Talking Broadcom, VMWare, China, Microsoft, Activision, Adobe, Amazon, IBM & Google

By Patrick Moorhead - July 19, 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. Broadcom-VMware Deal Approved by EU
  2. China Plays Offense with Precious Metals
  3. Microsoft-Activision Deal Approved with FTC Loss?
  4. Adobe Data on Amazon Prime Day
  5. IBM and .data Goes GA
  6. Google Bard Goes Multilingual

For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.

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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.


Daniel Newman: Hey, everyone, welcome back to another episode of The Six Five Podcast. It’s Episode 175. Pat, we are out of practice. We skipped last week. I can’t believe it.

Patrick Moorhead: I can. There was literally nothing going on.

Daniel Newman: We should ask the audience, though. In the situation where there is a week and there’s not much going on, do you want to hear Pat and I just talk about what’s up? What’s on our mind? Would you be willing to take the risk to just hear the conversations that Pat and I have?

Patrick Moorhead: Could be very interesting.

Daniel Newman: No, maybe. People want to get on the inside, Pat. Anyways, no, another great week. Very excited to be back. It’s Friday. It’s 132,000 degrees here in Austin, Texas, and we don’t care ’cause we’re inside and we’ve got air conditioning. But hope everybody’s doing really well out there. Pat, we’ve got a good show this week, a lot of policy-related stuff. We’ve got quite a bit of coverage on things going on with the FTC, very busy being very ineffective. That’s the preamble, in my opinion. We’re going to talk a little bit about the Broadcom-VMware deal. We’ve got some updates policy-wise on China. China is on the offensive if that’s even possible in this whole semiconductor thing. We’re going to talk a little bit about Microsoft and the Activision deal. Adobe and Amazon, it was a Prime Week.

Now, we don’t talk a ton of e-commerce here on the show, but Pat, it was Prime Week, and 13 billion worth of stuff got bought in a two-day period of time. Adobe had some pretty interesting analytics, so we’ll chat about that. We’re going to talk about IBM, and then we’re going to talk about Google and some of the innovation they’ve got going on their large language models and chatbots. Can’t be always only about OpenAI, but it can be always only about you, and that’s what’s really important here. All right. So for those of you that have not been with us before or just don’t remember, we just do this in the beginning. Quick disclaimer, this show is for information and entertainment purposes only. While we will be talking about publicly-traded companies, please do not take anything we say as investment advice. Pat, the Broadcom deal is done or is it?

Patrick Moorhead: That’s a good tee up. You didn’t let me riff on how great it is to be here with my bestie.

Daniel Newman: All right. All right. All right, rewind. Hey, Pat, before we get into the first topic, how are you doing today, buddy?

Patrick Moorhead: I appreciate you asking because it’s not about me, but it’s kind of about me. No, I’m doing great, man. I’ve been here for three weeks, no travel, and I literally feel like I am a new person. So I’m glad to be here, but as we’re going to talk probably at the end of the show, I’ll be back out on the road again-

Daniel Newman: Yeah, it’s about to get ugly.

Patrick Moorhead: … and loving life.

Daniel Newman: It’s about to get ugly. We were talking offline, you see, everybody, this is a reason to get with us and convince us to do the offline show online. We were running through this, and we were basically looking at our calendar like, “This is a disaster. This is a disaster.” So much tech, so many events, so much demand. Pat, you are the number one analyst in the world, so-

Patrick Moorhead: Well, it’s because you’ve let me do that, Dan. You’re an enabler-

Daniel Newman: No, I would never-

Patrick Moorhead: … and I appreciate that.

Daniel Newman: I’m a pretty competitive guy. It would be hard to believe that I would let anybody be number one, but sometimes when your mentor is just crushing it… Look, the Karate Kid never kicked Miyagi’s ass. It never happened on any of the movies, and it’s not going to happen in this one.

Patrick Moorhead: It could have, though.

Daniel Newman: I don’t know. Ralph Macchio was not all that… He never looked all that tough to me. I actually watched that, by the way, just a little fun backstory, on the way to the UK, went to the British Grand Prix. Yes, I watched The Karate Kid as a movie. First of all, cinematography has come a long way. I just don’t know if you watched back those kinds of movies. Second of all, Daniel LaRusso was quite skinny. I just don’t know if he could really have been that tough, but I still think it was a great movie. I actually still found myself very entertained. Okay. So fast-forward-

Patrick Moorhead: We’re going to about-

Daniel Newman: … back to the beginning.

Patrick Moorhead: … this. Okay.

Daniel Newman: Yeah, Broadcom deal, it’s done?

Patrick Moorhead: Yeah, so these are always long-term sagas and anything that has to do with regulatory bodies. But the deal was approved by EU regulators with some conditions, and those conditions have everything to do with competitive hardware folks like Marvell, likely Nvidia, Samsung, and maybe even Cisco, and also at least according to AP, also talked about potential future competitors. I just love how these regulatory antitrust bodies are looking to the future and not actually what happens, but it is where we are right now. By the way, all of this was a little bit farcical as all you have to do is first of all, be a business person and understand business. Look at Broadcom’s business model and the way they make money and what they’re motivated by. It’s all about money. It always has been and it always will.

The amount of cash that this company brings in is staggering compared to any other semiconductor company and even most tech companies out there. Broadcom is buying VMware for its multi-cloud capabilities, which, to be honest, VMware hasn’t been able to monetize that well if you look at their revenue profile. Hock, early on, committed to not raising prices specifically on virtualization. What people don’t even understand as well, it’s not that hard as you think to shift and move off of a certain virtualization vendor. Let’s say, going from VMware to KVM or Microsoft, it’s not that hard. There are companies that this is all that they do.

At least in terms of virtualization, VMware makes most of their money that supports old hardware, not supporting new hardware or cutting off older competitive hardware. The last comment that I’ll make about the monetization is, you make let’s say, $500 on NIC card and $14,000 on VMware licensing, why on earth would you prioritize hardware over software licenses? So I think this deal is going to go through, and I think it’s just up. I said this, I think, in the first video we did on this, Broadcom’s going to have to make some concessions. It looks like they did with EU, and they’ll make those concessions likely globally with the same cast of characters like Marvell, Samsung, Intel, and Nvidia, and this deal is going through.

Daniel Newman: So yeah, let’s move on. No, I’m kidding. I’ve said this for a while. I think a victory lap queue is in order for you and I. There was some naysayers in the public domain that desperately didn’t want this deal to go through. They were wrong, they were all wrong. These are the same people that don’t think Apple should probably be investigated for any of their app store and competitive strategic moves that basically make you pay a toll to play in the marketplace. Anyway, I digress. There just wasn’t enough here. Now the EU, the UK, the FTC, they all need to get their pound of flesh, and their pound of flesh is sometimes going to be in dollars and in this case, sometimes going to come in concessions. There are certain concerns. The Marvell concern is probably the most substantial, somewhat unrelated, but related to make sure that there’s competitive material provided for networking requirements.

Pat, candidly, I find it somewhat shocking it’s taking this long, but it is a large deal. You’re talking about more than $60 billion. You’re talking about a significant disruption in a channel in the way customers consume this product. I’m going to make another prediction. I know this probably won’t make all the VMware fans happy. The company will be substantially more successful under Broadcom than it has been. I’m not talking about success from a product adoption standpoint, I’m talking about the company’s ability to make money. Hock Tan, and if you haven’t watched our Six Five interview with Hock, he’s prolific in this particular area, and he’s incredibly competent to look at a company. There’s some interesting data points about the number of employees at Broadcom versus the number of employees at VMware, and then the amount of revenue and then the amount of profit.

I think you’re going to see another version of this wildly slimmed-down organization, and I think VMware plus Broadcom, I could see a yield of 30% reduction in headcount. I’m not saying that through a positive lens, I’m saying that through the lens of Hock is going to find a way to move away from these smaller EBITDA production. He’s going to be able to drive high-dollar per share value in terms of EBITDA on the product. He’s going to maximize the success of the strong products. He’ll probably put out or put to rest and sunset some of the innovations that either hadn’t taken off or didn’t have longer term potential. But to your point, without getting down the whole path of why this is a good deal, this went through because it should. This went through because it wasn’t anti-competitive in a substantial way, it got held up because of the size. Moving on, this deal, we’re going to talk about it one more time probably when it actually gets done, but the fact that we’ve had to talk about this much-

Patrick Moorhead: Well, here’s so weird too, Dan, is they’re a hardware company with a little bit of software buying more software. It’s not like gigantic software company buying a competitive software company or a giant hardware company buying a competitive hardware company. This is so far out of the lens, it just absolutely makes no sense to me. It’s just weird, and again, gets into this just overall oddity of the regulators. Either they’re looking at the wrong things and the wrong companies. They’re looking in a crystal ball in the future as opposed to want and disregard for antitrust damages that already happened, and let’s penalize those companies or maybe break them up into pieces or regulate them higher. I hate regulation, but when you have companies breaking the law like Apple, things need to happen. Then the basic lack of understanding of business 101, I feel like I knew more about business when I was 22 than these East Coast-educated Ivy Leaguers at the FTC and the DOJ. They just don’t understand the reality of business, and it’s a waste of taxpayer dollars. It’s a waste of time, and it’s inhibiting innovation.

Daniel Newman: Yeah, no, absolutely. Look, the East Coast elites, I think is what you’re trying to say. You know what I mean?

Patrick Moorhead: There are West Coast elites too.

Daniel Newman: It’s not just about that, it’s about political agendas. The problem is, is that are we regulating or are we politicking and-

Patrick Moorhead: Are we punishing success, right?

Daniel Newman: Well, but I’m saying I agree, but I’m saying the most successful company that’s most obviously teetering on the line of legality as in terms of antitrust law doesn’t really get regulated. So I don’t know, I guess there is a too big to be regulated that go with the banks. It’s the J.P. Morgan of tech, so I don’t know. It’s interesting. It’s going to be a really fun one to watch. So speaking of policy, so a couple of weeks ago, you and I had an interesting debate conversation about what was going on in China as the U.S. continued to impose restrictions. Now some of those restrictions included the controls of machinery that including and most importantly, ASML out of the Netherlands and not allowing China to get the machinery required to basically move forward on 5320 angstrom from 18a, et cetera. These next generation nodes has put China in a really precarious position, especially with the onset of AI as the most important trend for the next decade, if not more, China is in a position where they’re playing catch up without the tools to catch up.

So this isn’t a situation where China can just buy its way out. You did see the last week Ant Group, the big, long saga in the courtroom settled around at a billion dollar fine; which given what was going on in China, it’s an interesting turn of events where China seems to be rotating back to enabling its largest tech companies to be successful, winding down some of the regulation to slow their growth, slow the development of wealthy iconoclast leaders that aren’t part of necessarily the Chinese Nationalist Party. We all know about the Jack Ma saga and what’s gone on there, and it’s related but unrelated. But China is feeling the pressure right now to be able to build out AI infrastructure and to compete in the AI space. We saw that China squeezed Micron. Why did they squeeze Micron? Well, frankly, my opinion on Micron was more that it was not the imperative product.

If they wanted to really show some weight and push, they might squeeze Nvidia, but why in the world would they do that? They desperately need Nvidia. But what does China have? Resources. China has resources, and this is a really delicate tightrope that has to be walked right now because China has resources, the U.S. needs them. In this case, they’re talking about gallium, they’re talking about germanium. These are two specific resources that are produced almost exclusively in China. You’re talking about the vast majority of germanium, over 60%, over 80% of gallium. These are important metals that can part of the manufacturing of semiconductors. A lot of people don’t realize, but these chips don’t just come out of thin air and they’re not made out of all synthetics. There’s a number just like lithium or the nickel that’s going to be used in batteries. We talk about that sometimes. These are very important natural resources that are produced in limited quantities.

Now, interestingly enough, this isn’t something that’s in limited production in China because that’s the only place that has it. So this is where it becomes a very interesting debate is already phones are ringing around the world, countries like South Korea, Russia, Japan, Ukraine. I know, why is it Russia and Ukraine? You notice themes with wars, anybody? Anyway, a lot of this can be produced in Russia and Ukraine also in another Japan and South Korea, but as well I believe Canada, Germany, Japan, Slovakia through recycling and even in the U.S. Point is, is that nobody’s manufacturing it anymore because we’ve outsourced our entire supply chain to China, and we still haven’t entirely fixed that yet. We’re going to see that get turned back on, but it’s not instantaneous. In the short run, by limiting shipping and controlling the export, it could cause another strain in the supply chain which could create a strain in terms of the availability of some of these semiconductors that we need.

We all saw what happened during the last supply chain crunch, it could be a massive problem. Having said that, some of these crackdowns could be more price impactful, where some of them could be more supply driven. But the real question, Pat, for me, and something I’d love to get you to weigh in on too is, China has to walk this tightrope. They want more 800s, but we’re not letting them have them. I’m sure they’re getting them through whatever markets they can, which is illegal, but I just can’t imagine they’re not trying to obtain them in some way, shape, or form. But the U.S., by the way, is the largest consumer of Chinese-produced goods. So there’s a lot of tit-for-tat going on here is if China cracks down too hard on the U.S., it can become a bit of a problem for China in its own economic growth if we stop buying as much stuff from China.

Having said that, we need everything from China ’cause we’ve basically created this weird co-dependence, and we don’t get stuff from other parts of the world, and other parts of the world largely aren’t manufacturing. So it feels like both sides have a hand on the rope and you can push and you can pull. But the global interdependence between these two things are so tightly wound that if either over rotates, Pat, if we actually went to war, actually went to a real on-the-ground war with China, where would everybody get our stuff? Where would our stuff come from? What would we even do? We’ve literally created this incredible dependence, it’s a co-dependence, though. You know what you and I joke about the show, if one of us quits, it’s over mutually assured destruction? We can’t actually go to war, so this is a really interesting and tedious thing there. It’s like China’s pulling these little threads and the U.S. is making these big microaggressions and in the end, the no way we can actually function without one another. So Pat, very interesting story to continue watching and develop.

Patrick Moorhead: I think that was a really good breakdown. So China, when I started working in 1990, their technological capability was to have through hole PCBs, meaning, taking a transistor or resistor that has a metal wire on the end and soldering it into a breadboard. Okay? Those were their capabilities. In 1996, the only thing I relied on China for were power supplies, what I call metal bending, like sheet metal to create an enclosure for a server or a PC and plastic injection molding, which is, you spray plastic into this huge auto sized… They didn’t have rows, they didn’t have good rows, they didn’t have good power. Then the West enabled China to go in. To China’s credit, basically, they dictated what was going to happen.

If there was a house in the way of the highway, they would just actually remove an entire neighborhood. From a policy standpoint, we believed that we could turn China capitalist, and if we turned China capitalist, they would not be communist, and we wouldn’t have a potential thermo nuclear war. Also, we wanted to increase the amount of decreased costs for particularly technology, for clothes, for pretty much anything. So we outsourced it to China, so like you said, so this goes back a long way. China invested, they invested in education, in PhDs, in college students and their population. Even if as a percentage is not as literate as the United States, they have four times more people than we do, three to four times more people than we do.

So they’re just this absolute powerhouse. Then about 10 years ago, China basically limited throttled companies like Cisco, IBM, Microsoft. They were not allowed to participate in anything that was called critical infrastructure. This is a fact, not opinion, Huawei stole Cisco IP to help create their networking technology. That is just an absolute fact. By the way, if the knockoff Chinese Boeing 737 looking product looks 99% like a Boeing 737, it’s because those designs were ripped off as well. China started stealing a lot of U.S. intellectual property. Still today, China bans Google, Facebook, Instagram, Twitter, and in some cases, makes it so hard. Dan, if you want to open up future and group China, guess what the maximum percent of ownership you can have?

Daniel Newman: 49.9.

Patrick Moorhead: That’s right. You are not the majority shareholder of that company. Do you know what the deal is if Chinese companies want to incorporate in the United States?

Daniel Newman: I don’t, not off the top of my head.

Patrick Moorhead: 100%, you can have 100% ownership. We always-

Daniel Newman: That seems fair, Pat, seems fair.

Patrick Moorhead: What’s that?

Daniel Newman: That seems fair.

Patrick Moorhead: It’s capitalism. It’s absolutely not fair. I’m just saying this just to put this in context of how far this goes back, and it’s exactly what Nvidia and Micron are caught in the middle of now. By the way, I’m working on a column about Nvidia, and are we actually safer if we restrict Nvidia products in China? So check it out. That’s all I got.

Daniel Newman: That’s it? Okay, that’s a good one. By the way, we clearly like that topic. I love our segments on that topic, always very, very interesting. So let’s stay on the theme of regulatory. I think this is the last one for the day. We did discuss the possibility of covering the FDC is now going after OpenAI again, but I’m going to take a breather on that one. We’ll come back to it. But in Microsoft news, that might be a potential L for Microsoft. But let’s talk about a W for Microsoft. By the way, called this one, called this one. Did you call this one? I know I called this one, the Microsoft Activision deal’s passing.

Patrick Moorhead: No, I think that was a good call. I didn’t lean into it as hard as you did just because it wasn’t as straightforward as a hardware company buying a software company. But no, let’s dive in here. So Microsoft is trying to buy Activision. Activision is one of the largest makers of amazing software, World of Warcraft. Some of my son, Patrick’s, his favorite games are done by this company; attracted big time scrutiny of course by Lina Khan’s FTC. They sued for an injunction to stall the go ahead of this to happen. The FTC said, “Don’t do it.” Microsoft said, “No, we’re moving forward.” FTC sued. Well, the FTC lost in U.S. District Court in San Francisco on July 10th, I think, a mere four days ago.

The FTC, “You thought this was over? We thought this was a done deal because hey, it’s approved in EU, Ukraine, Saudi Arabia, Brazil, Serbia, Chile, Japan, South Africa, South Korea and China. It’s all been approved.” By the way, I didn’t know that Serbia or Ukraine had its own approval. I guess they would. They’re sovereign countries and not part of the EU. I don’t know. I guess not. So FTC appealed. So this is the only dangling Chad to move forward. Listen, Microsoft is making concessions to what is just by fact, not editorial, a dominant Sony in console gaming. So is there really anything left here? I don’t think so. This deal’s going through.

Daniel Newman: Yeah, this one probably doesn’t require as much time as the China one by any means, but it was really interesting, my bet if sometimes these things are really scientific and sometimes it’s more gut. There was definitely reasons, definitely concerns. You saw some of those leaked emails that talked about the guy that basically said, “This is how we can kill Sony.” There’s literally emails that talked about, “This is what we can do to…” Obviously, things like that are going to have to be addressed. But there’s also in the handset mobile, get in the era of mobile gaming, console isn’t everything anymore. There’s so many ISVs and gaming developers and gaming options and gaming platforms.

It’s like, yes, there are some significant platforms where gaming is consumed on the phones, on the consoles, on computers, PCs, desktops. But having said that, there’s also a lot of optionality as to what games and where you get your games and what platforms you want to play. I just thought there was, Pat, just frankly, just too many options; too many options that was going to make it very hard to determine that there was really a massive risk of over rotating to anti-competitive. Plus, Nvidia has one. Nvidia has a gaming platform now, Pat, so they’re the world’s largest company now, aren’t they?

Patrick Moorhead: $1.1 trillion. I wonder when regulators start looking at Nvidia?

Daniel Newman: Oh, geez, I don’t know. They only have 99% of the training market. It’s like 95, right?

Patrick Moorhead: Yeah.

Daniel Newman: Yeah. Anyway, sidebar. Another, let’s talk about that later. Anyway, but longest long story short, there’s just options. There’s just a lot of options. So while I’d love to say that my decisioning was incredibly science-based, and I talked to Lina Khan and had a chance to go around the world, I just felt that there was enough optionality. Heck, if Japan pushed it through, it felt like they were the one that had the most to lose in the deal like that.

Patrick Moorhead: Yeah, isn’t that odd? That’s a great observation. I didn’t even think about that. Yes.

Daniel Newman: So with all that in mind, I think they knew there just wasn’t enough to push and to fight. So anyways, that’s it. Good for Microsoft. There is an appeal. I guess that means it’s not technically done, but at some point, they’re going to have to take the ropes off and let this thing get done, let this thing go through, as it should, as it is, as it will, as it was. So, all right, rock and roll. There we go. Pat, let’s talk Prime Day a little bit. Let’s talk about data, Pat. Let’s talk about data and let’s talk about Adobe has a really interesting way that it measures and has insights around Amazon Prime Day. Now, a little bit of background. If you’ve been under a rock and you weren’t watching our show and then you were under another rock and you hadn’t heard about Prime Day, this is the penultimate moment of people buying stuff they don’t need with money they don’t have to impress people that don’t care.

Patrick Moorhead: Oh, my gosh, dude. That was so good.

Daniel Newman: Thanks. I heard that somewhere a long time ago. I’d love to take full credit for it, but it’s just full of useless information and quips and things I like to say, but-

Patrick Moorhead: Yeah, it’s like a meme. Dude, you verbalized a meme.

Daniel Newman: Yeah, I do that once a year, and then this is where we need our producers to do a super cut of me doing that. Then that becomes a GIF-

Patrick Moorhead: Yes.

Daniel Newman: … that I send to my family when they’re ripping up my credit card.

Patrick Moorhead: Yep.

Daniel Newman: Anyway, but look, here’s the numbers. In two-day total spend, Pat, 12.7 billion in the U.S. Now here’s a question, you think it was up or down from last year?

Patrick Moorhead: Oh, gosh, I’m saying it was up.

Daniel Newman: It was. Now, given the year of austerity that we’re having and all the cutbacks, it’s amazing that we’re running towards record S&P and we’re in the process right now of seeing what another stock bubble, the magnificent seven. Home sales, even with high interest rates are through the roof, luxury goods, I think, Bernard, the LVHM guy is the richest in the world, so I really am struggling to figure out where the world’s at. Are we more in debt? Do we have money under our mattresses?

Patrick Moorhead: We’re more in debt. Yep, yes we are.

Daniel Newman: Was the inflation and all the money handed out during COVID just well tucked away, or are people just absolutely broke and this bubble’s about to burst? It is hard to tell because we’ve been hearing for almost two years now that it’s about to burst and it hasn’t yet bursted. We did have a couple of banks that almost failed, but they didn’t ultimately fail, or they kind of failed, but we bailed them out. I think J.P. Morgan tripled in size yet again. Talk about creating a too big to fail. Anyway, I digress. But 12.7 billion, 6.1% growth, so not massive. But for Amazon, it’s another record, another two days of sales, similar to more insights about 12.7 billion over the last two days. Look, when people have the best analyst in the world buddy-

Patrick Moorhead: I’m pretty sure that my bookings this week were like five grand, so-

Daniel Newman: Oh, come on. See, this is why you got to sign up for the private stream. You get all these interesting innate details about the business.

Patrick Moorhead: I know, just how poor I am.

Daniel Newman: But where were the discounts? Some interesting Adobe data shared that the biggest discounts came on electronics. 14% was the average discount. But here’s a really interesting thing, Pat, these discounts were being huge, really weren’t that huge. 14% on electronics, 12% on apparel, 12% on toys, 9% on furniture, 8% on computers, 7% on appliances, 6% on sporting goods and 5% on televisions, which I guess are not electronics somehow. But anyway, my point is that my thing about buying stuff you don’t need with money you don’t have to impress, legitimately the discounts aren’t really that good. But the company does a remarkable job of using this day as a moment to entice people to come to the site and buy things.

It was an incredibly impressive couple of days for Amazon, which, like I said, is doing a wonderful job of appealing to the American condition. What do people buy? Appliances was a big buy, housekeeping supplies, which I’m not quite sure what they were, but appliances were up 50% from the last Prime Day. People were doing it on mobile, Pat. 44.8% of people were doing the shopping on their mobile device. So I know you and I vacillate between what we do on our PC and what we do on our mobile, but what’s happening is we are spending money on our mobile devices. So basically, Adobe does this, they go really in depth.

They look at analysis, here’s what they come up with: a trillion visits to U.S. retail sites of looking at 100 millions SKUs across 18 categories. By far, more than any other company and research organization. So the Adobe data is just really, really interesting as it looks at the habits, the behaviors, the spend, the patterns, but it also, Pat, in our world of tech shows a very interesting capability that we can do, what we can drive with data and analytics and AI to be able to in just a few days within seeing $13 billion of spend, have so much insight as to how that money was spent and what that means, so interesting stuff. Just a little different vibe for our show, but I thought it was super fascinating.

Patrick Moorhead: No, it is good stuff. It’s interesting, the Adobe analytics part is pretty cool. I didn’t even know they did that.

Daniel Newman: Did it, did it, did it, get it done.

Patrick Moorhead: Yeah.

Daniel Newman: You got anything you want to add there, or are you going to let me just have that one as a free-for-all?

Patrick Moorhead: No, you just do that as a free-for-all.

Daniel Newman: All right, buddy. Well, thanks for letting me have that. Thanks for letting me dive into that one, Pat. I know sometimes I always say, “I want to talk about stuff that everyone cares about.” I’m not saying everyone doesn’t care about everything we talk about, but let’s face it, FTC regulator stuff, this is for the tech world, and that’s what our show is really for. But when we talk about Tesla or occasionally, we talk about Apple, it’s like everybody cares about that. So every once in a while when we do it, we spark and that’s why we got 2000 people watching the show right now as we speak. It might be a little more than that, but you know what I’m saying. So let’s talk, Pat, GA. We don’t do this all the time, but when important things go GA, we do like to talk about it. One of the most important launches I think in the AI space this year that went less talked about because it was really going to drive the enterprise and not the consumer use case was IBM and, and they went GA.

Patrick Moorhead: I know, you’re going to let me talk about this?

Daniel Newman: No, I wanted to make sure I got a little bit of the preamble, and I was just setting you up.

Patrick Moorhead: Okay.

Daniel Newman: Here. Here, I’m just setting up the pass. I’m setting up the pass. You going to dunk it?

Patrick Moorhead: Yeah, I got it.

Daniel Newman: Are you going to dunk it?

Patrick Moorhead: So back in May, The Six Five, Dan and Pat, we went to IBM Think, and IBM made a ton of announcements about AI. By the way, over the last two months or three months, it isn’t necessarily unique. Everybody is making AI announcements primarily because of the impact that it has on the company’s valuation and stock market. So this has become a board to executive leadership team to everybody else. It’s very similar, by the way, I think, the same froth we saw when web first came out, e-commerce came out, mobile came out, what’s your mobile strategy? What’s your e-commerce strategy? We saw a ton of companies getting disrupted through e-commerce. So the boards wanted to know, “What is it?” Then, “Hey, now, what’s your generative AI strategy?” So the good news for IBM is they had been working on this a lot longer before the froth. In fact, they went GA on Vela, which was their training supercomputer cloud to be able to train these big models.

What IBM did announce was a service called watsonx, and there’s three elements to it. There’s the .ai and that’s to train validate, tune, deploy models. There’s the .data, which is essentially a data store for AI and then governance, .governance, which is to enable responsible, transparent, explainable data and AI workflows. To its credit, this week, it went freaking GA, general availability. So I did some digging. I got with IBM, I think we had two calls, 10 emails, 15 documents. What actually went GA, it’s not because, “Oh, gosh, I don’t trust IBM or, but Dan, pretty much everybody that we’re looking at, it’s not GA. In fact, there’s a very large vendor doing generative AI as a service that can’t even explain how they price. So what went GA, .ai and .data. You can swipe your credit card, multiple countries, multiple languages and six models running on the IBM cloud, which by the way, is full of 80 gig, A100 GPUs in very high performance clusters.

So one IBM model, it’s an NLP model, 150 million parameters, and you can fine tune the heck out of that thing. As interesting, more interesting to our audience, five hugging face models available GA. For QA, generate extract, some classify up to 20 billion parameters, and you can do inference on all these models. So what? Why is this even part of the show? We rarely do GA. Again, I’m unaware of any other enterprise-grade service for large language models, any large models, even if they’re not language that is GA today. So props to IBM, and it just shows A, how ready they were for this, did not catch them by surprise, and how quite frankly ahead they are of even every hyperscaler. I’m not aware of that any service that’s GA that supports, Bedrock’s not, Google’s not, Azure’s not. I don’t think that Oracle is as well.

Daniel Newman: Yeah, the onslaught of GA will come. I think in an era where there’s a lot of nervousness about data and where data resides the enterprise graph, how that data gets intertwined with the large language models, how that data then gets used, trust is a really important currency in this particular arms race to compete. I think we’ve seen, and Pat, I remember seeing your tweet or LinkedIn post about your declining utilization of generative tools already. I don’t think you’re alone. I think data is pointing to the fact that people have a little early fatigue. They’re almost as bored maybe as they are with Meta Threads after a week. I thought that one would get you. Okay. Anyway, but it’s not so much that they’re bored, it’s just that the use cases of trying what … In a lot of ways the LLM, the new chatbots are basically the next wave of search. It’s a new way to organize and distribute what’s old is new again. Remember Cliff Notes? “Hello, welcome to-

Patrick Moorhead: Very much so.

Daniel Newman: “Welcome to what…” So this is an instance of what’s old is new again. Google originally did its thing to organize all the world’s information, and now we’re organizing it and giving Cliff Notes to people because you could argue people want to be more efficient or we’re just so lazy that we don’t want to actually have to click the links to figure out what information is good. I think it’s hopefully about being more productive. But for companies, and they’re the ultimate of consumers of technology, it’s about the technology being able to make them more efficient, productive, offering better user experiences, CXs, innovations and you can’t do that without your data as part of The Graph. You can’t do it without the enterprise’s data. So just having that open internet data is not really a competitive advantage. In fact, it’s already proven to be a commodity.

So in order to make it a enterprise success story, you need to be able to A, make the data easily digestible and ingestible; B, give tools that enable enterprises to use that data but protect it from the public internet domain; C, you need to be able to govern it so that the outputs can be trusted or secure, are accurate, are constantly learning, training, and evolving. IBM what’s really interesting is, IBM has no interest, not any, not really one iota of interest in being a consumer product here. They’re not building something to try to get high adoption among broad internet users, consumers, mobile apps. They’re trying to basically say, “Look, we are 100% committed to building a sandbox, a tool set, a data lake, and a governing platform that enables companies to successfully implement enterprise AI on a business-wide scale to add value for the internal and external resources of the company.

So going GA was one thing, Pat, but actually building with that set of guided principles makes them very interesting for this particular space. Now I’ve been impressed with Vertex, I’ve been impressed with some of the things that OpenAI is doing. I think AWS is being heavily underrated right now for what they’re going to be able to do. But I do think IBM has been very declarative, clear, concise, and by the way, early. ‘Cause it’s not just about being early about being GA, they’ve been very early about the proclamation of AI hybrid cloud and the enterprise and their commitment to basically building tools that are able to be run in those environments successfully. That has also been a big part of their recent ascent into profitability, into growth, into scale. Now is this going to be the catalyst of IBM breaking away from mid-single digits and single-digit growth into doubles and beyond? It could be, but it is the most compelling thing-

Patrick Moorhead: If it’s not this, what is it going to be? It could be Red Hat, right?

Daniel Newman: I like Red Hat a lot. By the way, Red Hat’s a big part of this story, is the ability to do hybrid-enabled enterprise AI, so I like it. I’m happy to see it go GA. I’m really eager to start to hear some of these customer stories come to life, hearing how customers are using this to speed up and amplify and successfully deploy enterprise AI.

Patrick Moorhead: It’s funny, we went crazy when Microsoft was first and went GA. We both went crazy about them. We gave them a ton of credit with the caveat that, “Hey.” I see this as the same thing. I see IBM right now in the leadership role for enterprise generative AI. Right now, it could change because they’re fricking GA. That’s a huge deal. It’s a huge deal.

Daniel Newman: It is a huge deal. It is a huge deal. Obviously, hopefully, you can hear my enthusiasm. I’m cautious because I do think you’re going to have an onslaught of GAs in the near future.

Patrick Moorhead: Listen, and based on the markets that IBM is only targeted at, I think IBM’s going to have success in regulated industries, large enterprise. Okay? That is a sub-variant of the pie. Where these other folks, just like as a service, who’s going to have a bigger as a service Dell and… Sorry, as a service on-prem business, Dell or HP or HPE? It’s going to be Dell. Why? Server storage, networking, security and PCs. It’s an inevitability, but they’re behind, so the way that I look at it.

Daniel Newman: So it’s a similar parallel. Like I said, I’m actually very bullish. I just think it’s going to be interesting to see how fast this gets deployed and how quickly these customer use cases come. I think you made a great point about the regulated industries, but I’m actually very, very impressed. I think the governance is being the underrated thing. I think, and I said this, that some of the public concerns about some of the big public cloud LLM technologies should really play to IBM’s favor. They should be able to use this and create some momentum in a way, of course, they have partnerships with all those players, but in a way that says, “Hey, we really have narrowed it in, built it in and squared our entire presence around being governed, managed, secure. Your data is your data.” Everyone’s saying that, but with IBM, it’s something, I think, the customers will be able to believe from the onset.

So, all right, let’s hit our last topic. We got a few minutes here. This is not as big of news, but it’s good news. It’s interesting news. Pat, you see, we talked about a lot of LLMs. Well, Google and Bard, which is the less talked about still. For whatever reason, Pat, we could probably have a debate, was it ’cause ChatGPT was first? Is it ’cause it’s the best? I play with both of them. I’ve been very public about it. I think both have some strengths and some weaknesses. But Bard and Google, and with Google’s deep mind and brain and all the technology, it was really never meant to fall behind, it just got the launch wrong. I still believe that to this day. But one of the things that they’re doing is they’ve rapidly expanding, they’re making it available to a wider audience, and they’ve brought it to the EU.

Obviously, the privacy concerns slowed that down a little bit, and now they’ve gone multilingual, and I thought that was really interesting. It was bound to happen. As we know, I don’t know if all Americans are aware, but English is not the only language in the world. It is important that other languages are spoken. Bard has now come out, I believe it’s 40, Pat, and the plan is to continue to grow. With obviously a focus on being more global in scale and overcoming some of these language… not just language, some of these privacy barriers, the company is going to be able to, I think, continue to expand, to gain rollout, to gain user adoption and to gain scale. So this was the company’s biggest expansion to date. I do believe that it’s a good indicator of the competitiveness. Pat.

Patrick Moorhead: Can I share something with you, too?

Daniel Newman: What’s that?

Patrick Moorhead: Can I ask our producers to put up some content to show you something?

Daniel Newman: Yeah. Yeah, go ahead.

Patrick Moorhead: Is that okay?

Daniel Newman: Yeah.

Patrick Moorhead: Are you good?

Daniel Newman: Yeah, let’s do it.

Patrick Moorhead: Oh, interesting. I can’t share. I’m on Edge, I’m on Edge, and I can’t share a Chrome tab. But anyways, the other fun thing I found is type in, “What should I do in Austin this weekend?” I think this is even more in more exciting than the multilingual, but it says, “Hey, you want to try a new AI-powered overview? Try now,” right off the search page. So I think this is even bigger than multilingual. This is how-

Daniel Newman: Wait, say that again. Give me that one more time. What were you able to do?

Patrick Moorhead: Go to Google search, “What should I do in Austin this weekend?” It asks me, “Hey, do you want to see an AI-powered overview?” Then it basically gave me Bard, what looks like Bard results. So I think that is even bigger than even this multilingual announcement. It pulls up a prompt that says, “Hey, this is a search generative experience,” and then you say, “Yes,” and boom. So I thought that was huge.

Daniel Newman: Absolutely. Yeah. That’s super cool. So basically, the innovation’s coming, the advancements, the proliferation of these platforms, the competitiveness. The competitiveness is good. Maybe these are some of the things that need to happen, A, to get this next rocket ship north of users and utilization. Pat, what do we always say on this show about competition?

Patrick Moorhead: Competition is freaking good.

Daniel Newman: Competition is good. So when we say that the FTC and certain deals should go through, it’s because we don’t believe these are competitively problematic for an industry. When it really is, we think it should be regulated. But in these cases, regardless of regulation, we think Google and Microsoft and some of these open source LLMs are all swinging and trying to win, it’s a great thing for us. It’s a great thing for innovation, and it’s a great thing for all of you. So Pat, we did it. Another week in the books.

Patrick Moorhead: I know. We talked about a lot. It’s been great to be back for so many weeks. What’s on your travel calendar?

Daniel Newman: Well, I think we’re going together next week. You and I will be at .conf. Pat, remember when July used to be an off month?

Patrick Moorhead: No. The only month that I know it’s an off month is December, that’s it.

Daniel Newman: No, no, no, no. Isn’t re:Invent the first part of December? I feel like there’s something in December, but yeah, it’s most of the month is quiet. But July used to be quieter and August used to be a little quieter too, and August is shaping up to be an absolute mess. August to November, right through Thanksgiving, Pat, you and I are going to be on the road. You’re going to be a crabby, crabby man because you, Pat and too much travel is a no good time for Mr. Moorhead. But we’re going to plow it out. The Six Five’s going to be all over. We’re going to be covering a lot of ground. Then of course, you and I flipping our caps, running our research companies. We’ll also be on the road. We’ll be on the tube. We’ll be on the pod, and we appreciate all of you joining us this week.

Patrick Moorhead: Yeah, I appreciate you guys, too. You’re about to take us out. I wanted to talk about my travel, dude. It’s not all about you.

Daniel Newman: I just talked about us. The whole thing was about what we are doing.

Patrick Moorhead: All right. Anyways-

Daniel Newman: You selfish, selfish man-

Patrick Moorhead: … I’m going to be-

Daniel Newman: It’s not all about Pat, everybody, but-

Patrick Moorhead: I’m going to be in Korea at the Samsung event. I hope to see you. I’ll be sitting hopefully, somewhere near the front to get some good pictures. I’ve been to Korea multiple times, but I’ve never been there for a Samsung event, so I’m really looking forward to it. Wish we could have taken Six Five there, but maybe next time.

Daniel Newman: There you go. So hit that subscribe button. Join us for all of our shows. The lower energy at the end was made up by the high energy throughout the rest of this show. We appreciate y’all tuning in. Stick with us. We’ll see you next week. Bye-bye now.

Patrick Moorhead

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.