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:
- Amazon/AWS Earnings
- Apple Earnings
- Qualcomm Earnings
- AMD Earnings
- Zoom Perspectives 2023
- Lattice Earnings
For a deeper dive into each topic, please click on the links above.
Watch the episode here:
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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.
Patrick Moorhead: Hi, this is Patrick Moorhead. We’re back for the weekly Six Five Podcast. I’m here with my co-host, the hostess with the mostess, Daniel Newman, founder, CEO of The Futurum Group. And this is it. We’re going to do earnings, a lot of earnings, an earnings palooza.
Daniel Newman: 83% earnings, 83%.
Patrick Moorhead: It is. And it’s great to be here, because this is my favorite time of the week, my favorite hour. Please don’t take any offense, everybody else I spend time with during the week, but this is just a magical time. We riff about companies, we talk about big product announcements, talk about how we have been traveling all over the place. And quite frankly, yesterday was the first day back in the office I think in 12 days for me. Dan, have you been traveling a little bit?
Daniel Newman: Look, I have two major stresses in my life, that’s traveling and being at home, and those are the only states I live in. I’m either traveling or I’m at home. But what I mean by that, I mean being out on the road, I saw 14 of our customers in the Silicon Valley this week. I had a great chance getting face time, going Uber to Uber, going up and down Santa Clarita to Palo Alto, to San Francisco, to Palo Alto, to Santa Clara. But at the same time, I miss home. But then when I get home, I’m like, Pat, I got to get back on the road. I got to go see some customers. I don’t know, what did you call it when we were talking, a hamster wheel? It is-
Patrick Moorhead: Exactly, it is the hamster wheel, and we’re on it. Hey, if you’re new to The Six Five Podcast, I need to ask what’s wrong with you? But hey, if you truly are new, it’s your first time, we cover six topics, five to 10 minutes each. Not a whole lot of news, just enough to give context. It’s all about our informed opinions. We’ve got a great show you-
Daniel Newman: Informed, informed.
Patrick Moorhead: Sorry?
Daniel Newman: Informed is the key word, Pat.
Patrick Moorhead: That’s right, informed. Everybody has opinions, informed opinions, and also those from the wealth of experience out there in the workforce. But hey, we have a great show for you today. We’re talking Amazon, Apple, Qualcomm, AMD, Zoom and Lattice. We’re going to be covering some publicly-traded companies here. Please don’t take anything we say as investment advice. This is for entertainment and educational purposes only. We do believe in educating and entertaining. That’s what we do here. Dan, with that, let’s dive in on calling your number, Amazon, which obviously includes AWS. They had their earnings. How was it?
Daniel Newman: Oh, boy. Well, the stock, at least in the post-market, pre-market, was ripping and roaring. Double-digit percent up, and if you had watched Amazon, it had lagged and lagged and lagged even as tech had come back. Now, that has changed in the last few months. A couple of strong Prime Days didn’t hurt the company. Some positive sentiment in the marketplace, the fact that they are, at least in North America here, in the US, they are the de facto for all of our ecommerce bad behavior. And their growth in subscriptions, memberships in Prime have been pretty sturdy. But what was the number everybody was going to be eyeballing? For you and I especially, it was going to be the cloud number. We saw Microsoft, despite all of its exciting AI news tumble when the cloud number was a little bit softer with expectations of spending on infrastructure going up and the actual cloud revenue slowing. At the same time, we saw Google, who did better and showed better numbers, got a bit of a jolt. But for Amazon, I think it was more about the fact that the company really did perform across the board.
Look, this is a company, Pat, that operates on a narrow, narrow margin. Its e-commerce business is massive, but it doesn’t make a ton of money in e-commerce. This also is some of the reason why the FTC and DOJ and the idea of possibly trying to split it from AWS has been met with a lot of resistance, because frankly, it would be very difficult for Amazon to continue to innovate in its e-commerce side if it didn’t have the profit machine we all call Amazon Web Services. But the company beat, Pat, they not only beat… They beat big. They almost beat by a 100%. They were expecting 35 cents on earnings. They got 65 cents. They were expecting 131 billion. That’s not bad, by the way, it’s a good amount of revenue in a quarter. Pat, that’s a little bigger than Moor Insights.
Patrick Moorhead: Just slightly.
Daniel Newman: Just slightly.
Patrick Moorhead: Slightly.
Daniel Newman: It’s almost as big as the two of us together. At least our egos.
Patrick Moorhead: Well, I don’t know, but our household might be the biggest buyer of Amazon products.
Daniel Newman: They beat on revenue. Here’s the thing. This is where I’m having a little bit of a problem though getting my head straight, is because we were really disappointed with 26% growth for Azure. We were not disappointed, but were, 28% for Google. We’d come to the conclusion that cloud had decelerated. Well, for AWS, it’s decelerated even more. It is 12%, but the good thing is, and this goes to show Wall Street behavior at its best, is that it’s not really deceleration that’s the problem, it’s guidance. Amazon guided that it may only, and a lot of the predictions and forecasts and models was mid-single digit growth. And again, there’s also a law of large numbers’ thing going on here, because Amazon is substantially larger from an IS and infrastructure and overall cloud business than its competitors. And now we actually know that, because Microsoft basically disclosed last quarter of their 110 billion of Intelligent Cloud, which is all their apps and such included, they’re about 55 billion, is their annual run rate. They said about 50% is Azure.
Well, Amazon’s reaching 90 billion, and I know sometimes with these law of large numbers, Pat, we become a little bit numb to how big that gulf is. But you’re talking about a run rate of something like $35 billion difference in terms of revenue year to date. That’s a lot of revenue. It’s substantially larger than Google, substantially larger than Oracle. But overall it’s a significant slowdown in growth, but it is a wide margin of scale, Pat. And I think that’s something that people need to pay a lot of attention to, is they’re almost a $100 billion a year, AWS now. At some point, it’s going to be hard to grow without either inorganic, meaning they acquire something, or they diversify in some substantial way. Like I’ve said for a long time, they’re not heavily in apps. They don’t heavily play in that space. Would it make sense at some point? Could AWS buy Salesforce? God, that would be a huge transaction, but I was saying this week, AWS-
Patrick Moorhead: Am I hearing a call here? A prediction?
Daniel Newman: No, I don’t think we can make that call. I’m just saying that would give it a layer that would make it look a lot more like Microsoft.
Patrick Moorhead: Yeah.
Daniel Newman: I don’t know that there are a ton of options for those kinds of acquisitions that could be made. Only a couple other things, Pat. They did beat on advertising again. They now have 11 billion… Almost 11, 10.7 billion a quarter in advertising dollars.
Patrick Moorhead: I know, it’s crazy. Them and Apple are really driving that.
Daniel Newman: It is crazy and we’re missing this as it’s happening right before our eyes, and I’ll let you hit with that on Apple. But the company overall delivered strong. It’s showing strength, its AI story, I’ll let you maybe touch on that a little bit more, has been a bit nascent. But it’s starting to tell it and it’s telling it in a very different way than the other hyper scale cloud providers especially other than… And I think there’s a chance that could play out. As we’ve seen these single large language models lose some of their luster as a differentiator, the ability to be a bit more agnostic could become a very good strategy, especially when you have so much infrastructure, so much data running on your existing infrastructure. Meaning, if you can keep attrition low, you can drive your AI revenue.
Other than that, the Prime Day’s obviously hit, and Pat, the only thing I’ll say is the sentiment of the US economy. Is there anything that’s more indicative that the world is feeling somewhat positive than when they spend like crazy on Prime Day, or are we just not paying attention? I’m not sure, but the numbers were good and that’s always a good indicator that maybe people are still feeling pretty optimistic.
Patrick Moorhead: It’s good insights, Dan. I think investors were really happy that one of the three business units… Alright, Amazon splits it up into three businesses, that North America actually made money coming off a massive loss. And a lot of this was driven by a bunch of layoffs and OPEX reductions that the company made, and I think people were pretty excited about that. The funny part is who knows if it’s going to continue out there? But I think the good news is it wasn’t just AWS fluttering out there. I actually spent a day meeting with folks at AWS. Obviously we didn’t talk about earnings or anything at all, but I did meet with probably seven executives and pretty much talked about AI the entire time. It’s pretty exciting. And one thing that really struck me, and this is the second quarter in a row that the first paragraph after some of the bullet point numbers, the company talked about Trainium, it talked about Inferentia, and it talked about Bedrock.
And you can tell 100% the priority of a company based on where they put stuff in press releases. What do they talk about first? What do they talk about last, typically? And it’s just crazy, not crazy, it’s smart for AWS to flex their muscle. And quite frankly, they’re the only one of the cloud giants that has custom silicon at scale. Not just for general compute with Graviton, but also with Inferentia and Trainium. And the company did talk about a bunch of customers that it rolled out as well using generative AI and AI, Omnicom, Royal Philips, 3M, Old Mutual, a bunch of different customers that are in there. Google got a pretty big lift by some of its disclosures. I think it was their AI day that they hosted and they talked about pulling in a lot of unicorns. And here AWS is leaning into these gigantic companies, and that’s not me inferring that Google doesn’t have gigantic companies also doing generative AI, but I think it was smart for the company to roll out some of its wins.
I really think that AWS is going to get into communicating more than it normally does. I think the appetite for what AWS is doing in generative AI is a lot bigger than standard fare. Heck, when AWS came out with their first service 14 years ago, it had no competition, and whether it’s six or seven years later, Azure popped up. You just have to compete differently with times of competition. I feel really good where AWS is on their generative AI play. They’re very focused specifically on businesses. They’ve taken an open model approach there. At some point they’re going to connect this with SageMaker, Bedrock and SageMaker are separate, but I do expect those two to be connected. Good performance by the company and I think you nailed it in one of your tweets that said, “Hey, this is kind of a bellwether for IT, and it’s a bellwether for consumer, with the spend there. Hopefully that’s indicative of where we are at in the economy.
Daniel Newman: Nailed it.
Patrick Moorhead: You did.
Daniel Newman: Nailed it.
Patrick Moorhead: Hey, let’s move to the next topic, and that is Apple earnings. A big indicator of consumers is obviously Apple, with all its services, it’s very skewed toward consumer. And the company beats pretty well on EPS and we can debate whether they… And they met on revenue, but people were pretty disappointed. And I think as we’re going to talk about Qualcomm a little bit later, generally people are skittish of the smartphone market right now. And even if it’s Apple and if Apple while they performed well in India, there are still a lot of risk in China and Apple in India compared to China, it’s a heck of a lot smaller. Apple’s market share is pretty tiny there. But they were able to offset the declines in smartphones, the declines in iPads, the declines in Macs with services.
Services had an absolute banner quarter there. I was a little surprised that the Mac numbers were down, but they were down 7%. But out of the other side of my mouth, I’ll say, “Hey, the whole market was down and of course Apple was down.” We have seen some oddities sometimes when the market’s down based on firms like Canalys and IDC and then Apple was up. But in retrospect, a lot of that was channel stuffing. We have reason to believe. Anyways, that’s all I got for Apple. Dan, what do you got buddy?
Daniel Newman: I was waiting to see after Qualcomm and we’ll talk more about Qualcomm in a moment, if Apple would hold up because some of the comments that came about China and about overall smartphone demand were a bit disconcerting. I thought Apple, as usual managed very well. There’s some pressure on it right now because I just think people are having a hard time seeing multiple back to back quarter declines in revenue. But you’ve got to remember the 1% decline in a business where you got to look at the declines year over year for most PC smartphone semi providers as well as most PC smartphone OEMs. The declines have been steep. We’re talking mid double digits in many cases. I think Apple’s actually managed the demand pretty well. The iPad number falling so fast, it’s a bit surprising to me, but actually the thing I keep thinking about is did Apple cannibalize itself a little bit with its Mac product?
It’s got some lower priced entry level Macs that are… I know the touch was the thing, but is it still the thing. I don’t know, because I’m trying to figure out why that demand is down so steeply, but I think with some of these entry level M1 or M2 and MacBooks, I’m wondering if Apple didn’t actually cut its nose to spite its face by optimizing the silicon too much and making it too affordable. Are you going to spend 1300 for a high-end iPad Pro when you can get a lightweight Mac? I don’t know, just something to think about. That was something that went through my mind. The services number, Pat, was the thing that Apple’s done really, really well. And the services number overall is something that will drive high margins. The company’s been able to manage its margins very well and this is the Tim Cook special. The Tim Cook special is manage the supply chain, optimize everything, drive as much profit, get all the partners and vendors that it doesn’t need out.
Patrick Moorhead: Thank you for adding that, because I was just about to add it if you weren’t.
Daniel Newman: He’s a machine and it is a bottom line profit generation. The stocks run up a lot and given the fact that we know the device market is crappy, it’s had a really good run, but it has run on services, it has run on expected strength of the next generation of iPhones. The Vision Pro gave it a boost in terms of people are starting to be able… Because you buy forward in the market, so people are saying, “Maybe it’s not revenue yet or a lot of revenue yet,” but the assumption in the market is that Apple’s going to monetize what Meta has largely failed to monetize and that’s going to be the VR AR play with the Vision Pro. Cook said he wears it daily. I doubt that. I’m just being honest the way that thing looks.
I can just imagine him wandering around the office with that thing on his head, but I do think they’re going to get it right. It’s interesting to me, Pat, I know we don’t talk about Meta earnings here much, but it is interesting to me that Apple seems to have a real bone to pick with Meta. It seems like it’s the company that it’s just most outwardly trying to mess with, whether that’s its ad strategy around privacy. That’s the biggest most harmed company from that was definitely Meta and now it’s entry into AR VR. Meta’s been at this, they’ve spent 10 billion a quarter for a quarter after quarter, and I know temporarily that slowed a little bit, but the assumption, and apparently based on the buying and investors, is that Apple is going to get this market right and that meta… Well, obviously it’s run very, very well, but Meta is run because it got back to basics and started making money on ads again.
Apple’s running based on its losing revenue steam, but people just believe in the future everyone’s going to buy a headset from Apple, I think. I don’t know how that’ll all play out, but overall a well-managed quarter given the circumstances around devices. But that’s what Tim does. I just still question how much he innovates. We’ll see with that, with AI and everything else.
Patrick Moorhead: Good insights there, Dan. And I am pretty shocked at some of the numbers, sorry, some of the commentary around first time buyers. And that should scare all competitors of Apple. First time buyers to Mac, first time buyers to even iPhone and sometimes being here in the US we forget that most of the world is Android and Apple still has a long way to go. Now, they might have to hit price points that they can’t hit, but if you think about how they keep driving the services attach up and up and up, they could potentially offset their pricing by subsidizing the services profits, but great stuff. Hey, let’s move to our next topic related here, Qualcomm had its earnings. You and I had the chance to talk to both Christiano and Akash and get upfront, close and personal with the whole thing. It was a rough result for Qualcomm in the marketplace.
I’ll be honest, I was a little bit surprised. I’m not normally surprised. I can look at how they did, what they said, what their forecast was. They beat on EPS by almost three and a half points. They missed slightly on revenue, but quite frankly this was really all about uncertainty in smartphones overall in Android, but I would say specifically in China. Because the result, even the guide was in line with expectations. Companies had great execution. You’re not seeing any major hiccups like you’ve seen with other chip makers. There really were no surprises about what was said with China and even Android. Probably the one thing that was thrown out there, that by the way was a rumor again two weeks ago was Huawei getting back into the market that could give us some competition to Qualcomm, but Qualcomm basically said, “Hey, it’s not meaningful revenue today and we’re zeroed out.”
And then for Apple, they zeroed out the forecast into 2024 and 2025. Again, it’s an oddity. One thing, again, I always want to look at puts and takes on it. I don’t want to sugarcoat anything, but I have to give the company credit where credit is due. On the AI side, I don’t necessarily think that the company knew what to say about AI and I completely understand that quite frankly when you’re trying to balance China, you’re trying to balance Android and overall you don’t want to be too bullish about it, particularly when it’s not a bird in hand. Meaning it’s more of a 2024 thing and 2025 thing. But I did like their expression of it, which was essentially, so first of all, AI is going to permeate everything if we do the double click on smartphones and PCs. First of all, PCs is a brand new market for them.
They have 0.1% market share in, but more importantly in smartphones, the potential to charge more, the potential to have a TAM expansion. Again, hard to lean into that when the entire market is down now. And the other one is share shift. They floated all three at least as the hypothesis of what it could be. I’m looking forward to what the company has to say about its next generation products. I think it’s in October, you and I are going to fly, roughing it out there in Maui to hear the latest and greatest technologies that they’re going to bring out.
Daniel Newman: I think that one was mine, but you did such a good job, I just let you run with it.
Patrick Moorhead: Oh, my gosh.
Daniel Newman: No buddy, listen.
Patrick Moorhead: I’m so sorry.
Daniel Newman: Listen. This is about dynamysism. Is that a word? Dynamysism.
Patrick Moorhead: I think, dynamism.
Daniel Newman: Dynamism.
Patrick Moorhead: Sorry about that. Gosh darn it.
Daniel Newman: The -ism. That’s all right. And you got to do the next one too, because I want to see you keep rolling. Okay, so here’s the thing, Pat, markets hate opaqueness. The biggest problem with Qualcomm was not its result. Its result was very much in line with the way it had set the expectation and their execution was good. The margins looked okay. The beat on EPS was good, the revenue was a thin range. The guide fell within range, but it was the commentary. My personal opinion was it was more about the commentary. It was more about, “We’re not sure what’s going to happen with China.” Well, people get nervous when you say you’re not sure. I think seeing the disparity between Android and Apple, which isn’t really all Qualcomm’s fault by the way, that’s more to do with the Samsungs and the other OEMs and their ability to market a compelling product. That was a bit of a problem.
The AI story is a bit of a problem because Qualcomm does an amazing job with AI and they’ve been doing an amazing job with AI and they’ve had some of the most capable NPUs, GPUs in their phones, whether it’s for gaming, whether it’s for sensors, images. They’re doing really cool things with LLMs on the devices using stable diffusion. But just like 5G, there’s been a little of a gap of where does that create money for Qualcomm? Where are they going to charge more? Are the OEMs going to pay more for this content that they’re putting in the devices? Are end customers going to buy apps that are ultimately going to drive premiums for the phones? Are we going to see a refresh cycle accelerate because people are going to want to buy more of these new phones because the new phones are going to have AI capabilities that the old phones don’t have? And not being able to share that I think creates a little bit of consternation within the analysts’ community, which then trickles out in their commentary to investors.
The real positive thing though, Pat, is Qualcomm’s all over AI. They’re all over AI, but there’s some time between now and when that becomes clear in terms of where the revenue opportunities lie. Their automotive business should be exciting, people. They’ve absolutely crushed it quarter after quarter and you’re seeing momentum. Every quarter you’re talking a 100 million more, a 100 million more and a bunch more design wins. And that’s going to suddenly take the company into a new space because all these OEMs that are working with Qualcomm have massive needs to electrify and to add AI and autonomy to their vehicles. Qualcomm’s been the winner here. You can look at Nvidia and Nvidia’s early lead there and they’ve seeded the early lead. Now, obviously they’ve found other revenue streams and their earnings are probably going to look pretty great, but in automotive, Qualcomm has actually done a tremendously good job. They were tremendously large in their revenue. I wanted to practice doing a former president thing there. But the bottom line, Pat, is it’s the lack of clarity. What’s up with Apple? What’s up with Huawei? What’s up with China?
There just was too much uncertainty in the numbers, that was what you saw the response to. The execution wasn’t the problem. It’s the guide and the guide and the lack of knowing what’s going to happen is never a good thing in the investor community. But you know what? You’ve got to give appreciation for them being honest, being open, because it’s sometimes better when you’re a public company like that to get it on the table. And then you know what? Maybe things will get better and then they’ll beat it handedly and people will be happy, but if they overestimate or they sound overly confident and then miss, they’ll get punished even worse in the future. It was a tough needle to thread. I thought they did a pretty good job of it. But don’t mistake that kind of reaction for a technological problem. It’s not a technological problem, it’s just the clarity is not there right now and hopefully it’ll come through this quarter.
Patrick Moorhead: I think as the midterm growth gets more confident, I think it’s all going to pull together and people are going to fully understand what the company brings to the table. Hey, let’s move to the next topic and I line jump, so I’m going to kick that off as well. My apologies. Net, net AMD had they beat on EPS and they met on revenue. They had some pretty big declines in their revenue, but it was really expected. And the story here is big revenue declines on PC. You can’t have your client computing business more than a 54% reduction there and there was a reduction in data center and come out fine. But you know what? People are pretty psyched about the whole future potential of AI. People need to be careful. Some of the comments that came out I think were positive, but there was a big ramp in the future upcoming for El Capitan.
And there are going to be some cloud wins, but I think it’s important for people not to get too ahead of their skis on AMD and AI. I’m really positive about their capabilities as I wrote, but it’s really going to be more about, I would say even more of the back half of 2024 where we would see something meaningful around these discreet cards really making a run. AMD is seeing just a tremendous amount of interest for its Instinct cards and paired up with Epic processors is really a great one, two punch. You add the Xilinx business, which again, that really helped the company this quarter, gave them huge growth there. But that’s exactly one of the reasons they bought the business, was to get out of these client up and down, data center up and down and let’s get to an embedded business– that might take a long time.
It’s a lot harder to realize revenue soon, but once you get those designs, it’s going to keep paying dividends for a long time. I was also pretty happy to see that, on gaming, I expected a much steeper decline in their gaming market, but they only saw a 4% decline. And I think really based on the back of the consoles that are out there that this is where the preload for the consoles that are going to blow out in the fourth quarter. They obviously have to get them into the factories before. And I think this is exactly what we’re seeing. Really interested to see how AMD plays the supply game between consumer GPUs and data center GPUs. That’s going to be a really interesting one to watch. I’m hearing a lot of rumblings that Nvidia is making a lot of shift in its wafers from consumer to data center where if you look at the profit dollar per square millimeter of one of these wafers, they can make a heck of a lot of money in AI than they can in the consumer market. Overall, met my expectations.
Daniel Newman: I like your last point. These companies have to look at maximizing every millimeter, the amount of yield is limited. There’s supply manufacturing limitations they’ve got… They’re fabless so they’ve benefited from that, but they still have to when they make changes, that takes time. Anytime they change what they want to manufacture. If they’re deciding how they’re going to move from more consumer to more enterprise with AI, that’s going to have an impact. Now the beauty for I think in Nvidia here is they have so much margin power right now. If they start limiting supply on consumer GPUs, they’ll probably be able to raise prices to offset it. Am I wrong though?
Patrick Moorhead: I think that’s exactly where we’re headed and we’re about a year after the crypto boom. Nvidia’s numbers have to start looking better next quarter or actually in the next week.
Daniel Newman: On the consumer side, even if they make less, they can charge more for it. And then on the enterprise side, I feel like they have, what I would call, infinite pricing power. I think there’s a buyer for everything they can basically produce right now at pretty much any price they choose to sell it for. I don’t know if that’s forever. I think a limiting factor to this GPU market’s going to be whether you could sell those advanced GPUs to China. But of course you see AMD and others are creating special GPUs that are going to meet the requirements or the maximum requirements in these cases to be okay in terms of export controls and they’re going to sell to China.
And the only problem with any decision like that is that the goalposts can keep moving. They can make something that’s supposed to be spec that’s going to be a tuned down spec that’s going to be within the constraints of the export controls and then the rules could change and then that’s no longer going to be shipped. We’re definitely trying to handcuff China, but that’s a little bit off the topic of what’s going on with AMD.
Patrick Moorhead: It’s okay. They can just read my Forbes article on Nvidia and China and AI if they want.
Daniel Newman: Well, don’t pimp yourself, but go ahead and pimp yourself a little bit. But the truth is this, it was a status quo quarter. The company didn’t predict it was going to be a great quarter, it delivered on what it predicted it would do, and it was right on. It was a quarter for AI announcements. Lisa has earned through the success of the company over the last several years, the ability to invigorate its investor base by pointing to the future when the current state isn’t great. The current product portfolio has its customers, has its volume, it’s earned its market share, it’s fighting back and forth on the PC side, but the AI market is where all the growth is.
And I’ve talked to several other CEOs about this and they’re all like, “Look, we’re selling what we’re selling right now. And that’s great, but we have to be focused on one or two, three years into the future because this AI shift is going to fundamentally change what we’re manufacturing, how we’re designing products, how we’re going to market.”
And so AMD is signaling what it’s going to do. And the signal is it intends to be the biggest competitor to Nvidia when it comes to data center GPUs and it’s in a good position to do that. Now, you and I have been… I think we’ve been forthright in saying you can’t rule out Intel, but Intel’s been a little slower coming of age in terms of saying this is the product and when we can ship it, and this is going to be the whole story. AMD has a little bit of a lead here. And so Intel will continue to play catch-up and as we saw Intel’s number, we talked about this last week, Pat’s getting the ship on track. AMD needs to be looking in the windshield, but does need to keep an eye on the rearview mirror, of course. And so as overall, Pat, you covered most, that’s the part I think I wanted to add. And let’s roll on something that’s not earnings, maybe just even for a few minutes.
Patrick Moorhead: Let’s do that. But I do want to get… There’s never a market of one.
Daniel Newman: Shouldn’t be. Hope not.
Patrick Moorhead: And AMD and Intel are both going to get a piece. The only question is, how much? Let’s move to the next topic here, that’s not earnings. Thanks Dan for that. Moving us along here. You attended Zoom Perspectives 2023 and I saw some pictures of you and famous people. Well, you’re famous too, kind of in the Redwood Forest. What the heck was that, like Disney was something?
Daniel Newman: It was in the Redwood Forest. Look, analyst events are great. I was running around the valley, I saw 14 customers and I spent some time with Zoom at their analyst event. Keith Kirkpatrick and Marc Beattie, two of the analysts on the Futurum team, spent a lot of time there. And Zoom’s been in an interesting inflection. Zoom was the darling of the pandemic. It had numbers and growth and people… Remember the stock ran to like 500 a share and then it lost 90% of its value. Just think about that. And in the whole time, by the way, it was losing value. It was growing at a pretty enormous rate, meaning it’s substantially bigger than it is right now, even though its market cap got halved or quartered over and over again. It’s an interesting set of circumstances and Zoom’s been in this process of reinventing itself, of going from a calling or a meetings platform or just a meetings’ company to a collaboration and communications platform.
It has monstrous competitors, really competitors in Microsoft Teams and Zoom’s ethos has really always been the easy button. I’ve always joked, “What’s the cost of happy?” Because that’s the delta in terms of what a customer might pay to be on Zoom. And I will admit, I use all the platforms for the reasons both as an analyst and because of the customers and the relationships. But Zoom does continuously impress as a very easy to use friendly platform for meetings. But Eric Yuan, who I got to spend some time with, CEO of the company, he wants more. He doesn’t want to just be the platform for meetings. I’m going to surprise everybody out there, so hold your breath. They talked about AI quite a bit at this meeting. Are you okay?
Patrick Moorhead: Yeah.
Daniel Newman: Can you breathe?
Patrick Moorhead: Am I allowed to breathe?
Daniel Newman: But they did hire the former AI chief from Microsoft, the chief technology. XD is his name. I’m not going to even try to pronounce his name, but it was a really great opportunity. I spent some time with him. And the company is really focused on how AI can be applied over the day-to-day connected, communicating, collaborating experience to drive more productivity, to drive better CX on its contact center, to make the movement between mobile and systems more flexible, and of course to win more enterprises. And so XD obviously had a lot of insights and knowledge and he didn’t disclose this, and I’m sure his NDA wouldn’t allow him to do his non-competes and NDA, but about open AI and that strategy. And he seemed very steadfast about going to an open multi-model approach that’s going to use many different LLMs foundational models, mid and small and even micro-focused models to help people be more productive, to make collaboration and an assistant in your pocket.
He even referenced Her the movie in his mind somewhere, and I thought that was interesting as to where this could all go. I keep saying Apple has the most opportunistic position in terms of applying an LLM right over the top of the OS, but where do you start your days? And I think right now Slack and Teams have been more successful in terms of starting your day and where you meet. But can Zoom be the “where you start your day” app? Can it be the “I’m in Zoom and that’s where my messages are, that’s where my meetings are, that’s where my mail goes, that’s where my customer interactions are?” That’s the question they’re trying to answer. But that’s directionally, theoretically with contact center phone, messaging, and of course all its APIs, integrations and the different tools where the company is heading, the company needs some help.
It’s going to need to really get its message right, because I think right now the world still really sees it mostly as a meetings company. And so that’s the big transition it needs to make. I do believe Eric has shown whether it was WebEx the first time around, whether it was Zoom the second time around, that he’s able to reinvent, disrupt, and come up with what’s next. And I think that’s going to be his big challenge ahead of him. But there was some encouraging progress and I felt like the company was really listening. And that’s something that, as an analyst, I really care about is does the company want to hear what the outside world is saying or have they decided they have the best answer and they shut everyone out? Other than Apple, I’ve never met a company that can really do that for a long period of time and get away with it. Zoom seems to be open for business. They’re listening, they have big ambitions around AI and they showed some of their wares. And I’m interested to see how this continues to evolve.
Patrick Moorhead: Strategically, the only right mood that the company has is to create a platform. And like you said, that’s exactly what they’re doing by adding things like email, calendar, whiteboarding, messaging, and even more. I really like their expansion into the call center. It’s just natural for them. And all the magic with generative AI you can bring into the call center, I think we’re not even looking at the potential capability. And the way that I like to look at it is, hey, if AI can be used to take maybe three out of the 10 steps of a customer engagement, I think generative AI could take it up to five or seven out of those 10 steps. One of the biggest challenges that I think the company has, and I think they likely know this, is hey, if what got you in the game was simplicity, and then they layered on top of that security, which in enterprise grade capabilities, how do you make a suite simple is by adding different capabilities.
And I’ve met with their most senior product leaders and they get it. I’m impressed. And I think if any company can figure it out, it’s likely going to be Zoom. The other thing that people forget too is the velocity of products that the company brings out. I should chart this someday, but it feels… It’s at least two or three times the speed of other companies. And I know it used to be easy to say, “Well, it’s because they’re not as secure, or it’s because they do this.” I think that’s off the table. Now, maybe with the exception of military grade type of implementations, but they made a ton of progress. I’m super excited to see where this company goes. And I did like your Redwood Forest pictures, Dan.
Daniel Newman: Well, you know me. I never miss a photo with a prominent business figure.
Patrick Moorhead: Gosh, why do you do… Oh, I do that too. I wasn’t there.
Daniel Newman: There’s something weird about grown men posting selfies.
Patrick Moorhead: Totally. I’ve heard that. I’ve heard some people comment on grown men and selfies, but-
Daniel Newman: It’s weird, dude, we should stop.
Patrick Moorhead: It is totally weird.
Daniel Newman: We really should stop. But I did get chased down the hall of one big semiconductor company by a guy that just wanted to take a selfie with me because he said, “You have the best selfie game.” Maybe there’s still hope yet.
Patrick Moorhead: I have a few selfies that I took that I haven’t pulled out yet that I’m going to layer in from last week.
Daniel Newman: Drop them like they’re hot.
Patrick Moorhead: I was busy. I’ve been busy for 12 days.
Daniel Newman: Doing real work? Doing real work?
Patrick Moorhead: It’s my first day in the office on Monday. Anyways, hey, let’s hit this last topic here, and that is Lattice semiconductor earnings. And I got to tell you, these folks just blew it out of the water again. Because the current state of semiconductors is the following PCs down, data center down, discrete AI accelerators by Nvidia up, industrial and automotive catching up, but still growth. And these guys came out with an 18% year-on-year improvement in revenue, increased their gross margins and increased their EPS by 24%. Yet, the company operates in the markets that are, quite frankly are going down. A lot of this has to do… It’s really a tail of three markets. It’s industrial and automotive, it’s comms and computing. And this third one, which they’re slowly, I wouldn’t say getting out, but it’s just such a small percentage of the business now, it’s almost irrelevant, the consumer side.
If you look at industrial and automotive as an example, robotics, putting in AI enabled low power FPGAs at multiple points in the robotic arm. That’s just one example, putting more FPGAs, bigger FPGAs into automotive. Even though in a lot of these areas, the markets aren’t going off the rails, they’re increasing content, gaining market share, and in some cases even replacing microcontrollers. And the other thing I’ll add is that it’s not just slinging a bunch of hardware, it’s solutions. FPGAs aside to the, where they’re used for pre-silicon, pre hardened silicon is that they were hard to program. And what Lattice keeps doing is they keep adding these SDKs for robotics, for ORAN, for AI, et cetera, et cetera, et cetera.
They’re not just showing up with a bag of parts. They’re showing up with a solution that can improve time to market and getting over that major objections in previous years on FPGAs. Now by the way, we haven’t even seen their next generation mid-range FPGA impact any revenue yet. An amazing quarter with a really good guide. I laugh at the curves that they show around EPS and growth. I’ve never seen multi-year up into the right as this company. Hats off, I’d love to find a flaw or a wort or something like that, but it’s pretty hard in this case.
Daniel Newman: Oh yeah, I had lunch with Esam, their chief strategy and marketing officer. They were very content as they should be. The company has defied the semiconductor lull and it’s not selling GPUs. Meaning, they actually were one company that really didn’t only make it through, but they made it through. They grew, they expanded margins and they offset any weakness that came from their consumer exposure with growth in areas like industrial and then automotive. Like I said, the thing you can’t overlook is somehow they keep pushing their margins up. They are also in the seventies right now, and their launch into Avant, their expanded TAM. They seemingly… They found a stream of new revenue that gives it more access to growth, even as the economy for chips has been a little bit tenuous. Pat, FPGAs aren’t always in vogue to talk about. We like to talk about accelerators, we like to talk about monolithic chips, but we tend to not talk much about programmable. But I don’t, is Lattice bringing sexy back as it pertains to FPGAs?
Patrick Moorhead: I think they did two years ago. But, quite frankly, you and I think have talked about, we’ve written so many articles and done so many podcasts on FPGAs, maybe Dan, we’re helping to make it sexy. We’re spreading good cheer out there like Santa Claus.
Daniel Newman: We’re bringing FPGAs back. I don’t know, it doesn’t flow. I need to work on that. But the long and short of it is this is a story of good product, good development, execution, having a relevant AI story. They’re not trying to come over the top and be like, we are all things AI. But for very specific workloads, they’re showing the ability to attach an FPGA to do things like vision or automotive. And they showed a lot of these demos and we’ll be at their developer day again later this year, Pat, and we will dig more into it. But the company’s just getting it right. Sometimes there doesn’t need to be much said. The only thing is, their guide was optimistic but cautious. They didn’t guide a crazy, they guided it in line. It was their first time, I think they didn’t raise in a while, but the expectation beep beat.
And then clearly the market sees them as a long-term growth prospect because their forward earnings ratio is really high. But when you keep expanding margin and you keep beating, that’s what you get is a market full of people that believe that you have that long-term potential. And Pat, Semiconductors are eating the world and they will continue to. And it will not just be big monolithic GPUs. It will be FPGAs and ASIX. And in fact, I think one of the hottest thing for AI are going to be the FPGAs and ASIX because we already know at some point the training’s going to slow, the inference is going to grow, and the pricing and power is going to become a much bigger factor in the buying decision when this isn’t just all craze, but it becomes very straightforward, practical applications of AI where less power, less processing is needed. And of course, as companies try to do this more affordably. Good stuff for Lattice. Good stuff for us. And Pat, if I’m not mistaken, we actually finished six topics in an hour, which-
Patrick Moorhead: That’s crazy. That’s crazy. Are you-
Daniel Newman: We rarely do that.
Patrick Moorhead: Are you taking over the host role?
Daniel Newman: No. I just noticed we didn’t run long. We almost always run long.
Patrick Moorhead: I know. It’s great. Well, earnings are typically quicker. We hone in on a topic and we move from here. What do you have cooking for the next couple of weeks, Dan?
Daniel Newman: Well, I’ve got a really big week of not traveling next week. Well, taking a vacation. Well, kind of a vacation. Family vacation, four days.
Patrick Moorhead: Do you actually take vacations?
Daniel Newman: Well, I’ll be somewhere else working, if that counts.
Patrick Moorhead: I got you. It makes sense.
Daniel Newman: For me it’s good though. It’s good.
Patrick Moorhead: That is good. I’m sticking around the ranch for a couple of weeks, so I’m pretty excited. And then a couple of big weeks of travel. VMware Explorer, Google Cloud Next. I’m going to take some time off and then I’m going to hit Dreamforce. It’ll be my first Dreamforce and then Oracle CloudWorld and Intel ON. It is going to be a busy, busy month.
Daniel Newman: It is, buddy. But we do what we have to do.
Patrick Moorhead: We do.
Daniel Newman: We do it for all of you.
Patrick Moorhead: We do. And I want to thank everybody for tuning in, listening to us opine about Amazon, Apple, Qualcomm, AMD, Zoom and Lattice Semiconductor. Thanks for tuning in. We care about you. We appreciate you. Regardless of how many hours sleep or coming off an airplane, we’re just coming in and making it happen. Give us feedback, good and bad. You know where to find us out there on social media. Thanks for tuning in. Have a good morning, afternoon, evening, wherever you are on the planet. Take care.