We are live! Talking Cisco, Lenovo, Intel, Tower, Synopsys, Groq, Samsung, TSMC, IFS, and Amazon Devices – The Six Five Webcast

By Patrick Moorhead - August 21, 2023

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

  1. Cisco Q4 2023 Earnings
  2. Lenovo Q1 2024 Earnings
  3. Intel-Tower Deal Off – What’s Next?
  4. Synopsys Q3 2023 Earnings and New CEO
  5. Groq Chooses Samsung Over TSMC and IFS
  6. What Does Amazon Device’s Dave Limp Exit Mean?

 

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.

Transcript:

Patrick Moorhead: Hi, this is Pat Moorhead and we are back for another incredible Six Five Podcast. Dan is getting his microphone ready. He is so excited, he is chomping at the bit. This is my favorite time of the week, it’s to sit here with my bestie, pontificate about tech news, what it means, what it doesn’t mean, maybe talk a little earnings. Dan, how are you doing?

Daniel Newman: Hey, good morning. Yes, I was moving my microphone and realizing that my mic was a little off center. You know how we are, get a little specific about how we want our backgrounds to look.

Patrick Moorhead: Exactly.

Daniel Newman: Where we want the mic to sit. We want it to be just close enough that it sounds good, but just far enough away that it doesn’t overwhelm the shot. Remember in the beginning when I used to pod and I had that big mic and it was like, I used to talk right into it, and we were on video and it’s like, you’re not Howard Stern. You don’t need to have the big studio microphone.

Patrick Moorhead: Well, it also blocks your gorgeous face. No, we have come a long way. I mean, not only are we on the 180th episode of The Six Five Podcast, we’ve probably done, I don’t know, we have a thousand other videos or super cuts that we’ve done for events and interviewing executives and subject matter experts. In fact, we’re going to be at VMware Explore doing a bunch of great interviews, super excited for that.
Dan, what I like about your new setup is the shimmering of your pool reflects the sun that comes in that natural light. I really like that, it looks good.

Daniel Newman: The pool, you see the shimmer?

Patrick Moorhead: Yeah.

Daniel Newman: It’s a really nice pool. It’s an Olympic size.

Patrick Moorhead: Yeah, someday I’ll get an invitation over to hang out with you there at that pool.

Daniel Newman: Yeah, you told me something about you didn’t want to visit Houston, so you haven’t gone since.

Patrick Moorhead: Well, it’s more Dallas or Oklahoma, but it does take a while to get out there. I visited my daughter, she lives 40 minutes away, so I visited her. It wasn’t terrible, I had a good chit-chat with my wife.

But hey, let’s dive in. We’ve got a great show for you today. We got a lot of companies. We’re talking Cisco, Lenovo, Intel, Tower Semi, Groq Samsung, Synopsys, Amazon. We’ll probably even sneak in a little TSMC. So we’re really looking forward to this show, my friend, but why don’t we dive in and do what we do? I do want to give a little bit of an asterisk here. We’re talking about public companies, but don’t take any of this as investment advice. Let’s jump in Cisco Q4 2023 earnings, boom. Dan, I’m calling your number on this baby.

Daniel Newman: I don’t think you ever let me talk first. This is great.

Patrick Moorhead: Well, that is a mistake that I make and I do learn from my mistakes. Dan.

Daniel Newman: Thank you buddy. I do appreciate it. You are the best. So yeah, let’s talk about Cisco. Strong quarter, big growth. Let’s start with Q4, because it was a Q4 year situation. The Q4, 15.2 billion revenue, 16% year on year growth. They had a beat really on all fronts. The earnings beat was bigger than the revenue beat, but they beat on everything. Demand is up, 30% sequential order growth, and they had some really positive market share gains across some of their major infrastructure networking markets. They saw cashflow up, they saw ARR up, software revenue up.

And that’s where I want to focus a little bit on Cisco is, you and I had the chance to sit with a small group with Chuck Robbins back at MWC this year. And one of the things that Chuck really leaned into was the company wants to make this big pivot to more software, more recurring revenue, more subscription revenue. And when you are constructed, built, deployed to the channels the way Cisco is, it’s not an easy transformation to make. This is a company that for the longest time really made its money selling a box with a service contract, and it did it through very robust yet what I would say value added channels with those like Ingram and Tech Data, and that was how it did its business. And as we’ve seen this massive switch to cloud, to software, to subscriptions, Cisco has been a company that’s been having to navigate that change without wanting to blow up the golden goose, because it was a very strong and consistent business model.

But under Chuck Robbins, their CEO, the company saw ARR grow again, 5%. Not a huge amount of growth, but again, we’re not looking at this 5, first of all, you’re looking at 24 billion annual in recurring revenue, so it’s a lot of recurring revenue. And you’re also seeing ARR on products go up, you’re seeing software growth in mid to high double-digits, you’re seeing subscription revenue up in low double-digits amount. And you’re seeing their backlog continue to grow, and backlog growth means the future state is going to be good for the company.

So that was on the quarter. Now the company also on the full year saw growth, it was low double-digits Pat, so this big Q4 ended up helping the company go from a single digit to a double-digit growth. And the market was pretty rewarding. Now you got to remember, this week has been a pretty terrible week for stock. Tech as a whole has been selling off pretty hard, you’re seeing crypto fall, you’re seeing interest rates looking to be sticky high. We had hawkish remarks come out from the Fed this week. We are seeing regional banks under stress, we’re seeing long-term yields going up. And the thing is, we’re not economists, Pat, I think we should say that. There are some factors here that when those kinds of macro environment things are taking place, the tech tends to have more, we’ll call it vulnerability, to seeing slowing growth.

So when this number came out Pat, I basically said, Cisco is such a good bellwether because it sits in this kind of, it’s core technology, it’s growth technology, and it’s an opportunity for companies to show, are enterprises investing in tech? This isn’t just hyperscale cloud companies, a lot of their customers are enterprises. So are they spending, are they buying into tech? I think what the results showed is there’s definitely a higher amount of confidence.

I’ll add one more thing and this might be something you’ll want to talk more about and I’ll leave it up for you Pat. There was some very strong indications in the comments that the business’s growth and market share and take has been related to AI. And so while Cisco hasn’t necessarily come out with a really powerhouse AI story yet, picks, axes and shovels are being developed, built, deployed, and sold by Cisco Systems and Cisco is a beneficiary. You got to move all that data, got to move it through the cloud, you got to move it through the on-prem, you got to move it to the edge. And so Cisco seems to be a go-to right now for those that are investing in AI and that showed up in their numbers as well.

Patrick Moorhead: Yeah, a lot of good stuff to see here. I mean, the first call out to me is just a staggering increase in revenue for networking. I mean 33%, Dan, and I line that up against all the IaaS providers, I mean it’s gigantic growth there, and 100% to do a double click.

Chuck also talked about gaining market share in literally all markets. My initial go-to is, hey, we’re going to go to the core and that’s where they’re gaining market share. But then again, maybe it’s like, they are the dominant player at the core in western worlds, and Huawei really does their business outside of that. But they gained three points of share year over year in campus switching, wireless LAN, and SP, service provider routing. Think of the AT&T’s, the Comcasts and the folks like that. So taking a share is pretty big. I’ll be interested when we swing around for HPE and see how Aruba did on campus and wireless LAN as we get into that. But they took share from somebody, they usually don’t talk a lot about that, but that was really the driver here.

Now, I’m looking for something that’s not good. When you have something that’s so good, it’s like okay, there’s got to be something. So I looked at regions, all regions were up. Americas was up just absolute big time. But also to your point on ARR, what we are seeing is the biggest increase in ARR is on products, right? And we’re always talking about infrastructure as a service, and that absolutely shows that 100%. Now, obviously most services are recurring, so there’s not as much growth, but this is where we saw double-digit growth from them, which was recurring revenues as a product. Software, again up 20%, software subscription, and then up 17% as a percentage of total software revenue. So really big numbers.

Dan, I need to go dive into the AI piece, but what I did like, and I believe this is the first time that Chuck talked about AI training fabrics. A lot of the focus tends to be on let’s say the GPU or the ASIC doing the AI training or inference, but as we saw from both Broadcom and Marvell, this is a networking game as much as it is accelerator game, quite frankly because you can’t fit a large model into one server or one GPU or one rack. So it’s the amount of clusters that you can pull together to do that. And Chuck said he took orders for half a billion dollars. I love hard numbers, half a billion dollars in AI ethernet fabrics, and that there were piloting 800Gb, which obviously has more performance, the faster that you can get your training and inference run.

So overall, great job with that, Cisco. I’m still keeping my eye on that WebEx business, still down. And I look at folks like Zoom and see how they’re doing, I look at folks like RingCentral. I mean it is a tough comparison, but you would hope that that would start trending up, because quite frankly, Dan, the environment in the office is suboptimal. Let’s say you bring 30-year folks back to the office and they’re in a big conference room that has legacy equipment that won’t get one block, one face for the folks who are remote, and that is a lousy experience. I mean, you and I have both done a lot of meetings where somebody’s in a conference call, you can’t actually see their face. If you can’t see their face, you can’t see the inflections, it’s not going to be nearly as much of a productive environment.

So let’s move on to Lenovo Q1 2024 earnings. I’ll flip that for you, Dan.

Daniel Newman: Hey, I wouldn’t want to get in the way of you being in control.

Patrick Moorhead: I love that. So hey, what do we see from Lenovo Q1 ’24? You got exactly as you would expect with, I don’t know, a few head turns. So first of all, lousy PC market, SSG did well. ISG was a bit of a surprise, but was it really? So overall revenue off 23%, the personal systems group, IDG, was off 28%. And as a percentage of revenue, if half of that revenue is off 28%, even if you’re up in certain areas, you’re going to be off. So the company, not to put the best performing first, they always start with SSG now, which by the way I still think is awesome and risky because it’s just so new, they had double-digit growth, 18%. They did a really good job. And as you would expect, we’ve seen a lot of these different types of metrics, very consistent metrics. First of all, the percentage year to date in managed services, 54% growth.

But I think the one that still impresses me the most is that 50% of SSG revenue is not directly related to the hardware they sell. Because with hardware, comes a lot of services. You plan, you install, you get rid of the equipment. Sometimes you’ll do help desks, sometimes you’ll do PC as a service. So that’s the one that impresses me the most. So true scale is a hardware related services business, so 50% of that, and that comes to managed services. And you’re like, wait a second, isn’t that like the land of GSI? What Lenovo has done is it has invested in areas that you would expect them to have core competencies in. Which by the way, like hybrid cloud and some of the industry verticals like manufacturing and retail. So it makes sense to me. They also operate very heavily in Southeast Asia. So again, good job, a lot of what we had seen prior, just a little bit more.

So ISG, data center and the data center edge, off 8% top line. And the quote, and you and I are going to be talking to Kirk later in the day I think, sluggish infrastructure sector demand and slow platform transition. And it’s interesting, a lot of ISG’s business is dependent on the hyperscalers. And what we’ve seen is that again, there’s not always a direct correlation in the same quarter between the hardware folks and the hyperscalers in terms of their numbers, but the hyperscaler numbers are down. I think we saw what, AWSs is 12% growth or something like that, and Azure wasn’t that impressive historically either as a percentage. And you and I talk a lot of large numbers, but I need to dig into this.

I do have a hypothesis that says, there’s not enough GPUs to go around. And what’s happening is, Nvidia is selling a bunch of GPUs and putting them into old servers, or older servers, so you don’t need a new server to do this. That’s a hypothesis and I’m sticking to it until somebody can prove me wrong.

But hey, big bright spots, right? I mean, storage revenue more than doubled year over year. ThinkEdge, which we talk about Web Four and on the edge, smart manufacturing, smart retail, nine consecutive quarters of growth.

So let’s move to IDG, which is personal systems. As I said before, revenue off 28%, which obviously impacted the entire company because it’s 50% of its revenue, but also their profits. Profit margin was down, and it’s gone from 7.5% a year ago, 7.4, 7.3, 6.7, down to 6.3%. And looks like there’s inventory pressure, and possibly also pricing. The stuff that people do to clear out inventory in the PC market is incredible. Like ISG, bright spots too, record premium smartphone mix. Sometimes we forget that Motorola is the number three market share leader in the United States in smartphones and they’re up 8%, eight points year to year, 10 year record activation. So all is not down, some bright spots.

That’s all I got buddy. What do you got for Lenovo?

Daniel Newman:

Yeah, I mean it was on the surface a bit of a tougher sled after several quarters. It’s been really easy, Pat, to just say, PC is PC and everybody’s off. But what the last several quarters for Lenovo have been is, oh, look at our huge growth in infrastructure, look at our huge growth in services. This quarter was a bit more modest, services had a small growth, infrastructure actually saw a pullback for the first time in several quarters. And I tend to be aligned with you, I think the purchase mix has shifted substantially from CPU to GPU in the data center. And I do think that next week, we’re going to get the real number, Pat, when we see what Nvidia after its massive guide last year-

Patrick Moorhead: What do you think man, up 4, up 5?

Daniel Newman: I think it’s 4.5 up. And this goes back to just what I said, I don’t see why they would’ve guided 4 up to just barely make that. I think they had the orders in hand, if I’m being honest at that time. But Nvidia’s kind of, it gets to play God a little bit right now in terms of deciding who gets what and then of course who’s willing to be the highest bidder. I can’t wait to see the margins, just as to what people were willing to pay to get the supply that was available.

But yeah, back to Lenovo, the company is having to continue to strategically address the growth while having to play in this AI space. Its services was the most capable of doing that, because it’s able to focus on managed services, it’s not as hardware dependent, it’s got infrastructure that’s already been stood up to support that. And then of course, it’s got soft services that don’t require hardware. And so that team, and we did talk to the head of that business, Ken Wong, there’s confidence. It’s going more vertical, more industry solution based, company’s investing big time in multiple years in AI to be a player in that space.

And listen, for OEMs it’s going to be a challenge. As the AI experience moves to the application layer, the infrastructure providers, you mentioned this with Chuck and networking, and we’ll mention this here, you got to have data, you got to have storage, you got to have compute. And by the way, with inference it’s not going to be all GPU. Even though we like to make the GPU everything, there’s still going to be demand for traditional acceleration on CPU. Also, there’s going to be a pretty big swing at some point to edge in devices where AI is going to have to have an on device. And that’s something that I think Lenovo will be well positioned to deal with.

So I’m not going to say much about the device market, Pat, let’s just say based on what I said in the last segment about Cisco and the overall macro, it’s still murky. It’s opaque to me whether we’re really out of it. It kind of felt for a while, everything started feeling frothy again, felt like maybe we’re going to head for a soft landing. Every stock had started running up to almost near highs, we were almost back to the highs of 2021, and we got a bit of a gut reality check this quarter. Seeing the numbers from Cisco on infrastructure was promising for enterprise spend, seeing some of the numbers here from Lenovo to me is indicative of, it could be a supply issue, it could be a demand issue. That’s not entirely clear on the PC side. I still think we’re a couple quarters away from seeing.

But I do think AI was going to create a new kind of product, new demand for a new profile. And then just doubling down on infrastructure, there were some bright spots, there were some good numbers in there, you mentioned this. And the company did announce it’s what, the number three on infrastructure for AI now, that’s what they’re claiming. So strong there, and even still the number one on PC, with inventory now. So we see the tide turn, this could be a good thing for Lenovo. Not the easiest quarter for any CEO or for any leadership team to tell the market, but there’s still a lot of good things happening there. And I do think the corner will be turned, most likely not until really into probably the first, second quarter of ’24.

Patrick Moorhead: Good analysis, man.

Daniel Newman: Thanks.

Patrick Moorhead: Do we actually know this content? I think we do.

Daniel Newman: Yeah. That’s why this show’s the best.

Patrick Moorhead: I agree, buddy. Hey, and we do like to pat ourselves on the back. Let’s go to the next topic, the Intel-Tower Semiconductor deal is off. What’s next? What does it mean, Dan? Is Intel just done? Are they toast, or is this just a eh, whatever?

Daniel Newman: When you pat yourself on the back, is that some sort of double entendre? Like Pat patting his pat on the Pat?

Patrick Moorhead: Yeah, pretty much.

Daniel Newman: Yeah, I got a mat, you got a, Pat and mat. All right. So yeah, look, in the wee hours of the night, this was a fast start to the week. I think it was what, Monday night? It was when the release came out and yep, deal is off. Now, it was weird because the deal really started to take shape, it was early ’22 I believe, was when the deal was agreed upon. At the time, the tensions with China looked a lot different than right now. But let’s be very clear, this deal went to China to die, just like the NXP deal went to China to die, just like several other deals go to China to die.

And China’s got a way, people don’t understand, China’s not sitting there going, no. They’ve got a really great way of making these deals linger forever until they end up costing the companies lots of money or they become just obvious and apparent that they will not get done. And this is what happened here. I think when Pat Gelsinger, and I had some people back channel me some press media, I talked to Bloomberg about this and some others, and they asked me about how did he ever think this deal was going to get done? And at the time when the deal was being agreed upon, our relationship with China looked different.

I mean, you have to remember that under the current administration, the cooperation with China from a business front, and then with the advent of AI and the desire to have control of supply chains and be the global technology leader based around AI, has basically caused us to put some very strict controls on access to chips to China. Now, there’s a genuine reason to be concerned. The concern of Taiwan is real. The concern of global technology leadership is real. The concerns about stealing, copying and infringing upon designs is real. These are all things that we do genuinely need to worry about. But we’ve basically cut China off from the process technology, most specifically EUV and the ASML machines that they need to move from 7 nanometer to the next process nodes. And by doing this, we’ve basically cut China off from being able to compete at the leading edge, and most specifically in AI.

This has national security implications, this has technology leadership implications, and of course this makes it hard for China to build an economy that’s going to compete with the US and its allies. This is what it is. Now, this is in its own sense, Pat, it’s a microaggression. And you could argue it’s kind of a form of a nonviolent war that we’re fighting right now to be the most powerful alliance in the world.

And so China has little ways. Obviously we can go to actual war, but I think nobody really wants that. There is a sort of a… I don’t know if you’d call it almost a Stockholm Syndrome type of relationship between our two countries. We need their consumers. You see over the last several weeks, I mean we didn’t talk about this much with the Lenovo and Cisco thing, but China’s economy is down. China’s economy is down, and when China’s economy is down, we don’t sell as much stuff. Things that are produced by US companies are often sold, they often have mid double-digit market share of sales of many of our devices and products. And so right now, we’re not selling a lot of stuff.

So I realized I didn’t talk a lot about Tower, Pat, but I’m going to leave some of that for you. But there were all kinds of opportunities for Intel to become full service, Tower was going to short circuit this opportunity. There is still an opportunity for the company to partner. I think you said something provocative about GlobalFoundries and I’ll leave that to you. I think truth be told though, many of these analog processes and these higher nanometer process nodes have taken many years to develop. They’re highly specialized, there are very few companies in the world that can do them. And by the way, a lot of our shortages were in these processes, not in some of our leading edge processes. And I don’t think people fully appreciate that.

But TSMC has a very, very full repertoire, and now Intel is going to have to figure out how to fill that gap or it’s going to have to partner. That was the biggest sting of this deal not going through, but it was doomed from the day we probably enacted our first chip control several months back in China.

Patrick Moorhead: Yeah, good stuff, Dan. I’m going to give a little bit of background on Intel’s manufacturing strategy and talk about how Tower was supposed to fit in and then talk a little bit about the go forward plan. So back in March of 2021, I had a really good conversation with Pat Gelsinger when he came back. Literally Gelsinger came back in February of ’21 and there was a lot of questions about his strategy. And Pat wasted no time basically saying, no, we are IDM 2.0, this is what we’re doing. Two months after he took the helm, and if you remember IDM 2.0 by the way, IDM is integrated device manufacturer, they announced two new fabs, talked about Intel 7 nanometer, reentering the Foundry business with IFS, increase its external foundry use with companies like TSMC, collaboration with IBM research, and getting back to what was known as IDF with Intel on. So literally Pat wasted no time.

Now part of that was, well listen, how would Intel be what I like to call an end-to-end play? A company that can not only do leading edge, but also bleeding edge. But if you look at the different product areas, analog, I mean Tower Semiconductors sign off is where analog and value meet. They’re very clear. So that’s CMOS sensors, power management, RF that we see in wifi and in 5G, automotive mixed signal CMAs, so you get the idea. And by the way, very similar, not the same as what GlobalFoundries does. Now, Tower is a very small company. I think they did $300 million in the latest quarter. So what that means is the GlobalFoundries is probably about five times bigger than them. So this was really a, hey, Intel is going to put some water on this, some fertilizer, and bring them into a secure supply chain for Western Europe and the United States. It’s your one-stop shop. And like you noted, TSMC is also a one-stop foundry shop.

So what does this mean? Does this mean that Intel is out and can’t be end-to-end? You said it Daniel, I’m expecting a strategic collaboration between Tower, because Tower is a small company. It’s very focused, but I can see a strategic collaboration where Intel is the upfront for Western Europe and the US on end-to-end. RAMP-C is a great example. RAMP-C is the Department of Defense contract that, by the way, both AWS and Nvidia have signed up to. I know Nvidia will likely do their wafers, AWS will probably do their packaging in there, but that’s how that would work. And you would bring Tower in under that RAMP-C as they’re an Israeli, not an American company.

So you get the idea, and I brought this up with some folks at Intel, I mean strategic engagements are great, but your margin sharing, and you’re not getting the full net cash value out of the value that comes out there. But on the other side of my mouth, I’ll say Intel has struck a lot of financing deals to finance their $100, $200 billion in CapEx with third parties. So maybe this would be a good thing. I don’t think it’s as good of a good thing, but I think nonetheless it’s better to have Intel and Tower doing stuff together for not only Tower’s and Intel’s sake for US and Western Europe.

Stuff’s complex. We think we actually know this stuff, don’t we?

Daniel Newman: Yeah, I think we said that after the last one. Should we do a pat pat on the pat each time. Do you ever listen back? Do you ever just sit on your couch and watch yourself on the pod?

Patrick Moorhead: Always.

Daniel Newman: Okay, just checking. So we’re really good, right? Nobody knows this-

Patrick Moorhead: By the way, just the audience. If you don’t know Dan or I, I mean we are trying to be funny.

Daniel Newman: We’re not actually that arrogant. We’re close to this arrogant, but not actually arrogant.

Patrick Moorhead: It’s just funny saying it, right?

Daniel Newman: I actually want you to know, so everybody out there knows something, this is like the, “Hey, Dan’s going to reveal a little something about himself.”

Patrick Moorhead: Who?

Daniel Newman: I can’t watch myself back. I actually hate watching myself back. So when you do that and you tell me we’re good, I’m like thanks for telling me. Because honestly, I sometimes think this can’t be good, because I just can’t stand myself. I’m kidding.

Patrick Moorhead: All right, that is a psychology break for The Six Five, 30 seconds.

Daniel Newman: I’m opening myself to the world. You’ve told them all you love it, I told them all I hate it. But you know the truth is, I have a lot of fun on the show. I have a lot of fun on the show.

Patrick Moorhead: No, and I have a lot of fun on the show, which is why I love it. And God, if I could just do this for a living, like the entire time and make decent cash, I might just do this the whole time.

Daniel Newman: I think we could. But I think the problem is, it’s all the other stuff we do that makes this work. If you didn’t do the briefings and the advisories, I know and the CEO listening tours and the things that we do, we wouldn’t know everything. I don’t know. It’s hard, what are you doing like 14, 18 hour days now?

Patrick Moorhead: Just 12.

Daniel Newman: This is by the way, this is quick, so to our producers, make sure you cut this part out of the little clips we do later, because this is only for the full listeners. But in all seriousness, 12 hours is a short day right now. You know that joke about taking a half day? I know I’m going to only work half, which half? The one that’s 12 hours. Oh yeah, one of those weeks. But you gotta keep up with it.

Patrick Moorhead: Got to keep up with it. If we didn’t love it, we wouldn’t do it. Not that it’s healthy. I’m trying to figure that out. I’ve got a 12 year lead on you, so I’ll tell you how it actually ends up.

Daniel Newman: I thought you were like 57.

Patrick Moorhead: Quiet. Stop that. All right, let’s dive in. Next topic, Synopsys Q3 2023 earnings, and an appointment of a new CEO. So a little background, software design and test validation is being, I’m not going to say taken over by software and AI, but that is the direction it is heading. And it’s super exciting and I think puts companies like Synopsys and Cadence in a bigger driver’s seat in the next five years. The more people you can enable, the more fluid IP is, chiplets coming in, I mean I’m super excited about the market as a whole. And yeah, the two horsemen in EDA are Cadence and Synopsys.

SNPS set a great quarter in the background of kind of a gloomy chip beat, beat raise, and a lot of it was on the back of AI. The thing you need to realize is they are at the front end of design. So their revenue is coming in based upon the designs that are being done, not the ebbs and the flows of the semiconductor market overall. They beat on EPS by over 5%, a little beat on revenue. But the cool part is they mapped out, like you and I have seen, details on how they make money in AI, and I thought they did a really good job on that. It’s like first, design participation, the explosive demand for AI chips, if you’re Nvidia, AMD, you’re Amazon, using those tools.

And the second is putting AI across the full EDA stack. And I talked about AI and software doing more for design and validation and test, that’s called Synopsys.ai. And by the way, Synopsys.ai was out before it’s cool, because they have a ton of customers. They have nine out of the top 10 semiconductor companies on Synopsys.ai. And third is an internal, how do I make AI to improve efficiencies, do transformations and automate internal workflows? This company gets it. And then they didn’t pull up, they actually said AI chips have already driven half a billion dollars in revenue over the last 12 months, but it’s only 10% of Synopsys’s revenue coming from AI right now. So big growth, but more room for growth there that they’re not tapped out.

So that was a great quarter, I love this space. The big announcement was that co-founder and CEO, Aart de Geus, is retiring. Sorry, he’s not retiring, he’s moving to be executive chair of the board. He co-founded this company in 1986, the year I graduated from high school, and has been at the helm ever since. I think that is pretty awesome being there that long. And a new gentleman, not new, not new to Synopsys because he’s been there for 25 years, and was the architect of the AI strategy, Sassine Ghazi. And I had the chance to talk with him right after the earnings call to get his point of view on not only the quarter, but more importantly going forward.

Dan, we love to talk about what’s next with new CEOs that come in. Hey, did you get brought in? The board wants to do something different, change the strategy. We have people that won’t talk to us until their listening tour is between 90 and 120 days. But essentially it’s, we have a good strategy, and oh by the way, I helped craft that strategy with the board of directors, and I already mentioned he was the architect of what they’re doing in AI. So net-net, it’s a great time for a transition. It’s a high point. Doing really well. In fact, I look back at the last four quarters, they have beaten on EPS and revenue consistently. Good time to do this, and I look forward to getting to know Sassine even better.

Daniel Newman: Yeah, look, I have not spent as much time with Synopsys as you have, but looking from the outside it seems with the massive, what do we like to say, Pat? You can’t run software on air?

Patrick Moorhead: Exactly.

Daniel Newman: And so behind that are some really important players like Synopsys that are the enablers of design of semiconductors. This ecosystem often gets hyper-focused, like Nvidia right now getting an uneven lion’s share of the attention because it is the fabulous designer of AI systems that are very popular right now for training large language models. Behind that though are companies like Synopsys that actually make laying out these chips possible. Behind this are companies like ASML that make the hardware machinery that actually enables the production of these things. Behind this are materials players, there are analog chip makers that make chips that are part of systems that are enabling the complete systems. There are assembly companies in Asia that are putting these things together.

And what I guess I’m saying is that’s kind of how Synopsys is. It’s probably never going to be a company that’s going to get the kind of attention when we talk about semiconductors that the big [inaudible] monolithic or systems designers are going to get, but try building these systems without them. And so I think that’s a great way to talk about these things is, there is an ecosystem, there are partnerships and these things are really important.

Pat, in terms of the new CEO, look, my phone’s on, I look forward to the call. I look forward to having a conversation to get to better know how under the new leadership the company’s going to scale, going to grow. And then I look forward to being part of the market story in terms of telling how Synopsys will drive its next wave of innovation, its next wave of growth, and of course become more deeply interdependent, like its recent Intel partnership, with these big chip makers that are in the marketplace, Pat.

So there you have it, congratulations to Synopsys. We’ll talk soon.

Patrick Moorhead: Yeah, let’s move to the next topic. That was good comments there, and I would reach out to Dan if I were Synopsys. Dan’s a smart guy.

Daniel Newman: I might know somebody that came over recently.

Patrick Moorhead: Yeah, I don’t know. Maybe. Hey, let’s move to the next topic, which happens to be a chip topic, that is Groq chooses Samsung and a Samsung Foundry over TSMC and IFS. We talked about this last week when we were talking about this cool performance on LLaMA, but Dan, what’s up here? Two in a row, two weeks in a row talking Groq.

Daniel Newman: Well look, I mean the originator of the LPU.

Patrick Moorhead: The LP?

Daniel Newman: LPU.

Patrick Moorhead: Is that a record? Oh, yeah.

Daniel Newman: Layer processing units. Remember how much credit we gave Jensen when he came up with the DPU, even though I’m pretty sure that Marvell pioneered that more than Nvidia did. Hold on. Anyway, I’m sorry I had my alerts on, but even though that happened.

And then of course there are some other companies that are building chips for processing large language models, but Groq has been uniquely focused on being able to do that. And last week we talked about some of the advancements the company had made in terms of the tokens per second per user, this week we’re talking about the company making a decision to do its manufacturing and to partner with Samsung. Now Pat, that’s not often what you hear from an established semi designer, but Pat, I think this is an example of interdependence. I think Samsung sees Groq, and I believe it also, was it Tenstorrent that it also announced something with recently, Pat?

Patrick Moorhead: Yeah.

Daniel Newman: I think so. I think they’re looking at AI HPC data center solutions and trying to increase their relationships, and Groq is showing some really strong performance and they’ve decided to lean in with Samsung Foundry. Pat, we’ve talked about this a little bit with the Nvidia and what’s going on with AI and how companies like AMD could end up winning and how Intel could end up winning, the same with Groq. I think Groq here is making a strategic decision to partner with a company that sees value in its business, that’s willing to be probably a bit more flexible on its terms, invest into the relationship and help a company like Groq that has a strong capability to innovate and disrupt and at least help fulfill this surging demand for AI using Samsung’s capacity. And so to me it’s really straightforward, and if I’m Jonathan Ross, CEO and that team, I’m looking for a company that’s willing to invest with me in the future and that’s willing to give me the capacity I need.

And Pat, I can’t speak as much to what Intel maybe could or couldn’t have done here, but I think TSMC probably doesn’t have the same need or demand and probably giving up the kind of term, and obviously the volume commitments to a company like Rock could have been very challenging. So I think with all that in mind, Groq found a partner that was willing to play within its constraints, within its expected revenue and capacity and volume. And I think Groq as we’ve said, and we’re both investors, so I think it’s fair that we disclose that, I think for Groq it’s very important that they focus on the partnerships that are going to enable them to hit their growth marks as cost effectively as possible, with the global capacity and scale of someone like Samsung, it’s a good win-win.

Patrick Moorhead: Yeah, good analysis there, Dan. I’m going to probably take it from maybe a little bit of a tech perspective and maybe talk a little bit about the relationship there. The reality is that picking a foundry partner is more than just who has the best process, the bleeding edge, a lot of it comes down to relationships. Samsung made an investment in that, and quite frankly, TSMC is very hard to work with if you’re not a top five semiconductor player. And even when you’re a top five, they’re difficult, because what you’re competing with are companies like Apple who are paying TSMC billions of dollars upfront for reserved capacity.

But architecturally, I don’t think that Groq has to have a bleeding edge from TSMC. In fact, their architecture, it’s more of an ASIC than it is a GPU. And as we talked time and time again on this show, ASICs are a lot more efficient than a GPU at doing training and inference. Now a GPU is more efficient than a CPU, and I like to look at that at the overall wave of programmability, and FPGAs fit in there as well. So it makes sense to me where Groq might only need 6 nanometers, which is what Nvidia was on in their last, I think it’s the 8100 was on 6 nanometer, to be successful, because they have the efficiency of an ASIC to overcome that, like we saw with LLaMA and what they’re doing on that. I think it was a 70 billion parameter model, a lot less expensive in what you need to get done, which makes perfect sense.

Good stuff, congratulations to Samsung Semiconductor on that one.

Hey, let’s move to the next last topic, and that is Dave Limp exiting from Amazon, and he was the leader of the devices group and he had been there for 14 years. And pretty much everybody who is listening on here, I am sure has used one of their products, a Kindle, Alexa, Echo. Now, he bought the Ring capability, but quite frankly he made it a lot better. And I think I’ve single-handedly bought 50 Ring cameras since its existence, so I’m a pretty big stakeholder here. Dave said in a blog post, “it was time to go.” No details. The only piece of detail he said is that he won’t be doing it in consumer electronics, which was interesting because he’s been in the CE space for over 30 years. He’s an ex-Apple and an ex-Palm guy.

So I then look to Andy Jassy and his statement to see if he could add some color on this, because quite frankly, you need to look at the Alexa business, and you, this is not me talking to Andy Jassy, but the company needs to figure out, hey, do we measure this as a standalone profit driver? Do we look at this as a profile creator to serve you better ads, to either buy their stuff or other people’s stuff? So for instance, if you’re talking to it, and I have video and pictures, it knows a lot about you.

Is it a frictionless way to buy stuff? I know that my Alexa devices, particularly Echo devices, ask me nonstop, hey, do you want to buy something? Did you know you could buy something on this? Potentially that was one of the big drivers, because if you look at the history of Amazon all the way to one click shopping and back in the early days when it started, back in the 2000s, actually late ’90s, it was all about how fast the checkout process was. So this whole idea that you could tell your device to go buy stuff or create a list and then go do that. And by the way, the final way I think needs to be up there is a future service expansion opportunity.

But yeah, Andy didn’t give a lot of insights about that. It wasn’t, hey, we’re going to strategically relook at it, but he said, hey, I believe those businesses will add customer value, and he’s excited and quite optimistic of what’s being built.

And when I talk about the new services, I like to look at it like this. So the home service opportunity I think for Amazon is pretty immense. And ADT only has a market cap of about $5 billion, but then again, they’re only around 10% of the market. So let’s say the security market is 10X that size, but I think it’s bigger than home security. Think of robotic automation in the home. Our nation’s, I think, biggest spend issue that’s out of control is healthcare. People keep getting sicker diabetes, what elder care could a potential future Amazon robot provide to the US? In Japan, where they have more people dying than people being born.

So that’s that, that I want to end with. There’s a lot of people leaving the executive staff under Andy Jassy, right? The worldwide consumer lead, Dave Clark, left, the media leader, Jeff Blackburn, left, Charlie Bell left, Alicia Bowler Davis left, and corporate affairs under Obama who had been in here for a long time, Jay Carney, left. So the chief communications person and communication strategist are all gone. So I’m really interested to see if these moves is an Amazon that’s going to go off the rails with all of these senior leaders in here, or is this a scenario where Amazon did such a good job with culture and training in the Amazon way that was started under Jeff Bezos that it almost doesn’t matter who you plug into these roles, it’s just going to keep moving forward.

Daniel Newman: Yeah, I think it’s the latter with an asterisk. I mean, a company that’s this big is always going to be bigger than any one person, even any group of people. How many people that are clicking buy on Amazon knew who their chief communications officer was? They don’t. So Amazon’s built something that’s so much bigger than that. It’s just like Andy was so imperative to AWS, but it’s gone on under Adam. It just keeps going on, and because it’s built an ecosystem, it’s built a community, it’s built a user base.

Having said all that, I want to touch on devices and I’ll touch on what you said about the corporate leadership. On the devices side. I think the Devices is a data play, not a product play. I think the company has been able to utilize this to leverage and understand its consumer at a rate that’s just exponentially greater than what Walmart or Target or any of these other companies will ever build to understand the consumer and its behaviors. It’s basically now become an integrated part of your home. They’ve done it at a very low price, been able to gather that data.

Amazon has been endlessly investing in improving its supply chain and making delivery times shorter in terms of putting green trucks, and it’s always sort of been dilutive to the company’s earnings on the e-commerce side. But that’s what you do when you’ve got a golden goose, which is AWS, and it’s always had the ability then to take its massive operating profits and enable to invest it in its future endeavors. That’s the cycle and that’s why I think the breakup is probably pretty unlikely. Having said that, if they did break it up, e-commerce would be on a much more level playing field, because it would have to invest very differently.

But you mentioned healthcare. I mean look, Alexa and its ability to understand health wellness, to be able to identify people’s potential health issues and quickly document them. I mean, they’re building for the future. The ability to use a camera inside of your home to see that you’re ill and be able to order you chicken soup, Tylenol, or to see that it’s something more serious and to schedule you a telehealth visit, and this is where Amazon’s going.

And so Alexa’s always been more of an enabler of that, it’s a data play more than a product play. The things they’ve kind of tried to get into that are a little bit more traditional, the Fire Phone and stuff like that, kind of never stood a chance. It just never did. They did okay with the Kindle, that was the inroad, the digital book, and so that was as far as it went. Some of these “robots” things. To me it’s more about showing that we’re an innovative technology company and because you do a 100-something-billion a quarter, there’s some projects, some testing, but it’s always going to be about the data. I know I got-

Patrick Moorhead: Can I ask you a question though? They’ve had this data for a decade. Are they going to just find some new way to do something with it? Do they need generative AI to take it? I mean, it’s been out there forever.

Daniel Newman: I think they’re already doing it.

Patrick Moorhead: What we buy, they know what my face looks like.

Daniel Newman: But how have they grown every quarter at such a high rate? I mean, look at their revenue quarter to quarter to quarter to quarter, they’re getting better and better and more prescriptive. It’s Miyagi judo mind tricks. It’s not so obvious to you, but the point is you’re going there and your ability to buy everything you need and getting it right, you know what I mean? It’s happening faster and faster.

Patrick Moorhead: Yeah, the layoffs though, Amazon Devices group went down probably 50%.

Daniel Newman: No, it’s nothing more than a play-

Patrick Moorhead: If it’s so amazing, why cut it? Why gut it?

Daniel Newman: I just think maybe the kind of data, the amount of data and the amount it wants to focus on actually cutting edge versus just enabling the data, which is my take. I mean, you have your take. I have mine. I’ll tell you one more thing.

Patrick Moorhead: I’m asking questions.

Daniel Newman: Yeah, I’m genuinely telling you-

Patrick Moorhead: Am I not allowed to ask questions on this show?

Daniel Newman: No, you’re not allowed to challenge me. I’m always right. But in all seriousness, I think we’re probably more in alignment than not. I just mean like, look, it’s been a tough year. The street wants more profitability. They don’t get enough benefit out of the cost. They don’t need to be innovating in terms of the hardware product itself as much as you might think. What they need to do is to get more of these into more homes so they can get better data and get better insights to keep delivering more stuff to everybody’s door. And then ultimately the kind of stuff, right? So it’s not just knickknacks, it becomes your electronics, it becomes your healthcare needs, it becomes your food and grocery, and eventually it can potentially be everything. And that of course will always put them in the limelight of everything from cool tech news to antitrust discussions.

The only thing I’ll say about Andy and the team is anytime a new CEO comes, I give it a year to two years in, the whole executive teams tend to get washed out. This was a group of people that all wanted to be the next Jeff Bezos, and probably a lot of them thought maybe they were the person that should have been next in line, and when they realized it wasn’t them, I can’t think of a company, Pat, where this doesn’t happen. When a new CEO comes in, within a year or two people figure out, am I part of the plan? Am I not part of the plan?

Patrick Moorhead: I know Apple was pretty consistent.

Daniel Newman: But it’s Apple. I mean, are you even allowed to leave? I thought you were chained to your desk.

Patrick Moorhead: Google was pretty consistent.

Daniel Newman: I can’t remember that.

Patrick Moorhead: No, this is a great conversation.

Daniel Newman: I can’t proclaim that. I think it changes a lot. I can give you plenty of examples where it did change.

Patrick Moorhead: Yeah, during times of struggles, 100%. Amazon has this seven-year, if you’re going to invest big, it doesn’t pay back in seven years, it’s off. And that’s kind of where I think we are. I don’t know what off means, I think it could be a significant reduction in investment. And by the way, we saw a huge reduction in investment from Google in the same space, in all of their smart home stuff.

But hey, great conversation. Folks, thanks for hanging. And we turned The Six Five into The Six Ten. We just hit the 59th minute. Thank you for tuning in, I hope you liked the show. Give Dan and I feedback on social media, you know where to find us. Have a good morning, good afternoon, good evening, wherever you are on the planet. We love you, take care.

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