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:
- Microsoft Earnings
- Qualcomm Runs the Table at Samsung Unpacked 2023
- Google Earnings
- T-Mobile Earnings; 4x CA 5G
- Intel Earnings & Ericsson 18A for IFS
- EU Investigates Adobe-Figma Deal
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 everybody, welcome back to another episode of the Six Five Podcast, Daniel Newman here. It is Friday. It is not Friday morning. It is not Friday morning, actually it’s Saturday for Pat. We’ll get into all that in just a moment, but it’s episode 177. Welcome back everybody, thank you so much for tuning into the show. We appreciate all of you that are watching. Pat, you look like you… You actually look great. I wanted to say something snarky, but this maybe is the best I’ve seen you look in a while. Is it the hat? What’s going on?
Patrick Moorhead: Well, it’s probably the hat and black, but I literally just rolled off a 24-hour door to door trip from Seoul, South Korea. Never quite understood why people had to call out South Korea. I mean, what am I going to do? Be in North Korea? Probably not, but yeah, just rolled in, gosh, an hour ago. So, I’m ready to go, ready to roll, and just for the record audience, I am here when I probably should be sleeping, but I wanted to make sure we did this, because this is still the highlight of my week to be with my bestie, covering the top five topics, six topics. Excuse me, boy, this is the way this show is going to go.
Daniel Newman: First timer?
Patrick Moorhead: Yeah, yeah, something like that.
Daniel Newman: You are going to talk about the five, six, Six Five, five, six, and by the way, everybody, in full transparency, beyond that for Pat, he was going to try to do this show on time this morning, during his layover on the West Coast, but unfortunately the flight didn’t cooperate, so he ended up having to get all the way home, and then I said, “Yeah, sure, why not wait till 5:00 PM in the evening, on a Friday afternoon?” But, when you love your community and you love your listeners, you do whatever, right? I mean, that’s what we do. So, we got a great show today. It is the middle of earnings week, although interestingly enough, the way earnings fell this particular period, it’s not going to be a whole up earnings palooza. It’s going to be a bit more of a split. So, we’ve got six topics today. We’re going to talk about Microsoft earnings, we’re going to talk about Qualcomm running the table at the Samsung Unpacked event, which is where Pat was.
We’re going to talk a little bit about Google or Alphabet’s earnings. We’re going to talk about T-Mobile and some news that they had for carrier aggregation. We’re going to talk about Intel’s surprisingly good earnings, and then we will end on talking about what’s going on with the EU competition, and another deal that is getting held up. If you are a first time viewer of this show or if you’re viewing this show, just remember this show is for information and entertainment purposes only, and while we will be talking about publicly traded companies, please do not take anything that I say as investment advice, but you probably should buy whatever Pat is bullish on.
Patrick Moorhead: You kidding me? You looked at my portfolio versus yours?
Daniel Newman: That’s a joke lawyers, get off the phone.
Patrick Moorhead: All right.
Daniel Newman: By the way, that’s an inside joke for everybody out there, so if you ever hear us say that, we’re not ever going to tell you why. All right buddy, it’s time to get after it. I’m going to call my name. I’m going to call my number. I’m going to go first. Microsoft. All right, Microsoft. Oh, so beat, beat soft guide and the market said no thanks. That’s the short synopsis of what happened. Company was up on earnings, it was up on revenue, had good op inc, up 18%, net inc up 20% companies crushing it, making money, but the guide was a little soft. There seems to be a bit of conservatism coming out of Redmond. Moreover, what really I think drove the number down was its Azure number continues to grow more slowly.
So, their fiscal year 2023, it was a lowest annual growth rate for the company, and then of course for Azure hitting, I think it was 26% in the quarter, seeing its growth number passed up by Google, and we’ll talk about that later and I think people are really selling. So, what’s going on here? Pat, here’s my thought process. AI is the talk track, but people still actually care about real numbers. And so, what’s happening right now is we have the talk track of AI, AI, AI, AI, Co-pilots, AI, Azure, AI devices, AI teams, and the good news is I think the companies got plans on the horizon. This last week, it did a sales service cloud announcement, and in this announcement it really was able to finally articulate a $30 per user for the Co-pilot in their Dynamics app. I think we’re starting to see the biggest customers now, are using the Office Co-pilot, which Pat, I don’t know about you, but I want some of that.
Patrick Moorhead: Oh, I want some of that now.
Daniel Newman: And then, if you start to think about that, across hundreds of millions of Microsoft users, that could become a really important number. The other thing I think that’s going on with AI, is that early lead, that open AI early lead that everyone had seen, it is somewhat dissipated really because one, LLMs are quickly becoming a bit commoditized, so business models are becoming more important than an LLM itself, and we saw that while the Bing numbers got some good early traction, people didn’t leave Google. And so, there was kind of a thought that maybe this would be an exodus from Google, and there wasn’t an exodus there, so what slowed it down? Those are the kind of the three things.
But, here’s my take Pat, kick it back to you. Microsoft has a really good moat by putting these copilot features on top of Dynamics, on top of Teams, on top of Office, on top of the Windows platform, and I think that’s going to add value long term. So, while people in the short term are maybe not seeing enough immediate revenue from AI to be happy, I think long term Microsoft’s just fine. I think a little conservatism and guidance, given there’s a little bit of exuberance around AI and the market isn’t the worst thing. They’re better off coming in light now, taking a little bit of a whacking in the market and beating next quarter, than overestimating and coming in short.
Patrick Moorhead: Yeah, those were good observations. If you remember, I don’t know if it was a couple years ago, maybe it was a hundred episodes ago, there was a lot of this talk about AWS number, and on a percentage basis, and I think Azure is right there. It’s this huge base, it has massive scale and is still growing. When you have a footprint like that, it’s almost impossible that you’re going to be able to crank out these incredible numbers. So, that’s one thing. I mean, 26% and 27% is still pretty crazy for Azure and other cloud services revenue, and yeah, that one point from AI services frosted some people, but again on this just gigantic base of cloud capabilities.
AI revenue probably take a while to show up, but like you said, really glad to see that they’re pricing it into services and putting a price out there, and people might be like, “Well, of course that’s the case.” There are very few people who have put prices against their AI services, quite frankly because they’re not GA, or they’re waiting to see what the competition is going to bring out. Now, we want to talk about percentages, the AI number is doubling for the next quarter, going from 1% to 2%. So, for people who like to look at growth like that, there you go.
Daniel Newman: Pat, you ever seen the thing where they said, “Would you rather have a penny a day and double it for a month?”
Patrick Moorhead: I have.
Daniel Newman: Pick a penny and double up for a month, they’re $10,000 right now and seeing what the difference… What I’m saying is that they keep doubling, that’ll end up being pretty good for them.
Patrick Moorhead: Totally. My final statement is that Amy Hood, the CFO said that AI will be their fastest business to $10 billion. So, again, I think it’s the company contending with its own degrees of success.
Daniel Newman: So, there you have it. Let’s keep moving, Pat. You went all the way across the pond, the other pond, I usually think the pond, I think the UK or England or Europe, you went to the other pond and you were over in South Korea for Samsung Unpacked, and one of your big observations was that Qualcomm had quite a show.
Patrick Moorhead: Yeah, it was pretty incredible. Let me first talk about, I spent the week with Samsung, really got unprecedented access. Met with some of the top line leaders, the leader of the mobile business, T.M. Row, the chief executive officer for North America, which is their largest geo, the leader of Cross Business experiences. It’s one thing to look at a press release, look at a video, it’s another thing to go to the corporate headquarters. First of all, the largest semiconductor company that’s out there, and next to Apple, the largest consumer electronics company. I toured facilities that were deemed previously super secret, and quite frankly, Samsung needed to open up a little bit. You have people invited to Apple spaceship, now you get very manicured. I’ve been to the spaceship before, it’s cool, but it’s very processed. I ate lunch with employees at Samsung HQ and the quality of it really reminded me of a Google, Microsoft type of campus.
Young people, the energy that was there, workout rooms, ping pong tables, resource groups. It was super, super impressive. But, there was a major announcement and Samsung brought out the Galaxy Z Flip five, the Galaxy Z Fold five and the Galaxy Tab S nine series, and they also brought out a Watch six, but the big surprise was that Qualcomm was in the Tab S nine. Now, there’s always rumors you’re seeing of “Oh, on the smartphone they’re going to go back and Samsung’s going to put their own silicon in it,” after this big strategic announcement that Samsung and Qualcomm made about a year ago. But, Qualcomm ran the table with the top two foldable smartphones.
It’s also great to see… Met up with Alex Gaussian who runs the Mobile XR PC and Wearables business there. Also had a good time, I spent some time with Keter Kundap, which we both know runs the PC business. It is fun when you’re 24 hours away and you bump into people that you knew in the US. It was interesting. Again, this is home field advantage for Samsung, this is not a Qualcomm announcement, but when they announced that Snapdragon was going into the tablet, everybody cheered. These weren’t influencers from Qualcomm. These were people who are super excited to get that level of technology in there.
One thing I wanted to point out about the foldables was everybody’s talking about this a hundred million unit for foldables, and again, kind of squishy, is it 2025, ’26, ’27? It likely precipitates or is based a little bit upon Apple getting into it. But, I got to tell you man, these devices, every generation is just getting better, and I can see, not just based on price point, although the price point of the Flip is amazing, the more people using it and all the research that I’ve seen suggested, this is the one thing that Samsung is doing, that is pulling people over, from the Apple ecosystem.
Daniel Newman: Look, this is a little bit exclusive to what I was able to see from afar, but what I can say Pat is, Samsung in Qualcomm is a very, very promising partnership, and while it’s obviously sometimes tough when you’re Samsung to take the L on Exynos and acknowledge it, I think the Snapdragon silicon in their devices make some very, very powerful devices. Now, watching you from afar, I got to admit I was a little jealous. Seeing you play with these new… Getting your hands on some of these new foldables. I have one here, crease is pretty darn fat. See that crease?
Patrick Moorhead: I do. That means you must be using it then.
Daniel Newman: I hear it’s getting better, but I’m really… I still use this 21, still really like it, big fan. So look, sometimes it makes sense. It’s the same thing we saw with Apple, Pat. I mean the iPhones worked better with the Qualcomm soaking in it. It just did, and that was not Samsung, but it was Intel. But at the time, sometimes you got to acknowledge when you’ve got the right partnerships and the right solutions. I think Samsung plus Qualcomm makes a really good marriage. I won’t lie though, I am glad I didn’t go. I’m not upset to not be jet-lagged, I’m not upset to have spent my time here, gallivanting around New York and seeing my giant melon on TV, talking about Google earnings. So, let’s go ahead and-
Patrick Moorhead: I mean, the victory laps, I felt like I was there with you.
Daniel Newman: Well, that’s my goal. No, it’s good. The victory lap is good. I like the victory lap and you may have been on on every single network that exists and that is relevant.
Patrick Moorhead: Let’s talk about Google earnings.
Daniel Newman: That’s kind of the odd thing though, is I may have been on all of them and there aren’t that many of them anymore.
Patrick Moorhead: There aren’t, and that is one of the reasons that I believe that our show is popular because where else can you get tech analysis six topics, five to ten minutes each, Dan? Where?
Daniel Newman: Do you think we should change to Six Five Ten?
Patrick Moorhead: Maybe. I mean, I’m sure that would probably increase our viewership.
Daniel Newman: Well, I mean we’re already expanding. I mean, have you seen our new show, Connected that’s done by Diana Blass? It’s terrific. You should check out the episode on AI regulation recently. That was good stuff. If you haven’t checked it out, definitely be sure to check it out. So, let’s talk about Google, which is different than Microsoft. People were absolutely thrilled with how Google did, and here’s the funny thing is Google only grew single digit percent too. They beat on top, they beat on bottom. And guess who doesn’t provide guidance? But, what happened? Look, the long and short is that I talked about this in Microsoft. There’s been a bit of a concern with Google’s sort of false start on AI, that maybe this was going to come back to bite, it didn’t. That’s the truth. Whether it’s Palm, whether it’s Barred, whether it’s the work of DeepMinded Brain, whether it’s search generated experiences that they’re calling SGE inside of their traditional search, Google seems to have found a way to wrap itself around the search industry and keep it “search.”
Google also are proving to be the absolute above the fold item, meaning as it pertains to search, Google no matter what happens to market, no matter what happens to ads, you saw Snap got absolutely whacked this week, terrible. Snap sucks by the way. I still do not like… Other than faces that are like this, I really have no idea why anybody uses it. Again, my kids will explain it to me and I’ll just make a face like this. So, the end of the exercise though, is Google has shown its robustness. The second thing is Pat, Cloud is growing. So Google cut it 8 billion this quarter, so you’re starting to see this. This is ramping, but Google cloud’s going to be, it’s a 32 billion annual pace. They’re growing very quickly, and remember this quarter Microsoft put out some numbers to talk about its business and it’s about 110 million in its whole 110 billion in its overall cloud, and about 50% of it they said is Azure.
They gave some round numbers, for the first time ever. So, that Gulf that everybody’s been wondering about, how big is the Gulf between Azure, AWS, Google, it’s becoming a bit more apparent, but Google grew a couple percentage points higher than Microsoft, and as Bloomberg so profoundly called the header of my segment, yes, technically speaking, if you grow faster than another company in the same category, you’re taking market share. I think that’s a technicality and I hope people can kind of wrap their head around what I’m saying there.
Patrick Moorhead: Well, by the way, I don’t even know if that’s accurate or not because in a growing market, you can grow on a percentage basis without taking market share from somebody.
Daniel Newman: It’s possible, except if it’s the exact same stuff, it’s not possible.
Patrick Moorhead: Boy, well I’m going to crank up a spreadsheet right afterwards.
Daniel Newman: You know what? The problem is if you’re only talking about two players, so the second, now that you’ve added a third player, all this growth, it could technically be Microsoft. The technical headline is that Microsoft and Google, if Amazon’s growing slower than them, are taking share from Amazon.
Patrick Moorhead: Well, let me give you a simple example. If the market doubled, and that’s just for raw numbers, simple numbers, if the market size doubled, you could increase that. Anyways-
Daniel Newman: It’s an interesting thesis. It’d be fun to sit down and try to spreadsheet it out, but I think in the end is, you always want to be the company with the highest growth rate. If you are the one with the highest growth rate over time, typically you’ll be taking overall market share, but not necessarily share from another specific company. So anyways, it’s an interesting thing, but yes, they’re growing there, but their revenue’s growing, their profit is growing, the company just makes money like crazy. It’s like 20% net income on their revenue and it’s just a wildly successful business.
Pat, their AI strategy though, in the cloud, also pretty robust. The generative AI app builders, the Vertex Solution, these are definitely driving customers to Google and that whole strategy path, this is a really interesting question that I have about Google kind of going forward is, with multi-cloud fabric, but Gen AI and potentially being built in one place, there is a potential where people could leave lots and lots of infrastructure running in AWS, but could choose Google to do their Gen AI, or vice versa. You see what I’m saying? Gen AI becomes its own sort of category, AI and Gen AI, but specifically these app building is where tools you use to build the app and then where you see the data and then how you build the fabric, the multi-cloud becomes more compelling and the winner takes all, becomes less and less probable, in this whole thing, and it’s getting very, very interesting.
On the other hand, Pat, just the straightforward stuff, company saw YouTube grow and beat as well. So. Ads beat YouTube, beat Google, beat Cloud, made money for the second quarter, a row in a row, and I didn’t get into it yet to see if there’s any funny accounting stuff, but it seems pretty straightforward. Thomas Kurian and team strategy is working, and the company as a whole, seems to be moving in the right direction. Now, Ruth Porat, their CFO took a new role this quarter. She’s going to be moving into the president and chief innovation officer for the company, so big transition, but not one that you and I particularly… Well, now Ruth will be much more interesting than when she was CFO. So, it’ll be interesting to see what she’ll do in that new role.
Patrick Moorhead: You done?
Daniel Newman: No, keep going.
Patrick Moorhead: Okay. So, I think Daniel, Google has done very well in its first, I would say the last five years with analytics data and AI. It’s funny, I do a bunch of case studies and I don’t talk to a hundred people in IT every week, like other industry analysts proclaim, but I do talk to a lot of them, and invariably, everybody’s multi-Cloud already, it’s just that it’s a pain in the butt to do it, but they’re using Google for AI, and they’re using AWS for something else or maybe their primary is Azure. So, it is possible that Google could get their unfair share of this.
Now, the reality, and this is just the data and Google hasn’t said this isn’t true, is that AWS runs more AI workloads than anybody out there, and I think that has a lot to do with the competitiveness of their IAS, but it could be all bets off here, with Bedrock versus Vertex versus Azure AI, and that’s what I think is getting everybody so frothy about this. Again, I would like to see higher numbers from Google, just because it is on a small base, but I mean if you look at $8 billion, that number is gigantic now. They continue to narrow the losses, which is great, and here’s one thing that not a lot of people were talking about, and maybe because it comes as a definition, that 70% of generative AI unicorns are Google Cloud customers. I think that again, what’s a unicorn? A billion dollar valuation on a startup, probably a lot of the stuff that you’ve been tweeting lately and putting on LinkedIn, Daniel, which is a cornucopia of “Hey, look at these 20 tools you can use,” it’s probably customers like that. And then, there are some large customers as well.
Just like I’m excited about Microsoft 365 and pressing a button on my PowerPoint and having it create a word and vice versa, I’m a subscriber to Google Workspace. In fact, my entire backend of my company is Workspace, so I’m looking forward to that coming out. I haven’t seen pricing on that. I hope that they bring it out shortly. But, in the end, Dan, whether it’s Google, whether it’s AWS, whether it’s Azure competition is good, I am going to be monitoring the can the smaller companies make money on this. Now, I do know we’re seeing with these unicorns, these are smaller companies and they are being enabled, but it’s important for a healthy ecosystem and for innovation and cost, that we have even more competition than we have now. I am really enthused about these open models, these open source models that people can pull off the shelf and apply their own proprietary data to, that is going to be a game changer for businesses, and we haven’t even scratched the surface.
It was funny, I made a post a couple weeks ago about me not using generative AI tools as much as I used to, and some people took that as, “Okay, Pat, you’re poo pooing this technology or don’t get it.” It’s like, no, you don’t understand, the enterprise SaaS stuff, which is my company that I personally use, it’s not ready yet. It’s at best, in preview and there is nothing in GA, except for… Actually, Salesforce and a lot of their tools did go, but I use the Microsoft tools and my company more these days.
Daniel Newman: Yeah, I think we’re going to start to see this stuff become more generally available. But, there’s some time, and I’ve actually said the same thing, I used a lot of this stuff enthusiastically. I think people on our team are using it a lot. Things like excerpts for blogs, meta descriptions, picking up keywords is a great way to do it. Synthesizing transcripts into abstracts, that can work pretty well. But, I’m more enthused about when I can easily access my enterprise data and have it tell me something meaningful, using a large language model? Because it’s like what I said last week, Pat, what’s old is new. It’s basically become a way to synthesize search and give a good abstract. But, I’ve gotten pretty proficient at search, so I’m not actually sure it’s faster for me, most of the time. So, all right, let’s get to a kind of a couple double topic-ers. Let’s talk T-Mobile had earnings but also made a pretty big four carrier aggregation announcement around 5G, Pat.
Patrick Moorhead: Yeah, so let’s start with earnings. I don’t know how the analysts get this so wrong, but they crushed earnings by 18% and they keep crushing it by double digits almost every quarter, but they narrowly missed on revenue, which has happened the past four quarters. But, when you crush it by 18% and deliver two bucks a share on some massive revenue of 19.2 billion, you’re doing something right? And what is T-Mobile doing? T-Mobile absolutely took the biggest risk I’ve seen any carrier take and actually succeed, and a lot of big carrier risks that have failed, just look AT&T and Verizon right now, with some of the media acquisitions of divestitures. But, T-Mobile CEO, Mike Seaver, really boiled it down to three things. A, customers are coming to us more, that means they’re taking share, they’re taking people. Once they get us, they’re staying with us and that’s code for churn, and they’re buying up our rate card voluntarily.
By the way, two things in that. First of all, it means that they’re buying more services once they get in. So, let’s say you have smartphone coverage, and then you give it to the entire family or you go with FWA and use it as your primary internet for your house. Now, the funny part he said was, voluntarily. I just love the competitive stuff that… Now, Mike didn’t specifically say this, but AT&T and Verizon are kind of known for… I mean, look at the Verizon price increase, that came on legacy accounts that weren’t ever allowed to change. It’s a perfect example of this. So, we do a lot of B2B stuff and I’m going to hone in on the B2B stuff. There’s a ton of B2C stuff, but it’s really glad to see T-Mobile for business come out 179,000 post paid phone net ads for the business, with less than 1% churn. That’s obscenely high on the post page and obscenely low on the churn. You have to love it.
And then, the company for being this B2C company that’s kind of like Google Cloud, really trying to lean into the business side, and they spent a ton of time on the call talking about this. They talked about they want a huge… The largest global asset management firm, not going to use the name, another leading global bank. Two big wins with the EPA and the IRS. Hopefully, they don’t do too well in the IRS, and they talked about first responders and the benefits that 5G in rural areas delivers, versus LTE out there. They talked about retail, as a vertical, and they have some really interesting Web 4.0 solutions out there, where they actually sign up as the general contractor, they pull in a bunch of partners to deliver these solutions.
They’ve talked about retail with a fixed 5G, not having to do a truck roll, they talked about healthcare, where they were talking about indoor and outdoor ubiquitous connectivity. They talk about education, large campuses getting 5G to the farthest room across campus, and they talk about federal use cases. Which by the way, this is when you know are starting to… When you have arrived as a credible provider, when you can sign up the Department of Defense as a customer. Think about this. Five years ago, Dan, before T-Mobile came out with, again, these just the facts, the best 5G network out there, they bought Sprint to get that mid-band, that they’d be cranking out business customers. It’s hard to do because anytime you’re trying to optimize… I mean, Apple has a hard time in business, compared to consumer.
Now, a lot of people bring iPhones in, but people using iPhones for hardcore business use, it’s been hard for them because of lack of customization, the devices explode when you drop them on the ground, and stuff like that. So, imagine having such a strong and enticing consumer brand, like T-Mobile, and trying to make it fit into B2B. One historical example, who did this great thing was Sun Microsystems, when every box was black, every box was boring, Scott McNeely came out with basically purple boxes that he dumbo-dropped in data centers all over the place. But, T-Mobile’s on a roll, 20% earnings, 18% earnings beat.
Daniel Newman: Well, Mike Seaver said to our friend, Brian Sozzi, and I was just kind of reading up some of his comments right now on Yahoo Finance. He said, “Why are they so successful?” He said, “Three reasons,” which I loved it because it was so basic. But, he said, “Customers are coming to us more, they’re staying with us more, and they’re buying up the rate card voluntarily,” which basically means T-Mobile’s become… Do you remember when it was kind of like you would be on T-mobile and people would be like, “Why are you on…” It was AT&T and Verizon were the brands, right? At least here in the US. And so, that was first and foremost.
It used to be a weird thing to be part of T-Mobile. It was a weird thing, it was almost like being on Boost Mobile. It was just like, who does that? T-Mobile is absolutely considered now a premium product. So, they did a great job from being the un-carrier to now being really genuinely seen as the carrier. Second of all, Pat, I will just tell you, I say this all the time, their global presence is awesome. So, the fact that… I never even think about, will my phone work? Did you have to think about that at all, when you were in Korea?
Patrick Moorhead: No. The roaming plans that I’m on just automatically get up and they’re not onerous like they used to be, 20 years ago. I think I ran a $3,000 phone bill up. I was in Germany once, and yeah, it was crazy.
Daniel Newman: Don’t even think about it. And then, so basically, you got those couple of factors, you’ve got strong 5G, you talked about the carrier aggregation, but the fact of the matter is that they’ve basically made 5G more pervasive. Now, you and I can have a bit of a debate on 5G and how much or how little 5G has been able to succeed in meeting the promise that it’s made to the market. You and I have talked to a lot of the big infrastructure companies, we talked to the carriers, but in terms of making 5G widely available and connected and having high throughput bandwidth conversations, at least in my experiences, other than this one street down my block, T-Mobile really has done a good job.
So, are there some things that they need to work on? Yes. Amazingly, Pat, the phone companies are still the freaking phone companies. I know they’re kind of tech companies, but the service, there’s always a little bit more to want for, but I think T-Mobile’s done a good job and I think you hit on a lot of the reasons. I think they’re doing a lot of the right things, and Pat, for whatever reason, they just can’t figure out how to predict their revenue.
Patrick Moorhead: Yeah. Hey, can I boomerang on the… I didn’t talk about carrier regulation.
Daniel Newman: Yeah, you did.
Patrick Moorhead: I actually didn’t.
Daniel Newman: No, I know, I’m absolutely humiliated. I’ve now repeated you and I’ve given you credit for saying something that you didn’t even talk about, on this one. This is the difference, by the way, everybody, and us podcasting late in the day, I’m about 10, 11 hours of calls into my day and Pat is 12 hours of jet lag into his day. I’m being sincere, like I’m hearing things or I’ve imagined it in my mind. So yes, let’s boomerang back. Talk a little bit about the four carrier aggregation.
Patrick Moorhead: There’s a lot of different ways you can get performance out of a network. You can choose a certain frequency, you can jam up the frequency. The highest level of 5G is closer to wifi and spectrum, than it is to actually standard cell frequencies. The other way is that you take essentially 2, 3, 4 signals at the same time and you aggregate that performance. It really is a cool magic trick. That was the biggest way that, in the last five years of 4G LTE, that they got performance out of it, right? If you remember, LTE, I think at its peak was I think one gigabit per second. Now, one of the challenges with aggregating channels on 5G, has been the lack of spectrum, because you can’t just kind of show up and willy-nilly, turn off spectrum for 4G, and then move it to 5G.
But, and this is a first in the US for T-Mobile, they are aggregating four channels on and driving up to three gigabits per second. Now, does that mean that you can go and do a speed test right next to this and get three gig? Well, maybe, right? Particularly, if you’re testing and nobody else is on it, but there is an element of shared capability on it. But again, best 5G network when they came out, and if you have four carrier aggregation and you’re pushing the performance of the mid-band and low bands, I’m wondering of the incremental value, other than interconnectivity, of the highest level, highest performance 5G. So, hats off, as AT&T is buying and selling media companies and getting into just a total mess, as Verizon is trying to revive media properties that were irrelevant, T-Mobile just keeps rolling out this network.
Daniel Newman: Yeah, talk about keeping your eye on the ball. I know this guy that always says I do two things really well. I swear sometimes he’s taunting me when he does this, I swear. But, I digress. Let’s kick it over to Intel. Look, this was one, I think we were all kind of holding our breath and plugging our noses, and not quite sure what to expect. It had been a couple of really tough quarters. You and I had the chance to talk to Pat Gelsinger, ask him some questions. I’ve shared my sentiments on Twitter, you can see those in the show notes. I won’t repeat it because I’ll probably get it wrong given the time of day. So, the long and short, much, much, much improved performance this quarter. After some to consecutive quarters of losses, the company actually got back to profit, not by a lot, it was 13 cents adjusted against 3 cents expected, and they beat on revenue at 12.9, versus 12.13.
Before anyone calls me out on this, because I’ve already had to have this debate on Twitter and on LinkedIn and everywhere else I posted, yes, there were some things done on the adjusted side to EBITDA that made the number bigger. Every company does that though, so if you’re going to go after Intel, you do really need to start scrutinizing every adjusted earnings report the same way, because they had some things written down. There’s some things done with depreciation, there’s some things where they change amortization. People, companies do this to hit their numbers. Numbers are not always hit on the top end, they’re sometimes hit on the bottom, on the back and the corner and adjusted EBITDA is one of the biggest gifts to CFOs on the planet, because it gives a lot of flexibility for how revenue is recognized, when it’s billed, where it’s invoiced.
Now we’re going to start making judgments about people because people are packing the channels at the end of quarters, or Apple shipping lots of units into their stores to hit certain numbers. I digress, but I just felt that was good to say, because I had a bunch of people come after me for claiming this was a better quarter. In every way, this was a better quarter. Now, let’s be fair, still down year over year, but that was also expected. We’re in the middle of what’s still considered to be a pretty strong gully for devices. They showed some robustness and I believe, Pat, can you nod for me if I’m right? That they actually said they reclaimed some share in notebooks, and that’s after it’s been quite a run of seating share, so that should be seen as a positive thing. Server numbers are still pretty tough, but the company has seen a really, really significant uptick in its book and its opportunities around Gaudi and around its AI accelerators, which by the way, had they not said that, I’d be very concerned right now.
The company has also seen one of the best quarters it had seen in quite a long time for its foundry business. I need to spend a little more time on that, to figure out exactly what’s driving. But, in our conversation with Pat, he did talk about shortening time to time cycles to revenue with packaging, as well as, probably the biggest thing of note, at least for me, Pat, was he was very confident in reiterating the five and four. Now, given the operational woes that the company has had, over the past several years, is there a more important thing for Intel than getting the five and four done and getting it done as close to on schedule as possible, while preserving market share, preserving customers, while preserving reputation? And, of course, margin.
That’s the fourth thing, and that’s probably one of the biggest no-nos on Intel’s overall number, its margin has eroded immensely. Wasn’t it in the fifties, about six to eight quarters ago, and now it’s sitting in the high thirties. So, that margin erosion has definitely worked against the company. But Pat, this was the first time on earnings that I actually saw the stock move meaningfully. It was up a few dollars and it seemed that this might have broken the log jam. So, my prediction, as I turn it over to you is, this last quarter was the bottom, this is the start of a slow but encouraging turnaround for the company.
Patrick Moorhead: Yeah, it was really awesome talking to Pat Gelsinger for a few minutes. It was 5:00 AM in Seoul, and yeah, it seems like it was a week ago, but it was maybe a day and a half ago. So, I think it’s important. So, first of all, I think two things are important. I think it’s important for people to understand the continuum of AI. Listen, the frothy PCI express cards for training and systems are frothy, as frothy, as crazy, nutty, and everybody likes to talk about NVIDIA. The reality is that AI is a workload and it’s spread across everything, from PCs to the carrier edge, to the data center, to the hyperscaler cloud and everything in between. Just by the way, we have machine learning today in a $5 SOC or in an FPGA, that you get a year’s battery life out of, it’s a continuum.
Although it’s not as simple to look at Intel and say, “Oh, the number of PCI express cards,” they’re not GA on their GPU based card yet. They are with Havana and they are set up with AWS, and I am intrigued about some of the judo moves that the company is making out there. The other thing, and we don’t talk about this, is still today more AI workloads are inferred on CPUs than they are on GPUs or accelerators. But, I know it’s not as sexy, so people don’t talk about it. But, I do believe that Intel will absolutely and is actively participating in this lift of AI. Every one of the latest DGX systems from NVIDIA comes with the latest SOC Sapphire Rapids from Intel. So, I think that it’s important for people to look at this holistically, even though it’s not as simple or as frothy.
Here’s the other thing, when you’re a company in Intel’s position, that has had a pretty severe degradation of financials and had years of problems getting their FAB’s act together, it’s sometimes easy to forget about all the pluses that are going on. By the way, the first time I ever talked to Pat G., when he came back and he was talking about five nodes in four years, I put that as the most important thing the company can do. People were like, “You’re crazy. It’s about the design,” and the design is important, but if you can’t actually get the design and manufacture it effectively and on time, you’re going to lose. At a minimum, if you have an amazing process, you can fab anybody’s product.
Ironically so, prior to CEO prior BK, that was his mantra that said, “We don’t always have to have the best designs. You’re going to have to fab everything in our FABs. Well, he took a two-year lead and turned into a three-year catch up, and Pat and company are cleaning up the mess right now. But, it’s easy when you get in this position to shield it from the great stuff that is going on. Sapphire Rapids took a long time to get out, it’s one of the most sophisticated chips that I’ve seen in a long time, primarily given all the accelerators. Oh, and by the way, it was the first chip based architecture that Intel did, now we’re going into heavy duty Meteor Lake.
Daniel Newman: Oh, all right. So, maybe a little audio there, but you know what, if you didn’t hear it, Pat basically reiterated that he’s right, he’s smart, and that’s consistent. In all joking though, look, you called the shot. You got the shot, right, and that deserves some attention. But, the other thing is the company does, and I like that you called out the accelerators on the CPU Pat, because people keep forgetting that, and Pat did reiterate that to us. It’s not all about AI on the GPU. There’s a lot of acceleration that’s going to be done not on GPUs. There’s going to be a lot of things done on ASICs, a lot of things gone on.
Patrick Moorhead: Yeah, what’s the accelerator inside of an A 100? It’s a tensor core. A tensor core is an ASIC, right? So, it’s kind of funny, and even in their GPUs, they do the same thing. One thing we didn’t talk about was the win. The Ericsson 18 Angstrom win, for IFS. Here’s another thing I called, it hasn’t come true yet, but I believe that once IFS shows that it can deliver bleeding edge and leading edge, the US is going to move from military, has to be done in the United States, which is called the RAMP program, right now it’s RAMP-C, to all of critical infrastructure, which China did 20 years ago to US tech manufacturers. Ericsson, right? World leader in carrier equipment, signed up for 18 Angstrom to do ASICs and SOCs there. So, big win. Nobody’s talking about it. Big deal.
Daniel Newman: Well, it’s not sensational enough maybe, perhaps, I don’t know. But yeah, credit is, credit due, off we go. Hey, speaking of RAMP-C and regulations and policies and governments and different programs, is it a Six Five anymore if we don’t talk a little antitrust?
Patrick Moorhead: It’s not Dan, it’s not at all.
Daniel Newman: Let’s talk some antitrust.
Patrick Moorhead: Let’s talk some antitrust. So, in the background of Microsoft, Activision, VMware, Broadcom, FTC chasing Meta for buying a small XR company, Amazon trying to buy a vacuum cleaner company, Roomba, that’s my favorite, by the way. Oh my gosh. Anti-
Daniel Newman: What would we ever do if we can’t all have a robotic vacuum?
Patrick Moorhead: I know. You can imagine what Amazon could do with that. It could possibly make the vacuum walk down or fly to the distribution center, get my stuff and fly back and stick it in my refrigerator and in my drawers. By the way, that’d be cool.
Daniel Newman: What if they cured some diseases by purifying, getting dirt and dust and grime? I mean, it could be the virus killer.
Patrick Moorhead: Anyways, that is the backdrop of the craziness that we’re looking into. By the way, Apple having a monopoly over its app store, I get, amongst others. But hey, on the heels of the UK saying it’s going to investigate the Adobe Figma deal, the EU has kicked off its investigation, which again, not surprised, and I can see based on confusion of what Adobe does with Figma. There’s this notion, a couple odd notions out there, Dan, that I kind of want to peel apart, and that is that Adobe and Figma are in the same business. So, how many people are editing their videos and photos with Figma? Hmm, absolutely zero. Okay. Adobe had a very unsuccessful cloud-based sharing tool that it’s already said, hey, it would get rid of if this deal went through. But, they’re not even the same products.
Are they used by creators? Yes. Are they the same products? Absolutely, freaking not. There’s this other argument that says, well, if Adobe tried hard enough, it would be able to create what Figma does. Well, guess what? They tried and it failed, and their CEO is on the record saying exactly that, this did not work. We could not do this. There’s this other argument that Figma could do what Adobe does. Folks, I mean creative professionals out there, could you not use Adobe and just use Figma to do what you do or vice versa? Absolutely not. After 20 plus years of Adobe creating their products, Figma is not going to magically replace that.
So again, I don’t understand it. I think we’re into a kind of crazy land here, with regulation. I believe that it’s primarily A, based on regulators who don’t understand business and how they operate. B, people who view success with being a bad guy, that’s the other one, and the third one is, “Hey, we don’t have tech companies in my region, so I’m going to come after you and basically make penalties attacks for you, so I at least see some of the money.” China loves to do that, by the way, and there are some people who speculate that the EU issues these fines as a revenue generator. That’s it. That’s all I got, buddy.
Daniel Newman: Yeah. Can I just say no, this is a speed bump hurdle tax? So, the UK is probably just following the lead after a less than successful breakup from the EU. The UK is now going to need to find a new revenue generation stream, which is going to be what? Competitive taxation on deal flow? Not sure if that’ll be the case, but what I can say somewhat confidently is, software that enables people to collaborate on design and stuff seems to me like a fairly general category that can be done in many different ways, and you could argue that there’s many different tools, whether that’s using Teams and sharing AutoCAD in Teams. Yes, I do understand the ability to do some very specific kinds of design work inside of Figma, but my point is, it just doesn’t feel to me like there’s enough of a market and there’s enough risk and enough price power control and experience damage, that can be done, through a deal like this.
I think it’s just the size, Pat. I think it’s just the size. I think anytime it gets over, what about $10 billion in any sort of deal, there’s just a demand and an interest. Competition committees need to exist. They need to justify and validate their existence, which means they need to investigate things. Pat, you and I both shared something this week about the Amazon breakup. It just feels to me like it’s a hammer and a nail, and the nail is any deal over 10 billion, and the hammer is every competition authority on the planet right now. Look, I, and you know, am as much for regulatory when it’s something that truly limits competition or creates pricing monopolies, but I just don’t see how A, you couldn’t, even with just a few concessions, some sort of pricing concessions for a short period of time. I mean, there’s just a lot of ways to solve this, without trying to kill it.
Patrick Moorhead:Yeah, it’s Broadcom, we saw the concessions that were made for Marvell and Intel and NVIDIA, and stuff like that, and it gets made. I think that there was some talk, I think it was in Bloomberg, about the concessions were rejected, and from an Adobe point of view, it’s like that would just be dumb, right? Why concede to something that makes absolute sense, that could limit your growth, for years to come?
Daniel Newman: Yeah, absolutely. So anyways, I feel like this is going to happen, and there probably will be something in the US, as well. While I genuinely believe this deal should go through, and this is not one that a lot of time should be spent on, there’ll be some time spent on it.
Patrick Moorhead: Yeah, maybe we should hit the Amazon breakup next time.
Daniel Newman: Yeah, let’s do it next time. Let’s do it next time. We’ve done the six 10 again. It’s actually the six 11, but that’s what we do, buddy. So look, I appreciate your commitment to this community, and I think that you are coming back from a transcontinental trip from Korea, even leaving on one day, coming back on a different day… No, actually you left on one day, came back the same day, basically got home at the same time, and had to do the day all over again. This is how you do it. You’re doing-
Patrick Moorhead: That’s how we roll, baby.
Daniel Newman: You’re working eight-day weeks. I knew you were cheating. Anyway, all right. Look everybody, I appreciate you, Pat. Good show.
Patrick Moorhead: Good to be back. Sorry about the microphone issues. It was a professional microphone. That’s part of the problem.
Daniel Newman: I have no idea what it was. A little echo here, a little echo there. We’ll clean it up in post. I don’t know if we will.
Patrick Moorhead: I’ve got a lot of travel coming up. I’m going to be hitting the road on Sunday. How about you?
Daniel Newman: Tuesday morning I’ll be heading to Silicon Valley. I’ll be seeing about 75 companies in two days.
Patrick Moorhead: That’s good.
Daniel Newman: I plan to survive five more years, and then Pat, I’ll hand you over the keys, in the Futurum group, and you’d just be a good steward, okay?
Patrick Moorhead: I appreciate that. We’ll do the handoff, we’ll do the virtual high five. I’m going to be in Seattle next week, not meeting with 50 different companies, but only four. So, I’m looking forward to it.
Daniel Newman: Look, how many hours are there in a day? I’ll do as many as I possibly can. 60 hours a day. As my daughter always says to me, “Dad, I’m doing it 25/8.” Well, maybe you and I are like 30/12. All right everybody, there you got it. Thank you so much for tuning into the show, we appreciate you very much. Hit that subscribe button, join us for all of our episodes. If the audio wasn’t great today, blame Pat. If you love the show though, send the comments my way. For this week, for the Six Five, time to say goodbye to Pat and his crappy microphone. We’ll see y’all later. Bye-bye now.