doubling down on private and hybrid multi-cloud apps services anywhere. I think if anything is going to be divested it’ll be in the end user computing division, virtualization, carbon black, stuff like that, but VCF, Edge, and modern apps, IE Tanzu is an absolutely go forward and we interviewed all of the go forward general managers except for one. Done. Okay. I’m going to call my number on this. Apple abandoning homegrown modems. Wow. Apple bought Intel’s modem group in 2019 and I was very clear on the challenges. I didn’t say Apple couldn’t do it, but I talked about the challenges of moving forward because you see, when you’re creating a modem, you have to actually do research and Apple hasn’t really been prepared to do that with other people. And modems have to connect to other modems and they have to support 4G, 3G, 2G, 1G, Edge, and they need to work together nicely.

So the matrix of getting it right is a challenge. And then it has to be low power and not just the modem, but the modem and the RF solution. Now Apple has some incredible RF partners out there like Skyworks and also Qualcomm is part of the RF stack, but what it does is another hurdle that they need to go and cross. And the final challenge is integrating a modem onto the SOC. Now you don’t integrate the RF, you integrate the modem. So one of the latest rumors is that Apple is abandoning its homegrown modems. I wouldn’t be surprised if this is the case. I didn’t do the research on this or start this rumor, but we have seen some changes on LinkedIn. We have heard of some changes in conversations with supply chain partners. And quite frankly, Qualcomm is so far ahead with all the features and I know that Apple is likely not. And because you have to work with other people, it puts Apple at a distinct disadvantage. And that’s it.

Daniel Newman: Yeah. This is a big moment though. There’s been a couple of really decent wins for Qualcomm. It’s been the multi-year, multi-year, multi-year extension of this deal. Remember the investor day in New York? We were sitting there and they were starting to actually really present the phase out plan of Apple and how they were going to be able to continue to derive shareholder value, but without Apple. It was pretty compelling and now it’s interesting ’cause if this is true, and again, this is a rumor right now, but if this rumor’s true and there’s reasons to believe it could be. Look, this constant delay and Apple’s got its own demons to fight right now. It’s-

Patrick Moorhead: Yes.

Daniel Newman: It’s innovation, it’s competitiveness, it’s growth, it’s margin. It’s been surpassed now by a couple of different companies as the top of the heap. Its investability looks less indulging. And so right now, do they want to fight this battle? Pat, I think I heard you say this the other day, but every smart company licenses IP from other companies in the process of building products. Of course, if you can go fully vertical and Apple’s done so in some ways it’s been successful, but overall, Pat, I’ll leave it here. I think the rumor has merit, although I can’t confirm it and I actually think to some extent Apple might sleep better at night if they can just get out of their own way here. This has just been a massive failure from the beginning, as I tweeted, and it will continue to be based upon the trajectory that we’ve seen with their first few efforts to get into this space.

Patrick Moorhead: We’ll be monitoring. Okay. We’re going to go through a machine gun of earnings here and we’re going to start off with Salesforce. Dan, go.

Daniel Newman: All right. Salesforce, up 10%. Big upward guide. Powered by Data Cloud growth, AI at the S Center. Best company outside of Microsoft and NVIDIA in terms of telling a monetizable AI story. Saw that in their Data Cloud growth. Big reason for the rocket ship upwards after its earnings wasn’t the 10 ish percent growth, it was the big upward guidance for the rest of the year. Company’s been able to raise prices, has incredible, incredible elasticity and you just can’t get off the platform. And so they’re making it stickier. They’re adding all kinds of generative AI capabilities. And Pat, this is why I think it was, although we’re not investor or financial analysts and we are industry, this is why I do think it was oversold and this is why I’ve been so bullish on it since Genie is when you need a big CRM implementation and a big kind of customer platform, where else do people go besides Salesforce? It’s been the leader, it stays the leader, it’s just where people are right now. Not to say there aren’t others, but this was a great quarter for the company.

Patrick Moorhead: Yeah. I was impressed with the Data Cloud growth and I haven’t done enough research yet to know if that means that they’re pulling in on-prem data. What it does mean is they’re pulling a lot of new data in and they’re monetizing it. Stocks up 75% in 2023. And my question, Daniel, is when do we think they could get back to the 20% growth days or is 11% growth the new norm? We’re going to have to see. I do think it’s somewhat of a new Salesforce with the cost cuts. Salesforce wasn’t exactly a cost-cutting machine. It was all about that 20% growth or so.

Daniel Newman: I love that you pointed that out by the way. Apex was so important to how they were able to crush bottom line. They rolled their sleeves up, man. They rolled up their sleeves, lost some weight.

Patrick Moorhead: Yeah. They totally did. Let’s jump into Synopsys. So Synopsys is one of the two beasts in EDA and IP and in fact they’re the number two IP company next to ARM. They had a beat double-digit revenue growth and they recently introduced essentially a generative AI overlay for designers, which Synopsys is not new to AI EDA, but they really layered it up and this isn’t just putting NLP on top of the AI to be able to do this. I interviewed their business unit lead and he was very clear with me. “No, we went all in on generative AI with the data,” and also they’re not using customer data to be able to help another one of their customers competitors here. And I thought that was important. Starts with Azure and over time they’re going to have to move this to likely Google Cloud AWS with likely FedRAMP implementation. But good job Synopsys.

Daniel Newman: Yeah. Absolutely, Pat. Look, some new launches in generative AI, very cool. The engineering challenges of the market are going to be potentially addressed by the company. It’s getting growth across both EDA and its IP portfolio. I think risk growth is going to play a factor in that as well. As we’ve said, and by the way, Synopsys now has found its way into our show three or four times in the last six weeks and that’s because they’re doing interesting things and their results are being validated by these good numbers from this quarter. So all right. Let’s-

Patrick Moorhead: Let’s move into, Dan, why don’t you take Pure Storage? How’d they do?

Daniel Newman: Yeah. So Pure, it was a case of good quarter, bad guide. Really solid results, double-digit growth, expanded ARR 26%. Saw its evergreen business, the cloud business, increase year over year by about $400 million. I stand by my belief that the correlation between AI and storage is going to be significant and this is going to be good for companies like Pure Storage. The guide was a big miss and of course as you know, when you guide a big miss, it doesn’t matter if you’ve made your quarter. The guide is always the driver at least as far as what I’m seeing these days. They only guided 782 million against an expectation of 923. So that was a rough one. You and I’ll have a conversation with Charlie Giancarlo, their CEO, in the next week or so.

I will be asking him to dig in a bit about what’s going on there. Is it a longer term headwind? Was it a couple of deals that fell through? What really drove that? Having said that, I really watching their subscription ARR, their overall customer growth with their net product expansion, which has been very successful for the company Pat and they remain over 80 as an 81.4 NPS score because this customer gets the company gets the business of taking care of customers and they continue to be the best in class at doing that.

Patrick Moorhead: Yeah. So competitively, HPE, NetApp, and Dell were down for storage. Pure Storage and Lenovo storage was up. Sorry. Sorry. They beat on both. Forecast has a lot to do with some certain orders in telco and I usually like to discern whether it’s a self-inflicted wound or not and I don’t think this one is. And it’s great to see QLC kick in, right? This is the lower cost flash blade to essentially remove spinning disc. Looking forward to the conversation next week. Let’s dive into HPE.

Daniel Newman: And just to be clear, Pat, real quick.

Patrick Moorhead: Yeah.

Daniel Newman: There is an HPE twice. So do you want to do HPE here and I’ll do HPQ later?

Patrick Moorhead: Oh. Yeah.

Daniel Newman: ‘Cause we got both of them. So your call. It’s a choose your own adventure, but just do one and I’ll do the other later.

Patrick Moorhead: Well actually I see one HPE and then I see HP.

Daniel Newman: Okay. Then just-

Patrick Moorhead: You okay?

Daniel Newman: Do HP. Okay.

Patrick Moorhead: All right. We’re going to do HPE. So hang on a second here. Just pulling up my notes.

Daniel Newman: Yeah.

Patrick Moorhead: So revenue is down, but as we’ve seen from the shift to GreenLake, ARR was good. We also saw a freaking edge that was up 41% that was crazy. They beat on profits and the AI and supercomputing kicked in and I need to drill down to see if that’s the supercomputing deals that are finally being realized or it’s real AI. Forecast was down and that’s why HPE took the hit. The fundamentals are solid though. There’s nothing that I saw in their performance that was unexpected and I think it’s just a tough market for general compute and aside from Lenovo and Pure, storage is tough as well, but again, I want to put the exclamation point. Edge up 41%. By the way, was below expectations, but 41%. That’s the last time I’ll say this.

Daniel Newman: Yeah. So I continue to watch ARR GreenLake. There’s a pretty significant pivot that’s taking place between the cell of large compute. You saw the HPC numbers, AI numbers, edge numbers continue to grow. The edge to cloud strategy clearly is working well, but that core kind of compute storage business has been slow and I think some of that has to do with the pivot to GreenLake and some of that has to do with just the overall market conditions. When we talked about Dell Lenovo, not a lot of year-on-year growth here in those particular areas. When there are such a big part of the number, those slower growth total dollar numbers that come from ARR just aren’t going to add up quickly enough. Solid quarter. Some work to be done there. I want to see the ARR for GreenLake continue to stay high ’cause that’s really where all the energy is so that’s where the numbers need to show up.

Patrick Moorhead: Move on to Zoom, and Dan, I think I said I would take that one.

Daniel Newman: Yeah. Go for it. Double double.

Patrick Moorhead: Yeah. So they had a beat beat double profit raise for Q3 FY 24. So they absolutely crushed it and it was great to see that their big customers drove the growth, which I like because the pricing is stickier, harder to switch. They had some really big names that they brought on the call. A few nuggets, right? Seven million paid call seats for a relatively new product. Another new product contact center. 700 contact center customers. They doubled their virtual agent. 200,000 customers using AI, which by the way folks, that is the best example of work AI that I have used so far. And that’s the summary notes. Try it out. I think you’ll be impressed. Lowest churn ever and free cashflow up 66%. So listen, I think that the AI for free is starting to pay off and when you get a beat beat double profit raise, it’s a pretty awesome quarter.

Daniel Newman: Yeah. Pat, you really did hit it on the head. Zoom, it’s been a bit circumstantial. The Zoom boom of the COVID era led it to two and 300% growth. Sent its stock price soaring to three $400 a share. And then reality set in and Zoom just continues to chip wood. They’re continuing to add products, diversify the platform, add generative AI capabilities, deliver high quality customer experiences. They always will have the challenge of the more monolithic platforms that live within big environments, whether it’s Microsoft, Salesforce, Cisco, and they’re always going to be the sort of outsider ’cause they just haven’t yet won that end-to-end platform, but lots of good integrations, lots of good capabilities, and good results consistently. So I think there’s a growth story here and it will be worth continuing to watch that.

Patrick Moorhead: Yeah. So NVIDIA, we talked NVIDIA before, but listen, they crushed it. They beat EPS by almost 20%, they beat on revenue by over 13%, and their data center business is just an absolute beast. It’s tripled in the past 18 months. So super impressive. We saw increases in gaming too, which was I thought pretty fascinating. So check out my segment on Yahoo Finance. We talk about if the growth can continue, where the growth is going to come from, what’s going to happen in China, competition from AMD and Intel. And I got a question, does NVIDIA care about any of their other businesses? So check that out if you want the longer version of it.

Daniel Newman: What an amazing set of results, Pat. If you want to watch a great interview, watch Pat’s Yahoo Finance. If you want to watch an even greater interview. I’m just kidding. But I did spend 10 minutes on Bloomberg breaking this down in real time and same as you. Stunning set of results, but actually not surprising.

Patrick Moorhead: Yeah.

Daniel Newman: It actually pretty much was exactly I think what you and I both expected. The result to be huge growth, really positive outlook, strong guide, all about data center. Gaming actually did have a good comeback by the way.

Patrick Moorhead: Yep. It did.

Daniel Newman: It was not all that highly spoken of and actually I think there was some fairly decent results out of the omniverse business too, or provids, which they call it. Automotive. Sorry. Just kicked my computer. Automotive remains sort of, I don’t know, sideways down. I don’t know if they’re just kind of forgetting about that business. If they’ve just seeded that business. You know, Pat, my only worries, only worries are only worries is this growth, at some point they’re going to have the Zoom effect where you grow like this, you grow like this, you grow like this, and I think training growth is more linear.

The algorithmic growth, or whatever you want to call it, kind of that exponential growth is more of an inference. So the real question is is where’s NVIDIA going to be when inference starts to scale? What did one very important silicon designer tell me this week? Won’t claim any names, but basically there’s about 20 companies that are buying training at scale. They have about 20 customers that they’re focused on. So after that, then it’s all about inference, which can be done on a lot of different types of silicon and there’s a lot of different optionality and suddenly there’s more competition. All right. You want to jump on?

Patrick Moorhead: Sure. Yeah. HP. Listen, HP was a reflection of the PC market. They met tiny beat on EPS, a tiny miss on revenue, but the forecast was just not good. And listen, Lenovo is down in PC, Dell is down in PC, Apple was down the biggest as a percentage. It is a weak market right now and what I’m a little disappointed at is the sell-in for the holiday selling season, for the consumer selling season. We would have seen that reflected in everybody’s and it was a little better, but on the commercial side, it’s a little soft and I’m thinking that this AIPC thing better kick in pretty fast in the middle of the year with all the three horsemen and Microsoft to really move the needle here. Quite frankly, I don’t think we’ve even scratched the surface on remote working and how we can optimize it and make it better and we haven’t nailed connectivity. So a lot of things we could possibly do, but it is not kicking in just yet.

Daniel Newman: Yeah. I think you’re right. Look, the theme of the conversation that we had with CEO Enrique Lores that can be shared is really AIPC, AIPC, AIPC. Look, there’s some other things. It’s always going to be driven by certain demands, certain pockets of product customer mix. You’ve got commercial and consumer always in different stages. You’ve got areas like workstations and gaming that come and go at different stages, but right now, the next supercycle, the next boom of demand for chips, especially on the PC side is going to be AI. And so everybody’s kind wondering when and the when question’s really interesting. If you look at the silicon diversity of what’s going to come from Intel ’cause they’re first out, not necessarily the highest performant of what we’re seeing announced right now, but then you’ve got AMD and of course Qualcomm and ARM with some really powerful variants.

It seems like second half next year is when you’re going to really start to see this, but then the question is even then people, they’re going to ease in or are they going to go all in? And the ease in to all in could be the difference of a ton of units. So HP challenged the same fate as its peers. Nobody had a great quarter in the PC space. It just hasn’t happened yet, but the bottom does seem to be closer than it’s been based on an overall set of consensus that I’m hearing from the executives I’m talking to across semiconductor and the OEM space.

Patrick Moorhead: Hey, let’s take a respite from earnings. Boy, we are cooking here, Dan.

Daniel Newman: Yeah. We did great, dude. Actually-

Patrick Moorhead: Wow.

Daniel Newman: This makes me wonder if we couldn’t actually do this show or is this we just love to hear ourselves talk and when we feel like we’re hurried, we can say a lot in a lot less time?

Patrick Moorhead: Could be.

Daniel Newman: Did I just say that about myself? Did I just dis myself?

Patrick Moorhead: Yeah. Let’s just spend the last 25 minutes talking about you.

Daniel Newman: Nice. I can do that. I can do that.

Patrick Moorhead: Hey, let’s have a little earnings interlude before we get to our last topic and that is OpenAI debacle and I think the conversation, Dan, is like this thing is resolved and what were the reverberations? I don’t think we need to rehash every single gameplay that happened, but new lookup on the board. Microsoft still doesn’t have a voting board seat and Sam Altman is back and Ilya is not on the board anymore. But what does this mean? Is this done, Dan, and what does it mean?

Daniel Newman: Look, this is wild and the amount of speculation is just crazy. Look, it was great for media appearances. I had a chance to go on Fox Business to talk about this for a while. And by the way, anyone that said anything with a sort of emphatic tone is looking really stupid right now.

Patrick Moorhead: Yeah.

Daniel Newman: When I saw the news break, my news was basically like, “This isn’t the whole story. Just wait.” There was no way that what we heard was the whole story, whether it was, first of all, if you really was thrown out, it was probably going to be for something like nefarious. It wasn’t like because, “Oh, this guy was too ambitious. We got to get rid of him.” I was worried that they found him and Michael Vick. You know what I mean?

Patrick Moorhead: Right.

Daniel Newman: It just wasn’t going to be something like that. And then once you realize it wasn’t likely that, then you’re like, “All right. So what’s going on here?” And so it started to become a real governance thing. You’re looking at this and this is a non-for-profit, which is so interesting in itself. You’ve got this non-for-profit company that’s now forming a commercial business that is largely for-profit that is funded almost entirely by corporations that are going to make massive amounts of money because of the implementation of this technology and yet you’ve got a board that’s largely full of people that are not even close to the level of being able to govern something that’s got this kind of trajectory. And of course you’ve got Altman himself as a non-shareholder of the company, which is super weird. I still don’t-

Patrick Moorhead: Shareholder of the profitable company.

Daniel Newman: Right.

Patrick Moorhead: We think.

Daniel Newman: We think. It’s not really clear. Again, leaving more kind of weirdness in this whole situation. And then with this thing, it’s so funny, Pat, but I’m not going to just diatribe here. I’m going to talk a little bit and I’m going to hand it to you and maybe we can circle back since we were so efficient here, but it was super interesting to me is how then it got resolved and then really it was just over. For a week this was like the thing. There was nothing else that was going on. It was the only news and every day it was like a soap opera and all the sudden it was over and he’s just back and it’s good. Everything’s pretty much the same. And all I can think to myself is, as we were listening to AWS talk about bedrock and we’re listening to this kind of multi open model approach and you’re listening to how this is going to work in the wild with real enterprises and how different models are good at different things.

All I could think to myself is, “Gosh. This sure serves as a great moment for Microsoft to maybe say, “We like OpenAI, but we’re going to really lean into some partnerships here with anthropic coherent.” And by the way, this oddly gave the company permission to do so. I don’t know if there’s any real correlation between those things, but gosh, what a nice moment to maybe go back on that sort of, “We’re going to bet all in on a single partner here,” and open the opportunity for them to say, “We’re going to bet on an ecosystem,” which seems to work best in every industry these days.

Patrick Moorhead: Yeah. To me that’s great analysis, Dan, and governance, while it doesn’t sound sexy, if you come in and you don’t have the voting rights, Dan, things can happen that get very challenging. And I think we saw the fragility, but the value of generative AI out there. Microsoft can’t get too close to OpenAI and they’re way too big of a company with way too much scrutiny on them for them to own OpenAI. So I didn’t see that. I had four scenarios that I was rolling out to the media and I think I was on Singapore News. No, I’m just kidding.

Daniel Newman: Say that more.

Patrick Moorhead: I’m just kidding. To match up with your Fox-

Daniel Newman: Ah. Okay. Sorry about that. Yeah. I got you now.

Patrick Moorhead: No, but that was a last scenario because Microsoft, I can’t even imagine the scrutiny. There will be mistakes made with generative AI. I think we did see the community come together and say, “Listen,” when AI gets a consciousness and awakes like HAL 2000, this is when it gets really super challenging and the community came out and said, “Not this year and not for the next five years.” And apparently the big thing that OpenAI was working on that freaked everybody out was a more efficient way to do these models that take dramatically less GPU power.

Daniel Newman: And AGI, right? The whole AGI thing was-

Patrick Moorhead: Exactly and that was just my way of talking about how 2000 consciousness, but yeah. AGI and getting there quicker on AGI. And the board member who stood down this week saying it wasn’t about that. I’m sorry. I don’t buy that. I just 100% think that’s a bold-faced lie and not honest. So now there’s still lingering questions I think out there on what happened, but hey, let’s dive into this last topic, Dell earnings. I don’t know, Dan, if you want to take a whack at it or I can. So big EPS beat. Okay. Almost 30% EPS beat. A miss on revenue and a tepid outlook. And listen, PC was down in a weak market and like we saw with HP and like we saw with Lenovo, the forecast for the next quarter doesn’t look great and Dell doesn’t do annual forecasts, but we did get a quarterly forecast. Data center group hit their numbers. Okay.

In fact, server networking group were up 9%. And while some people might not get super excited by a single digit increase, I think it absolutely leads to Dell is hitting what they said they were going to hit with their server line with AI and Dell seems to be able to get the GPUs that some of the manufacturers aren’t able to get. And this would make sense to me given their supply chain prowess. And, Dan, for that analyst day, they were very clear. What’s our generative AI opportunity? It’s an infrastructure. Not in software, it’s not in services, it’s in absolute hardware. And quite frankly, if it weren’t for the softness in the PC market, I think that people would’ve considered that they crushed it.

Profit was up partially because PCs were down. I know that sounds weird, but the profit structure of infrastructure is a lot better than the profit structure for PCs and I believe that they’re getting a premium for their AI infrastructure because Dell can actually ship. Storage was down. Now typically storage growth will come maybe a quarter after server growth. So I am expecting that to go up. We saw softness in large storage arrays as opposed to mid-range and low end. So there we have it.

Daniel Newman: Yeah. I think it was a solid example of Dell’s operating prowess. Once again, operating really well within the constraints of the numbers. Growth has been harder to come by for the company. There’s growth in pockets and that growth is good. The AI outlook and of course the backlog on AI for the GPU is huge and if they could actually fulfill that backlog, the numbers would look very different. But there’s a few companies that could say that. So I don’t want it to be necessarily a unique thing just to Dell. Like HP, it will be a huge beneficiary of this AIPC boom. Having said that, Dell actually I think could be an even bigger beneficiary in that particular area.

But overall, Pat, I think Dell continues to just sort of deal with this macro headwind, deal with it effectively, be very good at managing the operation, delivering value to shareholders, dividends and buybacks, and doing the right things to make sure it keeps its investors happy while we wait for the next sort of boom across infrastructure and PC buying. And that overall makes Dell a consistent value play, but that’s also why it probably doesn’t ever get the growth play even as it did break 100 billion in revenue last year.

Patrick Moorhead: Good stuff, man. I’m looking forward to it and somehow, Dan, in 42 minutes, we got through 12 topics. Sometimes we can’t get through six topics in an hour.

Daniel Newman: You know what it is though? We ran the highest efficiency, lowest power consumption, performant GPU versions of ourselves today. And for those out there that like occasional silicon joke, you and I never lack one of those.

Patrick Moorhead: It is. What do you got lined up for the rest of the year, Dan? What does your schedule look like?

Daniel Newman: Well my schedule looks a lot like your schedule next week, but we’re off to the Silicon Valley next week actually for a bunch of different events. We’ve got something for Lattice, something for Marvell, something for AMD. Don’t want to spoil any surprises. So just follow our socials and you’ll see what’s going on there. We’ve got some interviews with some big, important people while we’re there. And then of course, week after that, I got one more trek up to New York and hopefully after that it’s Mai Tai’s on the beach. You know me. I wake up and start work late, but I make up for it by leaving early.

Patrick Moorhead: I thought I was the hardest working person in the industry. Dan, you are and maybe I’m just fading here, but I’m super excited about some big announcements that we have coming up over the next couple weeks in multiple areas. Hey, are you listening to me or are you-

Daniel Newman: Not really.

Patrick Moorhead: Tweeting?

Daniel Newman: You were saying something nice and I was crying.

Patrick Moorhead: I knew it. No. I’m looking forward to that. I’m really looking forward to seeing what AMD comes up with. They’ve already talked about what they’re going to talk about, which is the MI300, but it’s like who’s going to get up on stage? Who’s going to be their partners, right? We know that Azure has signed up. While it wasn’t official, we did see Lisa Sue with Jeff Clark and Michael Dell for the Dell Analyst Day. The company has talked about the MI300 class being the fastest product to a billion dollars in the company’s history and Lisa committed two billion to the street for ’24. That probably means four or more. It’s just conservatism. But yeah. I’m super interested to see if networking partners are going to join them, which CSPs, which OEMs are they going to be with, which model providers. Right? We saw-

Daniel Newman: It’d almost be like there’s a group of companies getting together to make AI easier, but who would do that?

Patrick Moorhead: Yeah.

Daniel Newman: Working together?

Patrick Moorhead: I know. Imagine that. That’s the only way you’re going to compete with NVIDIA is to-

Daniel Newman: Yes.

Patrick Moorhead: Oh, 100%. Oh, gosh. You’re quicker than me and you got up at 3:00 AM.

Daniel Newman: I did.

Patrick Moorhead: Anyways. Folks, let’s wrap up this show unless, Dan, you’ve got anything else you’d like to talk about yourself on, we can-

Daniel Newman: Yeah, no, no. I got nothing else. I’d like to thank everybody’s for, as always, for tuning in. Hit that subscribe button, join us for all our episodes here on The Six Five. Pat starts, I finish, that’s how it goes, at least on The Six Five on the roads insiders in the booth. Look for some news from us in the next few days. We’ve got big, big, big, big, big, big news, big news. We’re going to be revolutionizing this platform and we’re going to be doing some other things that you should be excited about, but again, I don’t want to spoil any great secrets of huge things that we’re going to do that are super disruptive and really meaningful to the industry. I’m not going to say anything else. Just-

Patrick Moorhead: Thanks.

Daniel Newman: Tune in next week.

Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.