Talking Earningspalooza Microsoft, Google, Amazon, Intel, T-Mobile, and Activision

By Patrick Moorhead - May 3, 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 six handpicked topics for this week are:

  1. Microsoft Earnings
  2. Amazon and AWS Earnings
  3. Intel Earnings
  4. Google-Alphabet Earnings
  5. T-Mobile Earnings
  6. Microsoft CMA and the State of Regulation

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.


Pat Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy and we are here for another Six Five podcast, Episode 166. I cannot believe that. If I sound a little bit gruff this morning, it’s because I rolled in around 1:00 AM last night. Dan, what are you up to you? Are you on the road? I hear some activity going on.

Daniel Newman: Yeah, yeah. You know what, it’s additive and punitive. Like, “I’m on the West Coast and I’m going to get home super late. And then Dan, can we please wake up extra early so I can help you on the East Coast to get your pod in before I start my day?” Yeah, look, I really appreciate you toughing it out. I noticed you made it all the way from your bedroom to the other bedroom in your house. You’ve been up and at it for a while. But no, it is good. You know this is the best part of the week. And even though sometimes when we do have travel challenges and you and I – we always make concessions for one another. And I think that’s what makes this show great, is what we don’t do in most cases is let this show get pushed or not happen. And that’s really easy to do with the pod. By the way, that’s why we’re on Episode 166 is because we freaking show up and do it.

Pat Moorhead: I know. Gosh, dare I say we’re friends. I think we’re friends, Dan, and we kind of help each other out. But yeah, everybody needs a friend to help them out.

Daniel Newman: Don’t tell them. Don’t tell everybody. You know what I mean? Let’s not go public with that. Hey, by the way, I see that… Did we add some talent to the Six Five? Did I see some news drop yesterday? Did something happen this week?

Pat Moorhead: We did.

Daniel Newman: Oh my God.

Pat Moorhead: We welcomed Diana Blass from her production company. Diana, I’ve known her for 15 years. Not only print journalist but also a video journalist, and we’re really excited to have her on the show. We’re going to have her new show called Connected On The Six Five, and also she is going to be a host at Six Five On The Road, Six Five In the Booth, Six Five custom production. So we are super excited to have her on the show.

Daniel Newman: I like to say, here we grow. Here we grow, baby.

Pat Moorhead: I know, I know, I know. Look at that. I love that. We have a good show for you today.

Daniel Newman: Diana, I have to plug it.

Pat Moorhead: No, I appreciate that. I was going to plug it at the end, but-

Daniel Newman: We can plug it again.

Pat Moorhead: …stuck her up front. We have a good show for you today. It is absolutely an earnings palooza. We’re going to be talking Microsoft, Google, Amazon, Intel, T-Mobile earnings, and then we’re going to bolt on Microsoft Activision at the end. I want to remind everybody we are talking publicly traded companies. Don’t take anything what we say as investment advice. If you looked at my portfolio, you certainly wouldn’t do what I indicated.

Daniel Newman: Come on, be nice. Be nice to yourself.

Pat Moorhead: Well, I mean, come on, I got to be a little self-effacing.

Daniel Newman: Everybody, there was growth… Not everybody. Most people took a little bit of a bath over the last 18 months. It’s that you have to just keep doubling and tripling down. Actually, I’m kidding. I’m not giving any strategic advice, I’m just joking.

Pat Moorhead: No, I love that. So hey, let’s dive in and talk about some earnings. So I think the mood on the street was very cautious as I think it should have been. Is there a difference between consumers? Is there a difference between commercial tech? Is there a difference between durables versus services? It’s kind of a very odd thing. So everybody was waiting to see what Microsoft would do with bated breath, and I think they cranked out a very solid fiscal year ’23 Q3. I mean they didn’t blow away, but they exceeded revenue in EPS and the market responded very well.

Everybody wanted to know, hey, what was going to happen with Cloud and Azure? Cloud had some very big, well, respectable numbers at about 25%. And Dan, it isn’t wild how these Cloud numbers are kind of congealing around in the 20s? Azure was down versus prior quarters, but again, not a huge deal. One of the things that I noticed, an overall theme, particularly when I looked at the call, was overall growth was down. I mean, overall you’re looking at 7%. Being down in Windows on the consumer side didn’t help, but what they did do on the call is they did talk 10 times. I counted them myself talking about where Azure… Azure took share. Analytics took share. Biz apps took share. Collaboration, Teams took shares. Security took share across all major categories.

Hiring business, i.e., LinkedIn took share. Daily installs, the Bing mobile app share gains. Edge took share eighth consecutive quarter, the browser. Bing gains share in the United States. Share gains in Azure, Dynamics, Teams, Security, Edge, Bing, and that was discussed not only by Satya but also by Amy Hood. So company is very well diversified between consumer and commercial. They’re definitely tilted toward the commercial side. What everybody really cares about in the end was cloud and a lot of questions about AI and how that was rolling. Not a lot of details on that in terms of numbers, but really making the case for future goodness with AI.

Daniel Newman: Yeah, it’s interesting. If Satya takes a page out of the Jensen Huang playbook at NVIDIA, it just says AI like 100 times on every earnings call, the stocks should start seeing one bit per mention. You get 1% gain for every 100 times you say it. But this was a quarter that was really all about the company’s investment and OpenAI. So you kind of hit on a lot of the numbers. Look, I mean the fall off from surface was to be expected. They were right in the thick of everyone else, around 30% down. And had they done any better than that, it would’ve been a complete surprise. I mean, look at Apple, almost 50% down. So that was the hardest part.

The deceleration of the cloud growth is interesting, but again, this is a compounding number thing as well. Law of large numbers is you can actually be growing more revenue, but at a smaller percent, that’s what happens when you get bigger. And for a lot of companies it’s like it’s some point, and we’ll talk about this when we get to AWS, it’s like, yeah, you’re growing slower, but you’re still growing by billions of dollars in revenue annually. So Azure’s there, and Azure obviously seems to be growing right alongside what we saw the numbers for Google. It just seems that some of the deceleration is more about that large number thing, and some of it is about the fact that we have a little bit of cautiousness among CFOs, among project, among operators are kind of hanging on longer to some other infrastructure, moving workloads more cautiously.

But I think for Microsoft, if I can really summate, this was a quarter about OpenAI. This was a quarter about going all in, making a $10 billion investment and layering their capabilities into every part of the Microsoft portfolio. And so when you saw the bullishness that came out of a good quarter here, I think the bullishness is that people see that they’ve made the right investments into the right areas. And making those investments into the right areas is – it’s going to pay off because the company’s going to win share, they’re going to win a piece of search share. Although I do think Google is going to have a good response and we’ll keep talking about that one. They’re going to win additional value from their portfolio as companies look to streamline investments in human capital and use technology more efficiently, that’s going to be very evident in the productivity suite.

Teams will continue to grow, although there was an interesting debundling this quarter that was announced and it’s going to happen. And then I think the final piece of it is going to be Dynamics. I mean their CRM product is growing really impressively. I think they had mid-double digits 26%, 27% growth of the CRM in the cloud. And so they had a lot of good results across the board. We won’t touch on the CMA here because the CMA, the authority in the UK did block the Activision deal. But we’re going to come back and talk about regulation here later in the show. So yeah, that’s it. That’s my take.

Pat Moorhead: No, it’s a good take Daniel. And let’s move on to another earnings and that’s Amazon and AWS. We like to separate them because businesses are just so different.

Daniel Newman: Well, I think the way it kind of works is Amazon ships massive amounts of revenue then AWS makes all the profit. I think that’s pretty much how this business has been designed, and that’s always been part of the reason that it’ll probably be a challenge for the business to ever get split up when they’ve been in conversations about the possibilities of that happening is there’s so much interdependence between the two. But the first response is better than expected.

Look, Amazon’s had a couple of really tough quarters and a lot of it had to do with this. They made a massive investment in Rivian a few years back and the Rivian stock is down like 90%, and they’ve had to take these huge mark-to-market writedowns of the value of that stock. And while Amazon obviously did make some big investments, not only in Rivian but also in electrification, and I think that was part of the whole narrative, that’s an interesting issue for a company to run into is when a big public company makes an investment in another public company and then they have to actually suffer through the other company’s performance on their own earnings report. It’s not a real common thing to have happen with – it’s such a large magnitude that’s taking you from significant earnings to significant losses.

I think a lot of the street thought revenues were going to be soft and this has a lot more to do with that kind of macro environment. People thought that consumer was down. This looming recession that everybody keeps talking about, I still think it’s out there, Pat. Between you and me, there’s still just a lot of reasons between the high interest rates, there’s kind of rocky banking situation, there’s a lot of cautiousness across the board. But having said that, some of the numbers that came in this quarter just don’t reflect that. It seems like maybe it’s the habits of the pandemic, maybe it’s the fact that Amazon is getting more wallet share and people are just using their services. I don’t know about you, but I feel like I order something from Amazon every day.

I literally can’t think of the last day something hasn’t been dropped on my porch from Amazon. So that’s a good thing for the company. Now, after they announced they had a really strong response, everybody was really excited. Now, when their CFO came on and talked, they did mention a little bit of cautiousness about the AWS growth and I’ll let you dig into that more momentarily, but that kind of killed the buzz. It totally killed the buzz because what we talked about in the beginning, it’s so important to the company’s profitability. On a more positive note, one of the things you and I have talked about over the last few quarters is Amazon as an advertiser hasn’t been discussed a lot, but this quarter Amazon did almost $10 billion in advertising. And that was a lovely expectation there, which it’s been something that we’ve been watching because advertising is both a diversification and another significant profit center.

And as Amazon becomes more of its own ecosystem, the advertising becomes a real growth opportunity for the company. You look at some of the developments. They announce Bedrock this corner, which is going to be Amazon large language model, that’s going to be their ChatGPT. And one of the things, if you look at something like how will AI now affect the searchability and product? Well, Amazon has this really interesting connected ecosystem between its devices, ambient technology and between the commerce. Pretty soon in the home, I can see – because they’ve been doing the conversational AI thing for a while. I mean they’ve had all these devices, all these echos and systems to be training for a long time. So their play in AI is going to be really interesting. And the tie in between AI advertising and the smart home or the intelligent connected home is going to play an interesting role for its long-term growth as it’s going to make shopping even easier and it’s going to make the ability for Amazon to know and predict what people need even more proactive.

So you can see that as another area of the company. So like I said, I’m going to kick over to you to talk about AWS, but the last thing I’ll say is Amazon’s been pretty aggressive with cutting costs. And so part of its path to profitability has been cutting costs. And I think I pointed out in a way where I’m sensitive to companies reducing because there’s a very human, difficult human element to this. But as you’ve seen, whether it’s been Meta, whether it’s been Amazon, the street is looking for companies to trim the fat right now. Companies hire too much. And if you look at from 2020 before the pandemic to now, even with the cuts they’re making, they’re still way bigger. Way more people are working at the companies and I think they hired too fast, too aggressively and we’re starting to see that chip’s getting righted. And while it’s hard to say, I think that that has been part of the recent run-up.

Pat Moorhead: Good stuff, Dan, thanks for leaving me a little bit of oxygen, but with a company like Amazon, there’s a lot of, lot of growing out there. So the AWS revenue growth number wasn’t anything to swing you around the room. It was 15.7%, but I’ll balance that out to it’s honing in on $100 billion in revenue. That’s just absolutely amazing. There was a lot of talk about customers optimizing spend, as you said. Amazon CEO Andy Jassy was really clear that this is cost optimizing versus cost-cutting and they’re taking a long term view, helping customers optimize their spend that he said in the short term could drive declines, but this is a 10-year bet. And the way that he talked about this was reiterating what he talked about on one of his infamous CNBC interviews that there’s 90% of global IT spend is still on-prem, as a-

Daniel Newman: That was a great interview.

Pat Moorhead: I know. It really had ripples too, out there.

Daniel Newman: Yeah, I enjoyed that.

Pat Moorhead: And the other big observation that I had from the call was really leaning in on its own chips for AI, and let me read the quote here. He said, “I think there’s a lot of chips out there, particularly GPUs which are optimized for this type of workload. They’re expensive and they’re scarce and it’s hard to find enough capacity.” And then he went in and talked about Trainium. He talked about, hey, we’re on our second generation of inference chips with Inferentia, and then he went through his whole generative AI play with Bedrock and including his own Titan model.

So I thought it was a good way to play that, because how are you going to play that? You have maybe three options, and I think he just leaned right into that. And that is classic Amazon, which I think investors appreciate. I mean, if you remember how long the company never made any money and they just kept growing and growing and growing. I think they’ve demonstrated that once they get to a certain place they can make money in nearly every market that they get into. They did cut a few retail lines, which, to me, makes sense. It was funny to rattle them off. I had never actually heard of any of them. Like Amazon Fabric, I have no idea what that is. It’s fabric store, I guess. I must not be in the demographic. But all in all I think pretty good, pretty good showing. So Daniel, any final words there?

Daniel Newman: No, no. I guess I would just say if you really want to get a good perspective on the Amazon opportunity, I thought that CNBC exclusive and the interview with Andy and then that whole shareholder letter really gave me some perspective because I’d been kind of wondering if we’d hit the wall. Andy has not necessarily been the same as Jeff in terms of how the world sees Amazon, and I think that was a really good moment for him. So I’d say to people, that’s worth checking out if you’re kind of looking to the future of Amazon.

Pat Moorhead: Yeah, it was a good interview. Let’s dive into Intel. So Intel is an interesting one to discuss. On one hand, it had its biggest loss in the company’s history. On the other hand, it beat both financial analyst expectations. EPS had beat by 72% and it beat on revenue by 5% and it beat its own public forecasts. So it’s really a tale of really glass half full or glass empty. I think your tweet captured it pretty well that you’re going to look at this through one of two lenses. If you want to get all negative on it, it’s pretty easy. I tend to look at it as glass full, and the reason I do that is because the company has been in the midst of a five-year turnaround. It’s about two years in, three years left of what Pat Gelsinger committed. And different types of commitments.

First of all, let’s just get really tactical. There’s a cost reduction commitment that was made 3 billion of cost savings in 2023, $8 to $10 billion annually exiting 2025. So this isn’t a company wantonly spending money, it’s spending money for the future. As we always say that as industry analysts, we track earnings because it is the closest source of truth we’re ever going to get. The downside of saying something it’s not true is it’s steep because you could get sued. So when the company says that it remains on track to regain transistor and power performance leadership by 2025, I tend to give them the benefit of the doubt because the downside of not hitting that is really, really bad.

The company also reiterated they are on track to meet the goal of achieving five nodes in two years. Two of the five are done. Intel 7 is high volume and Intel 4 ramps with CCG’s Meteor Lake, and they’re going to launch it at the second half of this year. And Intel 3 20A and 18 A, the company says that remains on track. That no way, shape, or form, says that the company lacks risk. There is risk. There’s a lot of execution to go. One thing I wasn’t pretty enthused about is that the company did say it took share in client computing, which again, you got to look for some of the bright spots here. I wasn’t expecting it. I don’t think anybody else was expecting it either.

Overall, the company reiterated the macro view, the future view of the big opportunity in the markets outlined the highlights of Q1, which I already rattled off those highlights. And then talked about strategic priorities moving with IDM 2.0 to IFS. So company continues to focus on what they can control. I mean, you really can’t control the market. In some ways, you can’t control your competitors. All you can do is control yourself. So probably the final thing that was a surprise, I think overall everybody is at the networking and data center market is in pretty dire shape.

I saw a financial analyst talk about 30 weeks of CPU inventory out there in this space and that’s pretty crazy. And what we won’t necessarily see, if the cloud providers are much better and more efficient at using their compute, then they don’t need to buy as many chips as they thought that they needed. I mean actually, we have seen a slowdown in public cloud but not even close to the rate and the deceleration that we’ve seen by Intel in this space. I’m really interested to see how AMD does. To check up on that market share thing and then see how the company did in its data center lineup.

Daniel Newman: Yeah. I think you hit a lot of good points there, Pat. I mean first of all, I’m going to be at risk of being the trend guy, but I think the future of Intel success in a lot of ways is going to be its ability to attach to this strong adoption of artificial intelligence. Proving that a lot of AI is still done on the CPU and making sure that it maintains and grows its market in that particular space. Because right now everybody’s talking about GPUs and everybody’s talking about accelerators, but a lot of inference, a lot of machine learning, a lot of utilization of AI within systems of record is still done on a CPU.

And that’s something that I don’t know if Intel’s getting a lot of credit for because like I said, right now I think the market’s kind of… And they call it DCAI and I get it, but they’re actual… I know they’re moving towards having some very specific data center GPUs, but really right now their big AI numbers have always been built into Xeon and into the way Xeon gets deployed for AI workloads. The other thing I think that was a really big sort of moment, this was the bottoming out of the margin. Now if you look back maybe a decade, Intel had margins in the ’60s. Intel’s margin this quarter was 37.5%. So you can see why the market would have some concern about that.

Having said that, you and I had a chance to talk to Pat Gelsinger after earnings and I think we asked the right questions, what’s the optimism? And I mean I think the optimism comes from a place of this really probably was, Pat, the final gulf in this kind of rundown that has been over several quarters and where the company’s strategy being on track to launch their next process, the investments it’s making in five and four IDM, IFS are going to start turning a corner. The growth of AI at the edge, the return to – you mentioned the market share gains in client are starting to be small indicators that we are going to maybe start to see this momentum turn.

And again, as long and as slow as it took to turn downward, it’s sometimes even longer and slower to turn back upward. The company has huge percentages of customers, they have very deep and tied end roots and channels and these channels don’t change quickly either. The way distribution then goes to market is a long slog. Ask anybody who’s tried to enter the PC market just how hard it is to enter this market. The demand for compute, as you said, may be down because compute is more efficient. But you look at the impact of AI and it’s going to need more compute, and we know how much more compute and like I said, it’s not just going to be GPUs.

A lot of these things are parallel computing. You’re going to have GPUs, you’re going to need CPUs, you’re going to need accelerators, you’re going to need NPUs and IPUs and DPUs and all these… And obviously, the disaggregation is leading to lots of different things. Now, Intel’s narrowed its focus. It’s not in as many things as it was before. Hey Pat, one thing we didn’t call out, a bright spot. The lingering investment in Mobileye is paying off very well. Apparently, Mobileye is growing at quite a nice clip, 16% this quarter. So they are still the largest shareholder of Mobileye despite the fact that they spawn that off from a financial standpoint.

And Pat, the last thing I’m going to say is this is Intel’s long-term prospects in my opinion, sit pretty heavily on its ability to execute its IFS strategy. I really do think that you’re going to see multiple compute platforms, x86 but also RISC-V and ARM and others and the CHIPS Act and that whole thing. I know we got tired of talking about it now that there’s not a supply chain issue anymore, but the ability to manufacture leading edge chips here in the US on multiple platforms, who else is going to do it but Intel? If that trend is really going to happen, it’s going to happen here and that’s a big opportunity for the company long-term.

Pat Moorhead: Yeah. TSMC and Samsung want to do it, but I don’t think… I think Intel’s going to be competitive and I think the country flips to local sourcing for super important infrastructure beyond the military.

Daniel Newman: If we actually are going to be people of our word in terms of what we did the CHIPS Act for, having Samsung and TSMC do it would be so ironic to me. Or is it hypocritical? I don’t know. It’d be one of those two things. We do need to have some dependence on a company that we actually have that is domiciled in the USA. Otherwise, why did we go through this whole exercise?

Pat Moorhead: Yeah, the country needs a strong Intel. So US and friends of US-

Daniel Newman: If things go really wrong in China, Pat, so will TSMC will need a strong Intel too.

Pat Moorhead: Good point. TSMC is committed to not putting their leading edge in the United States. So there we have it.

Daniel Newman: Good snarkasm.

Pat Moorhead: Let’s move on. Good snarkasm.

Daniel Newman: Thank you.

Pat Moorhead: Let’s talk about Google/Alphabet earnings. Dan, why don’t you take this one?

Daniel Newman: Oh Pat, I had the chance to go and talk to Caroline Hyde on Bloomberg about this, so I’m fully inundated on this one.

Pat Moorhead: Of course, you did.

Daniel Newman: Yeah, I know. I forgot what else I was going to talk about. I just needed to drop that.
Anyways, Tuesday was a good day, like I said, because the last several quarters have just felt so depressing. It was the first wave where we had good results and everyone was selling because… We just saw the imminent glut and doom and slow down that was going to happen. And then there was the next several quarters where things actually weren’t good and then the numbers weren’t good. And so when you’re doing what we do and you kind of come around and you cover this every quarter, you’re like, “God, I could really use a little bit of a wave of bullishness.” And of course I said this earlier, we still have lots and lots of challenging moments ahead of us, but it’s good to see what’s happened over the last several quarters is you have seen a fairly significant adjustment down. And so we haven’t really talked about that here because we’re just saying, “Hey, they beat, they beat, they beat, they beat.”

But everybody’s beating right now on much more tempered guidance. Remember during the 21 year, it was like, “We’re going to grow 90%.” And then they grow 200%. It’s like, oh, this is great. But that’s not the world we’re in. Over the last few quarters we’ve seen… We’re guiding a little bit more cautiously. I mean, Google grew 3%, or Alphabet, 3%. So that that’s not a huge top line growth, but remember this is top line growth over what was those remarkable quarters after quarters after quarter of really good top line growth in a period where everybody says the world’s probably going to end. Is that good enough for doom saying? Is that we’re at the world is going to end?

Pat Moorhead: Yes, that’s really good.

Daniel Newman: The company beat on top, they beat on the bottom. They came in most of their categories. That YouTube, they were above. Cloud was right about at consensus. And they cut some costs. So their traffic acquisition costs and also just some of their overall operating costs were down. And again, they’ve made cuts too. They’ve been quietly cutting staff and headcounts and slowing down hiring, which again is very, very well-received among the street. People want to see operational excellence and it means you can’t spend too much too fast.

Pat, this was a big quarter for Cloud and again I’m going to save that one for you to talk more about the details but actually showed a profit. Now again, that was a quick turn. There was some accounting in terms of depreciation that they change some of the way they account for depreciation, which does help. But as I always say, when you look at non-gap, the results or what they call adjusted earnings, there’s always lots of interesting things that are happening in there. So I don’t judge because again, you’d have to judge against every company that has an adjusted number and how they get to those people.

Accounting is a tricky field and there’s a lot of areas and different ways to move things around, but this was huge. You were talking about losing hundreds of millions a quarter. And by the way, they’ve been investing in it. So the overall business though is healthy. And Pat, here’s probably what I want to talk about most other than Cloud, because I do want to leave you something to talk about, is how at risk is Google’s business model with the onset of generative AI?

And that’s probably been one of the biggest things on my mind is that when you have a company that had cornered a market in search and it has definitively controlled market share, meaning high double digits into the 90s percent of market in advertising and for every 1% of the search market, they figured it’s around $2 billion of revenue. All of a sudden, you have something like a ChatGPT embedded into Bing and you have seven and a half million people download Bing in a day or in a week or some very short period of time and you go, “Oh my God, is the search market at risk?” Because that’s really the question mark for people who are long or people who are short Google is, is the search model, is this business model sustainable?

And here’s what I’m going to say is that Microsoft got a distinct early mover advantage by being first by going in with OpenAI and deploying it across this product portfolio. But Pat, just like we talk about with chips all the time, we need a healthy competitive ecosystem long-term to make it better for everybody. So the thing is, I do think Google will probably cede a little bit of search market share to what Microsoft is doing. I think Microsoft’s going to be very aggressive. We talked about last week with the Samsung potentially buying access to it being on the Samsung devices and mobile, but I think the kind of early concerns of Google and its search, its business model, and the early concerns of its falling off a cliff are premature.

I think the early concerns that Google will not have an answer to ChatGPT or OpenAI is early, and I think they will become very competitive. I mean, you got to remember this company’s probably spent more money over the last decade on AI than most of the rest of the tech industry combined. And they had Google DeepMind and they have Brain and they now have decided to join forces, put them together. And I think what’ll start to happen is you’ll see innovation accelerate. I mean, I give a ton of kudos to Microsoft for the move they’ve made. They absolutely knocked Google between the eyeballs, put them off balance and forced them to come early to market with a product they really didn’t want to bring to market yet with Bard. And now, Google’s going to embed generative in its search. That’s what’s been come out this week or last week, recently.

And I think once people see that it can kind of do the same thing, all that migration, that early migration that was having people like, “Oh, Google does this too, I’m fine.” So now, Microsoft’s going to have to find a new sort of thing to sort of create buzz and interest. And I mean, I think their thing is going to be the fact that it’s built into so many other tools. That’s going to be an effective way to get people using search right in your productivity or right in your Office suite. But I just don’t see the share moving that quickly. So overall solid quarter, great news on the Cloud, interesting inflection on the AI side, but this is going to be a fun one to watch.

Pat Moorhead: Yeah, there were four parts to the call. First two were updates on what they talked about the previous one, which was AI and then the focus of the company and the efficiencies. Two businesses they highlighted were Cloud and finalized with YouTube. I’m going to focus on the Cloud part. So as you said, for the first time the company made a profit in Cloud. I saw the haters came out and said, “Oh, at AWS, it was 10 times at that revenue level.” That’s fine, but still Cloud made a profit. What I really appreciated was the amount of time that Google does commit. I really appreciated how much time they spent on Google Cloud, and really some great nuggets that came out. So first of all, over the past three years, Google Cloud’s deal volume has grown 500%, large deals over 250 million growing more than 300%.

So the selling motion, rapid expansion since TK has come in there. And then you have to have people to implement and partners, right? Certified practitioner partners increased 15x. Global SI’s been built 13 dedicated practices on Google Cloud compared to zero. I also appreciated them talking about where generative AI is actually in use at customers today. PaLM generative AI model and Vertex are at Behavox for security, Oxbotica to test autonomous vehicles, and a company called Lightricks to develop text to image features. I think that’s important. I think the company actually did a really good job talking through this. It also talked about it has 30,000 cybersecurity companies, including big companies like Broadcom and Europe’s Telepath. And interestingly, and in contrast to how AWS talked about GPUs, it talked a lot about NVIDIA. And it did a little bit of a flex that said they’re the only provider to announce availability of NVIDIA’s new L4 Tensor Core GPU with its G2 VMs.

I thought that was super interesting. Now it did again lead with TPUs, but it followed up with a very strong statement with NVIDIA. NVIDIA, by the way, must absolutely freaking love being cited in somebody’s press release. So all around, I’m really happy with the progress that Google Cloud is making. I’m less hung up about comparisons to other companies, but if you look at the size, I mean it’s slowly becoming one of the largest enterprise provider of software and services out there on the market. And I consider that a win for the company that’s very consumer heavy. Any final comments, Dan?

Daniel Newman: No. You know what? And sorry about the noise, getting ready just to do another shoot here in the background, Pat, but no, I actually was impressed. And like I said, with multi-cloud heating up, I like Google Cloud’s prospects. And again, it’s more about the end. It’s that Andy Jassy comment about the 90% is on-prem. If you believe that only 10% of workloads will ultimately be in the public cloud, which I think there will be more balance. We’re seeing that. But Pat, there’s so much growth opportunity here. And Google has some really nice competitive offerings and so I think in the multi-cloud era, Google’s going to do really, really well. So it’s promising. It was a good quarter.

Pat Moorhead: Yeah. So let’s move off of Cloud and move into T-Mobile earnings. I think T-Mobile does one of the best spreads, the best productions when it comes to earnings. I mean they are the un-carrier, so they are going to do it differently and they’re going to do it quite very differently versus Verizon and AT&T. So overall they beat on EPS by that 16%, a slight miss on revenue. Now they did beat on consensus expectations on postpaid net additions, postpaid net customer additions, high speed internet, EBITDA and adjusted cash flow. So the company company’s doing great. Hey, we have a guest. How about that?

Daniel Newman: Mr. Lotko just wanted to say hi. Broadcom’s head of their mainframe software division. So he is rolling in saying hi and interrupting your flow.

Pat Moorhead: How about that? Hey, we haven’t had a guest pop in since Pat G at Mobile World Congress, but it’s great to see Six Five customers out there. And Dan, it’s too bad that the Six Five isn’t there right now, but we are in spirit. The Five is there. Nice to see-

Daniel Newman: The Six Five will be doing a summit recording here today with Greg. So this is Six Five Summit, which by the way, you better have signed up for. Yeah, it’s going, it’s going, but I’ll let you keep going because I know both running long here.

Pat Moorhead: Yeah, but no, overall, I mean the company did great. The one thing I really would like to see from T-Mobile is, hey, can you talk a little bit about T-Mobile For Business? As we’ve seen with Google, even though Google Cloud is particularly in the beginning was such a small part of their business, Google still talked about them and particularly over the last year. So I would love to know how T-Mobile For Business is doing and right now based on the earnings, we have no idea. I know I like the T-Mobile For Business strategy, I like many of the services that they brought out, but I don’t think it elicits confidence to just not talk about it. Now, I totally understand that the size might be small, but I feel like earnings have really turned into a lot more than just big time company analysts. I mean you have retail investors, you have industry analysts tracking what they did, but quite frankly, they’ve been doing great.

They’ve been trucking the competition. In fact, Mike Sievert came right out and said, call out AT&T for a statement that it made on its earnings call about having the lowest postpaid phone churn in the industry, yet their customers reporting that they’re 50% more likely to switch than Verizon or T-Mobile. Ulf Ewaldsson, the new CTO, also veteran of the Six Five Summit twice, made a little bit of a cameo appearance that I thought was nice. Another thing that they pointed out that, “Hey, we’re T-Mobile, we’re making all of this progress but we’re spending 60% less in advertising than Verizon.” I love the competitive flex here kind of turning up the contrast ratio.

There was one paragraph that I’m going to read verbatim about T-mobile For Business that Mike said. He was talking about churn and net adds. He said, “A perfect example of this. T-mobile For Business, where we just posted one of our highest ever phone net add quarter on Q1 with the lowest business phone churn in our history. We are profitably taking share with more business account net adds and more business phone net adds than Verizon in the quarter.” I love the – Dan, we were talking a little bit about competition related to Google Search and Bing. I mean T-Mobile is the absolute poster child for what happens when you have a lot of really good competition out there, and it can just churn it because they are giving Verizon and AT&T absolute headaches.

Daniel Newman: Yeah, you covered this one really, really well, Pat. So I’ll just add that I think T-Mobile continues to be the disruptor. And what I like about them most is even now that they’ve not really, they’re now the leader. They continue to play disruptor. And I think that’s really kind of a DNA thing. And it started with John Legere. It’s transferred to Mr. Sievert in his leadership role. And I think that’s why the company continues to compete. Some of the growth in things like high speed internet and beyond just phone handsets has been really good.

And I think one of the things that people really, if they are tracking the company, paying attention is that business opportunity. The T-Mobile For Business, you got lots of impact with 5G as it turns from this consumer handset thing to a business productivity connectivity and security tool. T-Mobile’s very well positioned, has a lot of spectrum, has done a good job of building a platform, and now there’s a lot of upside for growth. So I’ll leave that one there. Keep us moving and get us… I think… Are we done? No, we’re not done, are we? We’re not done.

Pat Moorhead: Come on, man. Got one more here. No, let’s go to our final topic.

Daniel Newman: Do I get to talk about this one or just you?

Pat Moorhead: No, no, you can talk about this one. You can kick it off. We’ll both talk about it. The Activision deal was blocked by the UK CMA. Dan, why don’t you take this one?

Daniel Newman: Well, I mean look, where innovation goes to die. See, where innovation goes to be taxed is the European competition with Ms. Vestager. And where innovation and M&A goes to die now seems to be the UK. First it was… Which one was it? NVIDIA got blocked there with ARM. VMware is now getting tied up with Broadcom in the UK at CMA. Another CMA is saying that cloud gaming could be dominated by Microsoft if they were to acquire Activision because of a couple of very respect… I think it’s Call of Duty. Is that the big one?

It’s a little embarrassing. I’m not a gamer. I’m going to admit this, it’s going to be embarrassing, but I’m not a gamer. But I mean look, this is one I just want to talk about is Pat, I don’t get it. I don’t get it. Who else is in gaming? Okay, I mean, I’m just thinking about this. You got Sony. Google has a gaming offering. You’ve got NVIDIA. GeForce has a streaming gaming offering. I mean just like you name off those three and you’re like, that’s at least three massive companies with tons of financial capability to offer gaming. And then you have a whole market of mobile gaming, which has very little to do with this. And one of things is how in the world do you really think this is going to truly block and create a lack of competition in the particular space? Plus, I believe that Microsoft already had come out and made a ton of concessions. It was already starting to, as in part of the process, this make their games available on more devices and make it more accessible. They were trying to get out in front of this one.

To me, it almost feels like right now this is a little bit of a relevance play, like the UK’s relevance after Brexit. What is our role in innovation? And to basically come out and say we’re going to block every deal because it comes across our desk. Now granted, looking back in arrears, Pat, I could have made a case for NVIDIA and Arm to be together based on the chip’s situation. You probably could argue that it probably may be for the best that Arm goes at it alone to make sure that there is… Especially if you see the movement of AI. So maybe they got that right.

But here’s the other problem I have, Pat, is how much are we regulating what might happen versus how much are we regulating what has happened? Because as far as I know, the mandate of our regulators when it comes to these things is not to predict what might happen in the future. What’s possible to happen. Because you could say in any case, every deal could be blocked for that reason about what might happen in the future. You have to look at current situation, market share, competition, consumer harm. And like I said, I never understand this, but it’s always to me is like so Apple can have an app store where they can charge the most significant tax on the planet and make nothing available to anybody without paying that toll. But in a market where there’s at least four or five major competitors that have the opportunity to compete, they’re going to say that this deal…

So I don’t know if I’m as angry or frustrated about the UK blocking this deal as I’m with them blocking all deals. And we talked a lot. You and I have talked to ad nauseam about the Broadcom deal with VMware, but Pat, with open source, public clouds, hybrid offerings, besides the fact that customers might have to make a decision to switch if they don’t like the new owner, if they don’t like the offering, there’s a thousand freaking options to go open source with virtualization and hybrid cloud, multi-cloud offering. So I know I’m kind of pivoting around the gaming thing, Pat, but that’s what it is to me is I can’t understand what are we regulating here? Are we regulating what might happen in the future? To me, that’s the wrong thing. And again, competition committees, here we are focused on the wrong things. I hope it’s for more than relevance, but I really don’t see what blocking this deal does to help the consumer or to increase competition in this particular market space.

Pat Moorhead: Yeah, I mean I’m concerned overall with the state, and I know they’re different between antitrust and IP protection. These are two fundamental things that keep the wheel of innovation going and theoretically were put in there to protect consumers from harm. But a couple trends that disturb me a lot, this shifting from actual consumer harm to theoretical consumer harm. We saw this with Qualcomm. We’re seeing this with Vmware, and we’re seeing this with Adobe Figma. Big is bad, regardless of any other variable. We’re seeing this in the UK, EU, US, and certainly China. And if you’re big, you’re bad. I mean, heck, they’re trying to unwind… The FTC wants to unwind the Instagram acquisition from Facebook, and that’s just laughable.

Again, when you have companies that are wantonly anti-competitive, like Apple, and nothing is happening to them. So the other thing that’s a challenge is the regulators with zero business experience, and I’m seeing this in the US and the UK. And what this does, this leads to misjudgments on what’s really important and what’s not. A great example of this is with Broadcom where there’s this notion that there’s going to be foreclosure on a $500 nick when Broadcom can make $10,000 on a VMware license. That’s dumb. That basically means you don’t really understand business and you don’t really understand tech.

And I think the other one is Adobe Figma, where Adobe and Figma are in completely different markets and people just don’t understand that. They can’t see or understand the separation between the two markets and what the two companies are offering. Just causes a tremendous amount of churn and wasted tax dollars. Adobe is all about creativity and Figma is all about ideation. Very different. You talked about countries using this as a tax, and we saw this with Qualcomm big time, EU, China and Korea. They want their pound of flesh and if they can’t get it through real taxes, they’re going to get it through penalties and fines.

So yeah, I’m concerned. And none of this is good for innovation. None of this is good for lowering costs and venture investments. I’ll leave you one final thing. Why would venture capitalists fund companies that could have a nearly impossible time of getting acquired at the rate that they currently are doing today? Well, they’re not. And just like IP creators aren’t going to be paying or investing in IP if they can’t protect that IP. So antitrust IP, we are in a very sad state of affairs. I’m going to be writing a lot more about the antitrust stuff in the future. So Daniel, looks like you are off to be doing your videos here. It’s great to see you. And I want to thank everybody for tuning in.

Daniel Newman: Yeah, buddy. And hey, if I can just say great call in tying in Figma. Another just crazy, dumb set of… God, I’m so cynical right now. I’m going to get quiet before I start to get riled up. I got some stuff to do today. I got to smile. I got to smile.

Pat Moorhead: I want to thank everybody for tuning in at the Six Five. Don’t forget to sign up for the Six Five Summit, June 6th to June 8th. We’ve got world-class speakers, the most important tech companies talking about the most relevant topics out there that I know you’re going to want to hear about. So thanks for tuning in. Hit that subscribe button if you want to continue talking and hearing the amazing things that we’re talking about. Put all complaints to @danielnewmanUV, and all pats on the back to @PatrickMoorhead. We care about you. We thank you. Have a good morning, afternoon, evening, wherever you are on the planet. Take care.

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.