On this week’s episode of The Six Five, hosts Daniel Newman and Patrick Moorhead get together to discuss:
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Pat Moorhead: Hi, this is Pat Moorhead and we are back for a very not-on-schedule Six Five Podcast. We are glad that you’ve joined us and you might be wondering, “Pat, what is going on? Why are you doing this, you and Daniel on a Wednesday afternoon?” It’s simple. One of us scheduled a flight when the pod normally goes. I won’t say which one. We want to protect the innocent here, but we’re just glad you’re here. And Daniel, it is so good to see you. I’ve only seen you twice today and I’m seeing you again and I’m going to see you again in an hour. And then we’re going to do happy hour together. It is a Dan and Pat type of day.
Daniel Newman: Yeah, it’s funny because there’s his, hers, and ours, right? Because we’ve got more insights. I’ve got future research in the Futurum group and of course we have the Six Five. But it sure as heck, if anybody watched us at MWC, it would be more like it’s ours, ours, and ours because the Six Five is going berserk. And you know what? Couldn’t be more proud of how the MWC week went, Pat. We did what, 15 recordings with some of the world’s most important tech companies, some of customers, ecosystems, partners, hundreds of thousands of eyeballs watching what we had to say and we want to cover today. And by the way, don’t feel sad if you miss and you’re not able to attend this because you had the Friday session on your calendar because I expected a lot of you did.
Pat Moorhead: Yes.
Daniel Newman: Because we’re going to do it again on Friday. This is not the last time. We’re doing a catch-up because there was a lot that went on last week and we didn’t want to fall behind.
Pat Moorhead: And if you’re new to the Six Five – which, first of all, we have to ask what’s wrong with you? We cover six tech topics for five to 10 minutes each. Try to hit on the analysis versus the news because we know you can look up the news, do a Google or a Bing search and get there. We also talk about some publicly traded companies and we’re going to be talking about some earnings results, but don’t take that as investment advice. This is strictly for educational entertainment purposes only. So, Daniel and company, we have a big show today. We are going to talk some Mobile World Congress highlights, some of the trends. We’re going to be talking about a Nokia rebranding. We’re going to be talking earnings for each PE, Pure Storage, Dell Tech and HP. Wind it up, Daniel, I am calling my own number.
Boom! MWC 2023 themes. You can listen to this segment or maybe watch these six hours that we did on videos and you can catch all this. Actually, do that both. But, I’m going to kick this one off. How do you pull five days into five to 10 minutes? I’m going to give it my best shot. The biggest themes that I saw – first of all, we have to give 5G credit for what it’s brought right now. While I know it’s not what everybody expected, and I’ll get to that in a little bit later, why I think we think that. It did bring an incredible amount of spectral efficiency to the table for carriers, where they could deliver the same amount of bits at 20% of the cost. And that is a really good thing. What the industry did that was different, in 4G versus 5G, is at the end of a 10-year 4G run companies like Uber came out, right?
So we had to build the network first and then the developer showed up after that. It makes sense, right? At 5G, the industry piled on at beginning of the build out and we’re about five years into a 5G build out. If you track this to 4G versus 5G, five years from now, the network will be done. And that’s where you will have, supposedly, swing-you-around-the-room type of applications that everybody was talking about. Part of the 5G, wa-wa or let down is self-inflicted on the industry. But heck, even in the US, ARPU is up. The ARPU for US carriers is actually up based on 5G. What was the talk? First off, APIs was the name of the game. And whether it’s the GSM APIs, but if you think about those developers I talked about is, let’s say you are a global ISV and right now you have to, let’s say, write to 20 APIs. One for Verizon, one for Deutsche Telekom, one for AT&T, one for SK in Korea. The industry’s getting smarter and whether it’s GSM type of interface as… Heck, Ericsson’s Vonage. I always wonder if I’m saying that. Is it Vonage? Is it Vonage?
Daniel Newman: I say Vonage. I’ve always said Vonage.
Pat Moorhead: Bumped into to their CEO in the Admiral’s club on the way there, interestingly enough. But, there’s an agreement amongst carriers to use a common set of APIs. This would mean, theoretically, that regardless of what carrier and regardless of which carrier equipment vendor you are, that would absolutely blow the doors off speed of getting incredible 5G applications there. Cloud-based networks, whether it’s Cloud RAN, whether it’s Cloud Core, that was a huge talk. We did a ton of interviews with executives and sat down, not on video, discussing this with executives.
By the way, on the RAN side, whether it’s vRAN, whether it’s O-Ran, whether it’s open RAN or RAN RAN, the current RAN, it doesn’t make a difference. These can all be cloudified. But, vRAN and Open RAN and O-RAN can be done a lot easier. Private 5G, this was a big topic that was discussed last year. It’s actually becoming a reality with vendors out there. Whether it’s a Bosch, whether it’s a BMW, whether it’s an energy company, people showing off their wares and talking about it.
And the final one I’m going to hit, and Daniel, I definitely left you oxygen on this one, was Metaverse. Check out Moor Insights and Strategy analyst Anshel Sag. He went through probably what 25 companies were doing in the Metaverse. You might say, “Wait a second. Metaverse is dead, right?” Guess what? Apple is going to come to market this year and everybody wants to get their pound of flesh out at the show to show what they can do because love or hate Apple, mostly hate, they do create markets. They do understand how to optimize and experience. That’s what I saw. These were some of the key themes that I thought were interesting.
Daniel Newman: Yeah, I mean some of the big hooks, cloud networks, private 5G, they definitely were persistent year over year. I think one of the themes, if you back out even a little further Pat, was the macro, the way it’s being described in the media versus the way companies and technology leaders are thinking about it. We’ve had a number of sit-downs. Top executive, CEOs. I walked away from the event saying, I think the economy has challenges but there’s a lot more optimism. That maybe even some of the worst of the inflation, some of the worst of the austerity that we are going to see during this period is starting to come to an end, which is also very opportunistic for tech because I’ve relentlessly talked about the deflationary aspects of tech. If you’re building optimizations, automations, artificial intelligence, anything else that scales well, I think in the tech space there’s going to be a lot of opportunity.
I think generative AI, despite the fact that it really isn’t the right location in many ways being mobile and at the edge, it still found ground. You and I did a really interesting Six Five with Qualcomm CEO, Cristiano Amon, talked a lot about stable diffusion, which is a really interesting app because some of the generative AI that we’re going to want to do is going to need to happen on device at the edge with limited bandwidth and access to the network. Companies like Qualcomm, and other companies that are building on-device AI capabilities, are going to become very interesting there. Which, right now, I think all the talk is really about what’s happening in the cloud. The cloud providers are getting most of the credit. There’ll be more coverage of the overall ChatGPT space. Pat, you and I, Friday, we’re going to have to talk about Microsoft Salesforce, so we’ll come back to that one.
The other interesting theme, Pat, and this kicked off every show that we had, was Mobile World is back. Shows of this size with an impact on a global scale like we had with the pandemic don’t always survive. They certainly don’t always come back. This was a show, it was a wall to wall show, up to 2019, walking through the halls of, Hall three, down the main row over from where Qualcomm and Cisco down to where Samsung is. On the other side, Pat, last year was a bit of a ghost town. It was obviously a lot of rules, a lot of COVID related restrictions. I don’t think people wanted to travel yet. That’s over. Again, another what the media’s saying versus reality is reality is this show is back. Anyone that would tell you otherwise would be, I think, disingenuous.
I think that the criticality of the edge to the core network continues to gain momentum. I think the monetization in the carrier and telco ecosystem is becoming more clear. I think first it’s going to be about making connectivity pervasive. I think over time, what you talked about with things like metaverse, again not metaverse in the sense of Meta as the social media company, but metaverse in the sense of building applications that enable people to do their job more effectively, in a shipyard or in a large manufacturing facility, that’s going to start to gain momentum once again. And then of course data transport – how we move to be able to move data from one place to another is going to be massively impactful.
Everything as simple as just high quality communications and connectivity all the way down to moving mega peta-zeta-bytes of data from cloud to edge to enable a network to enable edge applications to be implemented and utilized, which by the way all creates opportunities and challenges for the mobile world and telco ecosystem, Pat. A lot more there. You have a Forbes piece, I’m going to put out a Forbes piece. There were some very specific things, some neat partnerships announced. Check out all our other videos. We did so many videos. We did partnership videos. We did CEO videos. We have surprise guests like Pat Gelsinger, Intel CEO, who did our first Six Five sneak attack. You can see me genuinely shocked when, those pushups, Pat, if you’re listening to this, you are strong. I get it.
Pat Moorhead: Great stuff there on Mobile World Congress. I’m glad you put in there that it was definitely alive. I don’t even remember seeing any masks. Nothing wrong with wearing a mask if you want to wear a mask. I see them all over New York City and San Francisco. I did not see them at Mobile World Congress. Let’s jump into a related content and that was Nokia business to business rebranding that they did. Daniel, was this just another run-of-the-mill brand change, color change, or something different?
Daniel Newman: Pat, you and I had the opportunity to attend, I think it was Sunday right before the show, the Nokia relaunch. It was not just a brand relaunch but a brand promise relaunch. A lot of people out there, Pat, probably remember Nokia for the navy blue handheld devices of the early 2000s. I played that snake game a lot. It was pretty awesome. It actually dominated the market. You could truly say Nokia had a very strong, I don’t know, dominance is always a risky word with companies that use that licensing in their strategy. But in terms of just their handset business, they became a bit of a global phenomenon. Certainly, a phenomenon here in the US. Having said that, the Blackberry became a very big disruptor to Nokia. After that, it never found its footing in the US the same way.
This is a company that has continued to be very valuable in infrastructure, very valuable in core RAN technologies, working with the big telcos. They never went away. But as we’ve seen with IBM, when you move away from selling PCs that people buy at a retail store to being much more critical at the B2B and service level layer, what can happen is brand becomes a bit muted. Then the market’s awareness, understanding, and valuation of the brand becomes a little harder to sell. And so, Nokia, the CEO, it’s top leadership got on stage and didn’t only launch a new brand, which was cool, kind of abstract. If we flash it on here, you basically would say there are some incomplete letters. A little bit like Kia, the car company did. It became a requirement of our brain to fill in those gaps.
For me, it was no problem whatsoever. I thought the company did a good job of painting the picture, telling a story and the story with the company… Look at you and Pekka. There you go. It’s not always about Pat. Is this about Pat?
Pat Moorhead: Sometimes it is.
Daniel Newman: Sometimes it’s about Pat. There’s Pat and Pekka. There’s the new brand. As you can see, I think anyone that’s known Nokia for a long time would see that picture, understand what the company is. The question is, is it valuable? Does it change? Brand exercises are always one of those things that have a combination of very tangible and very ephemeral. I think what Nokia is saying is, it’s turned a corner. Global reputation and role is increasing. The value it’s providing and driving to its telco partners and its ecosystem continues to increase. The company is looking to expand its valuation, grow how it’s seen in the market as providing the capabilities of the next generation of communications in the 5G era.
It’s also really wanting to let people know that we are still early days of 5G and its intentions to not only be part of 5G and 5G+, but into 6G, are palpable. Pat, and I’m going to be candid, I give a lot of market strategy advice, a lot of go-to-market strategy advice. I’m not a brand guy, meaning I have some intuitive feelings about brand. We’re not agency guides. You ran marketing corporate for a very large company at one time. But what I would say is, to me the ephemeral part was less important. What was important to me was the fact that the company is in a pivot, it’s in a transformation, and it’s being very articulate about the importance of its partners. Those missing pieces of its letters were described as it being filled in by its ever-growing and ever more important ecosystem partners. I think that message landed at MWC. Obviously, the results of a publicly traded company, Pat, in the long run, but congratulations to Pekka and the Nokia team.
Pat Moorhead: There are better brand people than I. I have led, as a corporate vice president, a new brand inside of a company before. But, I’m not a brand guy. I’m primarily a strategy guy, which is why I really appreciated the company not just splashing up a new logo with a new jingle. But, tying in the corporate strategy. Pekka did a great job going through the strategic, called Our Pillars. Those were, in my strategy vernacular, those would be objectives. Then Our Enablers, which again in my vernacular, would be called our strategy. What does a company want to do? They want to grow CSP, not be confused with cloud. But, communication service providers faster than the market. Faster than an Ericsson, faster than a Samsung and I don’t even know if we count ZTE or Huawei anymore. Maybe we do. The second one by the way, they also have to contend with the O-RAN folks in the future.
Second, expand the share of enterprise. These can be enterprise services like a private 5G. I think we saw the tie between them and Kyndryl and the great work they were doing on the next generation of connectivity. The third was actively manage the portfolio. I have to admit, I have no idea what they meant by this. I put that big question on one of my tweets Sunday. I want to figure, were they mismanaging their portfolio before? I don’t know. Was this a, “Hey we’re going to do some inorganic acquisition.” That was the question I did ask Pekka. I did like the answer I got from him and the team. Secure business longevity in Nokia technologies. Essentially, this is mining the Bell Labs and all of the research with the big R. Fifth, build new business models. We saw this in things like Anywhere RAN. They were hinting to this in the metaverse value chain, which by the way, kudos to the company for doing this.
And then finally, as a service. I appreciated that it wasn’t just splashing the logo up there. They put it in the context of strategy. The company does need help, particularly with enterprises, getting people off the notion that Nokia means 1990s era smartphones. Which by the way, my first smartphone was a 1990s era smartphone. Final comment I’ll make is I saw this 3D hologram of the Nokia brand that was spinning around probably in seven or eight partner booths. I wasn’t in every booth. That is hard to do. Congrats to the Nokia marketing folks. With that, I am going to take us out of the MWC zone and into the earnings zone. We are going to kick off with HPE. HPE absolutely crushed it again. They had their highest revenue since 2016. Highest, a record for operating margin, up 80 basis points to 11.88%.
They raised revenue and EPS which was incredible. Their run rate, their ARR, an annualized version of that is $1 billion. If you look at where the company was before Antonio Neri came on and I really appreciated the conversation that I had with him last Friday on earnings. It is not even the same company. It’s a company that is less focused on volume and more focused on value. It’s a company that’s more focused on software. It’s not that hardware doesn’t matter, it does. But, total solutions with a combination of their own software, combined with their own differentiated hardware is where it’s at. And then finally, you have to give the tip of the hat to GreenLake, which has a lot to the driving of that ARR number. It is a huge thing. In fact, over the last two years they doubled the as-a-service number to $10 billion through the end of this quarter.
Daniel, the company just doesn’t get the credit I think it deserves. It’s funny, a company like Salesforce has a train wreck and they make this comeback and their stock just skyrockets. HPE, again, you can no longer say this is a fad. You can no longer say, “Oh, this is because they’re catching up on supply chain.” This is because they have the right strategy. This is because of the incredible leadership of Antonio Neri. The company deserves more credit on the street.
Daniel Newman: Yeah, I was just pulling up a data point, but I think the company trades at just an incredibly low ratio, at most times. On the trailing 12, it’s maybe in the range of around 20. It’s actually trading higher. It’s doing better right. It lingered at 12 or $13. It’s up at $15 a share. Company pays a dividend. I came out in November and I basically put a market watch piece out saying, “Watch out for what are considered to be these stodgy old tech companies, and watch them have a really big 2023.” I am here to collect credit because I think it’s important, from time to time, when people make good calls. Let’s talk about the tailwinds for HPE. The tailwinds for HPE is, they made the transformation early. Meaning that every one of the big OEMs right now is going through this process of saying we want to go to subscription.
Most software licensed companies are doing the same thing. HPE saw that early, 2019 Antonio Neri announced the everything as a service strategy. HPE GreenLake, the company has made that move. Of course, it’s been able to grow that business to a substantial recurring revenue number and has been able to do so, I believe it’s run rate’s a billion now for the first time of recurring revenue. That’s a big meaningful transformation for a company. But, it’s still trades like a company that just sells big iron. That’s one of the things I think that, hopefully, the market begins to fix, but historically has not. By the way, Dell has had the same struggle as it’s moved into multiple billions of ARR. This is an industry-wide challenge. I believe in a meeting that was open, because Chuck said everything we talked about in that meeting at MWC was.
They articulated, Chuck Robbins from Cisco said same thing. Chuck is CEO of Cisco, Chuck Robbins, has over 40% of recurring revenue and the company still trades at a very diminished ARR. That, to me, has a lot to do with the fact that analysts in the market doesn’t fully get or appreciate, A, how critical these company’s technology are to operating an enterprise, and B, how successfully most of them have actually been in their transformations from all hardware or hardware plus some sort of service to a true subscription and software strategy. But, Antonio Neri – and I got a chance to talk to him on earning’s night, sometime around midnight in Barcelona. What I really took away is I think he’s finally feeling, for the first time, there is a little bit of, “We get it,” coming from the market. It’s being validated by customers who are now looking at the GreenLake portfolio in the crawl chart of products and services for things like data services, data protection, and backup, compute workloads, ML, and AI and everything else, and starting to say, “We aren’t going to move everything to the public cloud.”
We got that a long time ago. We continue to get that right. The biggest beneficiaries are going to be companies that have on-premise services that look like the public cloud. HPE is the furthest along. I’m comfortable saying at this juncture, HPE is the furthest along. That has been a catalyst. The fact that companies are being more cautious, they’re slowing spend, they’re being more scrutinous of moving workloads to the cloud, and that they’ve all settled on hybrid and multi-cloud architectures bodes well for HPE. This isn’t me saying the hyper-scale cloud is going to slow anytime soon. I actually believe the demand for compute services, automation, AI will only continue to drive forward more growth across the whole landscape. But, this also goes back to my comment on MWC, Pat. On why I’m optimistic. This is why I’m optimistic. The market is good for tech. The stock market? Maybe not so much just yet. But, people and companies are investing in tech to take advantage of deflationary value and to scale the growth of the business.
Pat Moorhead: Listen, the public cloud had a decade time advantage and it’s going to take a while for the hybrid multi-cloud to build out. I think what’s going to separate companies in this future age are their ability to support the hybrid multi-cloud, whether it’s a hyper-scaler that’s whether it’s an on-prem provider, I fully expect somebody, one of these companies, to get snatched up, acquired by one of these companies to go in and get that. I think they’re trying to figure out, right now, other elements of growth. But, simple Cue service from AWS came out in 2004. Azure didn’t even come out until 2010. It just shows you how much of an advantage that the public cloud has. Let’s move into another earnings infrastructure. By the way, an incredible software and as a service company, Pure Storage. Dan, why don’t you kick this one off?
Daniel Newman: I had a crazy week. You work all day. The one thing we didn’t talk about MWC, Pat, is you work US hours, meaning it’s a 7:00 AM to 7:00 PM show, but then you eat on Southern European hours. They want dinners at 9:00 and 10:00. The other thing is, of course, earnings come out usually around 4:00 PM which means, in the US time for me, which means if I’m doing calls with the executives, I’m done at 10:00, 11:00, 12:00 at midnight. I talked to Charlie Giancarlo, CEO of Pure Storage that night and wow, what great optimism. Charlie’s always a pretty, he’s charismatic in his own right. But, quarter four growth, 14%, 26% growth in ’22. While infrastructure was supposedly down, while companies are going to spend less on technology, while the company clearly has a moat.
That is both from the standpoint of giving customers flexibility, and, of course, as the flash storage continues to become more and more competitive with traditional storage, that’s really what you’re going to hear more about when we talk about FlashBlade//E. I’ll leave that one for you, Pat, because I don’t want to take everything out of this one. But, the growth across the business, really impressive. You had product growth. You had annual product growth. You also had subscription growth, really robust. Q4 subscription growth 23% and subscription services across the year, 30%, Pat. Another thing that was really impressive was the European and international revenue. It actually grew at five to six times faster than the US. And what does this mean? There’s two things to this. One is it’s FX related, the dollar has weakened, which gave everybody a tailwind after those crazy periods of FX for all tech companies.
But, the other thing it means is that these markets, where there is this higher level of austerity and this greater level of concern for recession, are seeing something like Pure Storage as a way to optimize their business. That is pretty interesting. All this subscription growth is also a great indicator that the Evergreen products from Pure are in high demand. For the market, there’s another macro factor, and if you look at things like with the trend lines with generative AI, AI workloads, we’re going to start to see the whole storage category become really interesting, Pat. We talked about this with Micron as it relates to memory. The other thing is all this data has to reside, has to be accessible, and it’s not all going to be sitting in hot and warm environments. The opportunity for storage is going to have a renaissance, I think, in the coming year.
I think Pure is really well-positioned to take advantage of this renaissance. The company is seeing ARR growth in a substantial way. They’re seeing customer net ads, nearly 500 this last quarter. The company now, it’s claiming 58% of the Fortune 500. My one big takeaway from Charlie was, in the last quarter it was all about market-taking. He shared that with me. It stuck with me. The company is at a size where what it has is a percentage of overall market share, big opportunity to grow no matter what the market conditions are. This quarter though, I think the company’s becoming increasingly confident in its ability to play in that mid-market and in that more traditional solid state storage space, that it’s never, price-wise, been very competitive. Now all of a sudden, it’s going to get competitive. I can’t imagine that’s going to be a bad thing for Pure Storage.
Pat Moorhead: Yeah, great comments. I’m going to hit on both earnings and FlashBlade//E. First of all, I think people were a little bit disappointed in the forecast when they put it out there. But once their peers, their competitors, went out, I think that they realized that it’s a tough market now. I do think it was a conservative guide. Every time you think of generative AI and every time you think of NVIDIA driving business, there is a very high likelihood that it will be connected to a Pure system. They were one of the first, if not the first, optimized for these types of parallelized workloads that require just an absolute tremendous amount of performance but also sucking less power, as well. I think as you look at that too, if you look at all the unstructured data that comes along with, not only generative AI, but also the environmental impact that Pure’s architecture provides, I’m feeling very good about the company right now.
FlashBlade//E – and listen, I have heard this every year for the last 25 years, well not the last 25 years, it was, hard drives are going to kill optical. But I’ve heard, at least for a decade, I think, that flash is going to kill hard drives. This very well could be. We’re going to have to see this spinning disc folks and what they bring to the table. But, pricing below 20 cent per gigabytes is on par with spinning disc storage. And when you factor in the environmental and the reduced power draw that goes along with this, this is a very precarious position that the spinning disc folks are encountering but also a huge opportunity for Pure, as well. It’s funny, we look at all the business and all the growth that Pure drives, but they’re still only in 58% of the Fortune 500. There’s another 42% they’re not in, probably for various reasons. Maybe they don’t need the high performance element. Maybe, they’re just locked into one of Pure’s competitor, but there is a long way to go to taking share, that you had mentioned.
So I see Pure as a market-maker and they’re doing this with FlashBlade//E. At least according to your call with Charlie, and unfortunately I couldn’t make my call with him, he is going into market-taking as well, taking market share. Anyways, good quarter, good opportunities for the company ahead, particularly related to generative AI and reducing that cost point on flash memory with FlashBlade//E. With that, let’s move to Dell tech earnings and I’m going to call my own number on that. Dell had a really good quarter. When I went to look at the optics, it’s somewhat of a similar story to Lenovo where if you looked at revenue being down 11%, you’re like, “Oh my gosh, a train wreck.”
What you have to do is you have to pull apart the different businesses. That’s really the only way to look at it. ISG, which is data center and edge, up 7% with record profitability, record storage revenue of $5 billion, up 10%. Daniel, that is hard to do in a – Dell has the world’s largest storage business. Flat out. To go up that much is hard. Also, when you look at where Dell’s sweet spot is, which is I would say high performance up to even the giant systems with Isilon, a little bit less of the low-end storage, that’s really, really hard. Servers and networking were up 5%. Again, not as high as the percentages as we have seen from some other companies out there. But still, it’s up there. If you look at again, storage growth, fourth consecutive quarter of revenue growth – which, I was a little concerned maybe three or four quarters.
But, it seems like Dell particularly, this is where I think they’re making their play, is in the re-architected mid-range of it. If ISG was so great, what happened overall? It’s all about PCs. Whether it’s Canalys or IDC, the market’s down between 30 and 40% on a unit basis, and so declined the PC business at Dell, that was down 23%. There were still some high points. Just like we saw with Lenovo that kept share, you had Dell gaining 140 basis points of commercial PC unit market share. It is crazy. It seems like every quarter we’re talking about share gains that Dell’s having across commercial. I attribute that to a good strategy. I also attribute that to making the right trade-offs as it relates to its product. But, also a sales motion in the small business that they’ve run effectively where they can be a solution provider all the way from PCs to small business server.
Overall, top line number’s not great. You had to peel back the onion on the quarter to get to the high points. I don’t see any of the challenges here as being self-inflicted, at all. It was all about the market. Final thing I want to say is, I want to give a tip of the hat to retiring CFO Tom Sweet. I spent a lot of time with Tom Sweet over the past decade. I think he came in right around the EMC time frame. What I appreciated, I think most about him, if I ever said something he didn’t agree with, he would say it. It wasn’t even sugar-coated. I love that economy of speech. I love just getting right to the point and Tom did some great stuff. “We’re going to go private. We’re going to buy a company. We’re going to go public again. We’re going to get our debt from junk status to AAA.” He was a big architect behind that.
Daniel Newman: You covered a lot of ground. I want to also say I had regular quarterly meetings with Tom, and appreciated the work he did very much and looking very much forward to working with the incoming CFO, as well. Always enjoyed my conversation with him very much. The overall performance of the business we knew was going to be bifurcated. We knew PCs were down. We knew infrastructure should be robust. We got really what we expected. You look at the overall market condition, Dell’s PC business really held up against the backdrop of the overall market. I think it was down, was it 11%? I’m trying to pull the right number. No sorry. 23%. What was the overall 2016?
Pat Moorhead: The overall revenue was down 11%.
Daniel Newman: No, I mean the market down for PCs this quarter, wasn’t it around 16?
Pat Moorhead: IDC said 28%. I believe Canalys had a higher number.
Daniel Newman: Okay, so I’m all over the place. Let me start that over again. PC market down 28. CSG down 23. It means the company performed better than the actual overall market condition. Pat, I am exhausted of talking on the PC market. That market did extraordinarily well for a period of time. Anybody that sees it as anything other than pull forward of purchasing is misunderstanding. We are going to have to have some innovation, some disruption, whether that’s on device AI, whether that’s new formats and form factors and screens, whether that’s lighter, whether that’s connectivity, whether that is going to be all-day battery life. There will be things that will drive the next wave of significant purchasing. The PC is much more resilient than anybody ever wants to give it credit for. I don’t care how big our phones get, people want to work on PCs. Dell, this is a goal. This is a goal for every company in this space.
As long as Dell is outperforming the overall market size and shape, I think they’re doing a good job executing. The company always really does do a good job executing. I’m glad that the company is diversified with ISG. I’m glad the company has its play. I continue to push the recurring revenue. It’s going to be interesting under new leadership, in the CFO, if they’re going to get more aggressive on talking recurring revenue. And specifically Apex. You heard us talk about HPE and GreenLake. Dell’s business is so much larger, though, I think there’s a concern as a percentage of the overall revenue, if they start saying like, “Hey we’re at a billion in recurrent,” and people go, “That’s 1%, that’s not very much.” But, it is important to say, “Hey, we’re getting traction with hybrid cloud, multi-cloud, data services, protection, backup, security, devices of service.”
How they’re going to be able to continue to explain that is going to be something I’m going to be looking at very closely. But Pat, kudos, record infrastructure revenue up 12%. Strength in servers. Strength in networking. Strength in storage. They’re gaining, by the way Pat, they’re also gaining commercial PC market unit shares. Even despite the down, they are doing well in certain spaces. Where do they sit? With Dell, they’ve had the same slide for a long time. The storage leadership and then the server PC, they literally have two slides in their deck that talk about all the spots that the company is number one. I would read them all off, but honestly if we don’t have time, we’re going to run out of time on the show. The point is the company’s well-positioned. The company’s diversified. The company’s had consistent leadership. The company is struggling with short-term revenue growth because the PC market is in a difficult spot.
But having said that, the pivot to software, the pivot to security, the pivot to infrastructure as a service, multi-cloud are all in their wheelhouse. I’m pretty confident long-term the company’s valuation will hang in there. By the way, they never value, much like HPE, very high so as that recurring revenue valuation as a PE, never very high. I think as the company continues to be able to roll out more of the subscription services, like HPE, they should be beneficiaries. When the PC comes back they will be certain beneficiaries.
Pat Moorhead: Let’s move from Dell Technologies into HP earnings. Dan, a little bit more of the same?
Daniel Newman: I guess you could go across the boards, Pat. I also did talk to Enrique Lores. I had a busy week. I stayed up late a lot, had a lot of good conversations. It was a tougher quarter. I think the company’s first quarter net revenue was down 18.8%. Let’s just start by saying much greater exposure than Dell to the PC market. It is their biggest business and it was impacted in a pretty significant way. They did reaffirm guidance. They did show some areas of strength and that’s going to be in some of the innovation areas and in some of the remote and hybrid work areas, which is where I was really encouraged. As many of you know, the company bought Poly last year. We know we’re going in this period of return to work versus working in office. You and I had worked with Dave Shull very closely, CEO of Poly.
Now he leads part of that business unit for HP, Pat. This is an area where I think it could be very interesting for the company because while personal systems revenue was down 24%, commercial personal systems revenue was down 18%, print was down 5%. The area around innovation and growth was the one area that the company is seeing some strength and growth. Remote work, hybrid work. That’s going to be a really interesting opportunity for the company to implement and get some strength moving forward. Pat, you and I – HP had some more challenges than others did when it came to supply chain throughout the process. It didn’t grow as much as some of the others. But having said that, it’s been steady. They’re going to have to weather two or three really difficult quarters, Pat. I think some of their premium products, I’ve been using their new Dragonfly.
I think some of these products are really great, but, we are going to see an incredibly competitive market. The ability to implement technologies and then expand this peripheral business, to me, are going to be two of the most important opportunities for it to scale and to grow. Pat, it wasn’t any surprises here. I did not expect it to be good. Didn’t end up being good. They’re going to need to see the market turn. I don’t know what their magic bullet is, because I don’t know if the hybrid work is big enough to turn the ship. But, I do think it’s an area that the company needs to lean into, to sell the market that there is growth ahead.
Pat Moorhead: It’s interesting with HP, I sit in some meetings with other industry analysts and they talk about the death of HP and the PC industry. I got to tell you, I’m here to say that the death of HP and the PC industry has been greatly exaggerated. Heck, even Lenovo pointed out, in their earnings released, that HP made a big rebound. This company is the number two highest market share company out there on the planet. I think some people, smart people that I respect, are confusing HP’s overall strategy, which is diversification with hybrid systems, with gamings, with workforce solutions as a service. Even forgetting that the company makes $800 million in profit, dollars in printing in a single quarter. Sorry, $870 million in operating profit dollars in the current quarter. That is absolutely unheard of. So I look at a solutions-based focus and strategy. I like the strategy. Is it going to be hard to get there? No.
They had a hard time with supply chain. I think you and I, when we listened to the calls, it was put on the slides, probably six straight quarters. It was an issue. I’ve talked to channel partners and it was an issue. The company did stumble. But, let’s not confuse that with the company deciding to get out of PCs or something like that. I think that’s lazy and I think that’s just dumb. Both you and I are going to be attending one of their big events up in Chicago. We’re going to have the chance to talk to the leaders of the company. It’s been a while since I’ve had the ability to do that with the exception of the quarterly calls that we do with the CF, CEO, and the CFO. But, I’m interested in catching up. I talked to Alex once every other month, but it’s been great to catch up with the print folks, the Poly folks, and the peripheral folks, as well.
Dan, we did it in 49 minutes. We did this, a midweek Six Five. I just want to thank you and the audience for bringing it home. If you missed us, don’t worry. Tune in on Friday morning at 9:00 AM Central time where we are going to have a rip-roaring. Did I just say rip-roaring? Did I sound like an old guy?
Daniel Newman: It’s going to be rip-roaring, dude.
Pat Moorhead: I did. We’re going to talk about Luminar Day. We’re going to talk about Plus and Nokia alignment. We’re going to talk about – sorry, Nikola alignment. We’re going to talk Dynamics 365, going all GPT. Salesforce going GPT. We’re probably going to talk about Marvell earnings and maybe even talk about some Windows 11 updates. But Daniel, thanks for your time buddy. I love that new office. I do.
Daniel Newman: Good. Looking good. See y’all later. Thanks y’all for tuning in.
Pat Moorhead: Thanks everybody. Hit that subscribe button if you like what you heard and if you have negative feedback, we don’t want to hear it. If you have positive feedback, tell us on…
Daniel Newman: Tell us on social media.
Pat Moorhead: I’m kidding, of course. Anyways, tune in. We love you. Take care. Bye, bye.