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:
- NVIDIA Q2 2024 Earnings
- Zoom Q2 2024 Earnings
- Marvell Q2 2024 Earnings
- VMware Explore 2023
- Oracle Cloud Joins VMware Cloud Universal Program
- Arm Files F-1 in Front of IPO
For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Daniel Newman: Hey everyone, welcome back to another episode of the Six Five Podcast, episode 181 Mr. Moorhead. I’m here with my bestie. How are you doing today? It’s Friday.
Patrick Moorhead: Doing well. I woke up this morning it wasn’t 100, it’s like in the 70s this morning. Cold front coming through, had to put a sweater on. So chilly but-
Daniel Newman: Is it going to be like 99?
Patrick Moorhead: Yeah. Well, I think we broke the three-digit thing last week or this week for one day. But I don’t even notice it anymore, I really don’t. In fact-
Daniel Newman: Yeah, my wife informed me. Well, I was out of town one day this week. It was like 99. And so, that’s some improvement. It also drizzled, she said, for about five minutes. Yeah, I don’t know.
Patrick Moorhead: You sure that wasn’t your sprinkler system, your hydration system around your back patio?
Daniel Newman: I don’t know. We’ve been on boil orders a few times here just because the water, I don’t know Lake Travis, it’s so low. I don’t know, it’s something about getting old and talking about the weather. It’s very comforting. But literally, there was a weather map at one time this week and it was this big circle of rain and it literally was like hugging Texas. So, there was rain everywhere around Texas and then there was this big spot of no rain, it’s like where rain goes to die. I did not realize I moved to the desert. We apparently did move to the desert, but we’re not outfitted to be the desert.
So, it’s been a bit of an interesting thing, but by the way, it has happened three or four times in the last few decades here. This isn’t, anyway, I digress. Busy week this week, Pat. We’ve got a bunch of earnings to talk about. We were out at VMware Explore, did some work and some videos out there. Finally, an actual filing, a real IPO for a big interesting and exciting company, and we’re going to talk about all that today. But before we do that, I do have to do the old disclaimer. The show is for information and entertainment purposes only, and while we will be talking about publicly traded companies, please do not take anything we say as investment advice.
Mr. Moorhead, there was one earnings this quarter that everybody was at the edge of their seat waiting for NVIDIA. Was it as big as everyone thought or was it a big old disappointment?
Patrick Moorhead: Yeah, I think we all probably know the answer to that. I mean, you can’t swing a cat. Even tabloids were covering NVIDIA earnings yesterday but yeah, they crushed it. And if I compare it to what I thought it would be, it was actually a little bit less of a beat than I had thought. I had thought for sure it’d be around that $5 billion mark. But the guide was exactly what I thought it would be, which was I had said in between two to three, but they crushed it. And quite frankly, I want to spend less of my time fawning over this.
And by the way, for the record everybody, there was a company that had as big a beat before and the company is called Cisco back in .com 1.0 Cisco crushed it because they were the backbone of the internet. So, this is not unprecedented, Cisco did exactly this in fact, they did it twice. But I have two questions. First of all, how long does it last? And with nearly zero competition to NVIDIA in the Western worlds, who comes in as competition and how? So, and how long does it last? So, SaaS is a done deal and listen, I’ve seen enough from Microsoft, Salesforce, Oracle Fusion to know this is going to be big and those companies are going to be able to make incremental profits on that.
So, this won’t just die at some point on the build out. If you think about how many SaaS applications have to be enabled and the amount of big iron that’s going to be required to do this. This is going to go on for a long time. The second thing is SaaS enterprises will see what’s going on in SaaS and it’s going to force them to write or augment or GAI infuse their own applications. And this is going to drive IAS and this is going to drive the on-prem guys. So, AWS, Azure, OCI, GCP on-prem if they can get GPUs, the Dells, the HPEs. IBM is a company that does both, they have an IBM cloud, GAI training in the public cloud but they also enable many of these opportunities on-prem.
And oh, let’s not forget about Red Hat. So, now let me talk about competition. So how long will it last? I’m giving this at least a year, at least a year. I’m extending that, I thought, “Okay, I think this can last about six months longer, but I think we’re going to go out to a year.” So, let’s talk about competition. Nobody likes one strong player in the market. And while 30 years ago that was an impossibility, today you have people like Google. With Google search, you have close to, I don’t know, 70%, 80% market share in search.
You have Apple who has a dominant share of smartphone profits, I think it’s 90% and the other 10% is Samsung. But there’s two ways that I suggest to everybody to look at this. There’s the hardware and then there’s the software, which is really the big moat here. I want to see some proof of life on the hardware. The hardware is not a slam dunk, even though I do think companies like Intel and AMD and even upstarts like Groq have some competitive things out there in the market. I do think that this is going to continue to be a software thing.
And these companies can’t really do anything on their own to get there. So, I would expect hyperscalers, open-source software companies, networking companies, hardware accelerator companies, banding together to make this happen on their own. What I know for certain is that no one likes one player who’s likely making 1,000 points of gross margin on the cards. 70% margins on the boxes where OEMs make 20 points. So, in the end, I’m going to call this, I think in the first half of 2025, both AMD and Intel will be 10% players of the accelerator market. That’s it, that’s all we have.
Daniel Newman: There you go, there you go. Listen, you did make a good call on Cisco. I would say this is largely unparalleled. At the end of last quarter, they came in at what, seven and a half. They guided to 11, they delivered 13 and a half, they guided to 16. Probably going to deliver 18 because companies don’t make big upward guidance like this if they don’t believe emphatically that they’re going to hit them. So, when they came out last quarter at 11, I said, “They’ve got 11 in the bag.” They probably had 11 in order sitting in their pocket at that moment in time. And then it was just a matter of how much more supply, how much more could they ship? It’s CoWoS. Now, we just got to figure out how to get TSMC to create more yield and then NVIDIA can sell even more. Do you like that I knew that?
Patrick Moorhead: No, no, it’s good and interesting.
Daniel Newman: I don’t know, everybody can look it up.
Patrick Moorhead: Well, it’s about wafers. It’s about the CoWoS and-
Daniel Newman: That’s what I said C-O-W-O-S, CoWoS.
Patrick Moorhead: Yeah.
Daniel Newman: Oh yes. So, I was actually saying smart stuff in case everybody didn’t know I’m smart. But anyways-
Patrick Moorhead: Dan, all I know is there’s only one guy whose head is bigger than the stage in New York, literally. Go check out Dan’s tweets, he did have some pretty good victory laps for his New York tour.
Daniel Newman: Yeah, I did New York Times, Barron’s, Wall Street Journal, Bloomberg, CNBC, got them all in less than 24 hours. But anyways, the thing about this is that’s so interesting though, is they’re literally the only winner right now, the only winner of this whole thing. And so, the question is one, does it last? I don’t think we need to really review history. The only thing I’ll say that we didn’t mention was the gaming and automotive businesses were both actually up very slightly, but I don’t think anyone even talked about it.
You remember for 19 of the last 20 years, NVIDIA was a gaming company that had this idea about accelerated computing and then it hit a perfect inflection. Automotive actually saw a little bit of a bump for the first time in a really long time. Now, all these things are AI drivers. What has NVIDIA done well? NVIDIA has done well, is that they have every partnership on the planet right now. What else NVIDIA has done well is they understand and you said this Pat about the software is how sticky it is.
And so, by aligning itself right now with effectively, I think Jensen’s been on tour, he’s on the same schedule as we are. He now goes to every event and he shows up and he talks about whatever partnership. This week it was VMware, next week it’ll probably be something at Google Cloud. I’ll be very surprised if we don’t see Jensen in San Jose at Google Cloud or San Francisco next week.
Patrick Moorhead: Jensen stays at the lowest level of Venetian room without a robe.
Daniel Newman: I don’t know, I don’t know. Maybe he’s frugal, maybe he’s frugal.
Patrick Moorhead: I think he is.
Daniel Newman: Some CEOs are people of the people. So anyways, what I do want to just reiterate or talk a little bit about is what you said is, I actually believe we have a problem if the competition doesn’t arrive soon. So, this runaway train of cloud infrastructure being built all on NVIDIA with this sticky software ecosystem is going to make it. I think every quarter that goes by that we don’t have a healthier competitive ecosystem, it’s going to be harder and harder to unwind. And so, if you look at what it took to unwind the position that Intel had in server chips, Pat, it was basically Intel falling on its own sword. It happened on its own, it didn’t happen based on any other company coming into market.
There were blips, right? Opteron when you were at AMD and you guys for a period of time started grabbing market share before you self-imploded in that process. But what I’m saying is it wasn’t until Intel on the PC chip on the instruction sets. It wasn’t really Arm’s arrival that disrupted, it was Apple for instance, finding that it could build a better chip and vertically integrate if it did it on its own, that’s ultimately what happened. So, it’s just the AI market is going to grow and our data shows it’s going to grow considerably. It’s going to get very large.
Many vendors can build arm-based instruction sets to combine with their GPUs, but the software is very sticky. And I hear a lot of things like, “Oh, it’s very easy to move to ROCoM, it’s very easy to move to oneAPI, it’s very easy to move over to Groq’s compiler. But people don’t want to do it, people want to wait 18 months to buy something that they could get off the shelf right now in some cases from a competitor because they want that ecosystem. The competition has a big job ahead of it to figure out how to undo that. That’s the part they’re going to have to figure out how to undo.
I think we’re going to talk about that a lot more here Pat. Big, big quarter for NVIDIA, congratulations. It did help prop up the whole market. The market actually, had they not had this big beat, I think yesterday would’ve been monumentally a disaster instead of just a small disaster.
Patrick Moorhead: Yeah. It was interesting to see AMD Marvell and Broadcom go up in sympathetic. By the way you know who always goes down when NVIDIA goes up?
Daniel Newman: Intel.
Patrick Moorhead: Intel.
Daniel Newman: Yeah, always.
Patrick Moorhead: Ouch.
Daniel Newman: Always. AMD got whacked yesterday a bit too. The immediate they went up but, on the fall, because like I said, this is Fedspeak, I’m not even sure how much of it had to do with tech. It has to do with the Fed and inflation. So, let’s move over to Zoom. Pat, a couple of weeks ago, had an interesting conversation about what was going on at Zoom. They launched some generative capabilities, they talked about how they might use some data to improve their product and people went off the rail. I think you and I finally communicated to the world that this was one of the biggest nothing-burgers in a long time. I ate 12 or 13 nothing-burgers, and then I went back and got back to work.
But Zoom has been one of these weird stories because in the pandemic period of time, the stock run, I’m talking about the NVIDIA run. The stock ran to $500 at its peak or somewhere right around $500. It’s trading now at like $60 to $70. So, it literally went up like 10x and then went all the way back down. And the question mark has been, does the company have the scale in a non-pandemic world where people actually do go to work and in remote ecosystems to grow the business? I think what’s come out of it is a healthy, consistently growing steady business, Pat, that will very likely never see its valuation return to what it achieved during the pandemic, but it is still growing.
And so, the fact is, and this is one of those really interesting things is it’s bigger than it was at the peak of the pandemic. So, meaning this idea that remote work was what drove all the Zoom, but Zoom continues to grow. It’s bigger than it was at the peak of the pandemic. They beat this quarter on top, they beat this quarter on bottom, their growth is, it’s steady. It’s not massive, but their income looks good. But what I liked the most about their numbers, Pat, was they’re consistently growing enterprise, even if it’s a small number. They’re consistently growing their large customers, which is important.
A lot of people with the advent of teams have kind of said, “Oh, Zoom is the small business.” People Zoom does the mid Zoom gets the leftover, everything else goes to teams, but they’re winning big enterprises. And so, they’re doing almost $4.5 billion a year in revenue and they’re winning large customers. Here’s the thing though and I’ll keep this short on this one Pat, that we all have to keep an eye on though. Can Zoom become a platform? Does anybody care about Zoom beyond Zoom calling and Zoom videos? And that’s the big challenge that the company really has to overcome is the market needs to believe that Zoom is an ecosystem for meeting collaboration, integration.
Right now, to do the Teams thing, Zoom needs productivity, Zoom needs some sort of developer platform like a power platform, Zoom needs Dynamics or ERP. And the truth is Zoom’s never going to build all those things. So, is there a market for best of class? Is there a market for a company that’s going to say, “Look, we’ll use infrastructure from one company, we’ll use Salesforce for the other thing. We’ll use Google for productivity and we’ll use Zoom for collaboration.” Is there enough there, Pat? Or does Zoom ambitiously try to enter into those spaces?
We’ve seen what Salesforce has done there hasn’t worked out particularly well for the company. Salesforce has a great ecosystem, so I want to be very clear what I’m saying. But even with Slack and Salesforce, it’s still been a hard run for them to fully find a way to sell people on that ecosystem. Salesforce tried to do this with Quip. Quip has really I think been a buried product. I don’t think they’re even really trying to focus on it. For Zoom, it’s going to be even harder. So, I think they really need to think about partnership, they need to think about the ecosystem, they need to think best of class. And they need to really lean into making their world-class user experience stay meaningfully better than the competition, which will be hard.
Patrick Moorhead: I’m really impressed with senior management. If you think about what they had to go through the last five years, I don’t know how a team like that even does this. I’ve been on rollercoaster rides before, I saw my stock go from $90 to $1.50, $1.45 to 45¢. It is torrential, you’re bringing on a ton of resources, you’re laying off people, you’re dealing with just so much stuff. And you look at what Zoom did during, I’m not going to say the full word during the P, by the way we will get de-ranked and we’ll have some link at the bottom of our video. It drives me crazy but it’s impressive. And then during the beginning of the P, there was the security scare and Zoom made a ton of mistakes on the way it communicated and how it dealt with it.
Now, when you’re on monster growth, you’re more prone to make mistakes. And then you look where you are, look where they are now, they’re putting up some double-digit numbers when their closest competitor is going in reverse, hasn’t had an increase in I think six quarters. And then you map that against, let’s say Microsoft, where they’re essentially giving teams away for free with the big enterprise licenses, they’re bundling that in. David Sacks on the All-In podcast loves to talk about where are the regulators when it comes to bundling all this stuff by these giant companies?
And let’s go to the other challenge, Zoom’s core value proposition is its simplicity. If you remember three years ago, why do you like Zoom? Why do you use Zoom? Oh, it’s just simple, it just works compared to everything else. When you start adding features to it, the risk you run as a product leader is that it gets more difficult. I do like the pace that it is adding these features. They could add these capabilities and put them in our face, but I think it could backfire. You have to slowly pull these folks in who brought you to the show, who bought you for simplicity. I do think generative AI is an opportunity for them.
If you look at all of the value that you can get from a meeting where it’s essentially your note taker, it’s your action item provider, it’s your big moments. It determines what decisions were made. This is going to be gigantic and I think that people are just underestimating the value of that. And yes, the generative AI, nothingburger came and went just like you and I said. It was essentially red meat for the press who needed something to write about. The funny part is a lot of other companies changed their talks and it didn’t get nearly the headlines as-
Daniel Newman: It was like someone discovered this Pat and decided that this was the one time they were going to give a crap about-
Patrick Moorhead: The talk was updated in March and everything came out six months later.
Daniel Newman: It’s like now go read the rest of them. Go read all the rest of the terms of services, let’s just make that a beat for somebody.
Patrick Moorhead: Yeah. Everybody’s quietly changing their talks, I guess toss terms of service terms and conditions, but no, it’s good. So, I like the way that you characterize the company as consistent moving forward. I’ll end with, I really like the double-digit growth with the large customers because that’s where it’s at. And think about how hard that is when you’re probably a Microsoft shop and Microsoft’s giving teams away for you to go in and do that. So, I didn’t go to the analyst event that you did because I had a prior commitment. But I did talk to the company’s chief operating officer and the chief product officer to try to figure out what was going on with the terms of service.
Daniel Newman: And there you have it, one down 2016 more topics to go. Are you staying with us? All right, we’re going to flash over. One of the darlings of last quarter’s momentum after NVIDIA was Marvell. Did that momentum continue Mr. Moorhead? You like these setups? I’m practicing for when I become a host of it on-
Patrick Moorhead: Well, aren’t you the world’s best host or is that J Cal?
Daniel Newman: Well, I don’t know, but in most things, the person that’s the best, I’ve never heard Max Verstappen go on stage and say, “I’m the best driver in the world.” He doesn’t need to say he’s the best driver in the world, he is the best driver in the world. And I just might happen to be the best moderator in the world, but I don’t think I should have to say it.
Patrick Moorhead: Well, when they come up with a finish flag for world’s greatest moderator, let me know. I might even wave it for you as you blow through-
Daniel Newman: Hey, is there a Grand Prix this weekend? I think there is.
Patrick Moorhead: There is. In fact, practice started, I’ve been half paying attention, half watching the race.
Daniel Newman: Is that what you’re watching when I’m talking? Is that what you’re looking over there?
Patrick Moorhead: Yeah, exactly, exactly. It’s not about me, but well kind of about me. But no, let’s talk about Marvell here. So, they had a really good quarter. They had a beat and a beat, a slight beat on the top, a bigger beat on the bottom, and they exceeded their midpoint guidance. By the way, can I get something off my chest? I hate that this stuff always get measured against expectations versus guidance. I really hate that. I get it, but the company will say, “This is what I’m going to do.” And expectations are different in the investment community. And they come in, they meet their guidance, they don’t meet expectations and they get buried.
I really hate that, but they did beat on top line and bottom line. Small ones right on the top by about 0.7% on the bottom by about 2%. But anyways, there was a lot of talk on quarter on quarter versus year-on-year, because quite frankly, year-on-year isn’t pretty. So, I like this strategy from just the point of view that says this is where it starts to turn around. There were some bright spots. Data center revenue did grow 6% quarter on quarter. It was off 29% year over year, but you have to start somewhere. Enterprise networking was down quarter on quarter by 10%. And interestingly enough, down only 4% year-on-year.
Carrier, which is a disaster zone for most, the company was only down 3%. The bright spot, as you might imagine and this is not a small inconsequential business was automotive that was up 32%. Listen, the company’s executing, there’s nothing the company can do during this data center and enterprise and carrier lull. So, I want to end this talking about what I consider as a bright future. So first of all, AI requires a ton of connectivity and we’re seeing increased spend there and we’re seeing, and we did see some very good comments from Marvell on that.
And as a percentage of the TAM though, it can’t make up for the, I’ll call it general compute or the declines in enterprise and the data center. Automotive skyrocketing, like I said, I can’t believe how big that 25% increase for connectivity inside of the car. Finally, hey, copper’s not dead but the future is optical and Marvell is a leader, if not the leader in this space with things like PAM, coherent technologies. They recently released Orion, which I’m pretty sure is the industry’s first 800 gig coherent optical DSP for pluggable modules.
Now, I know that’s a mouthful because folks like Broadcom don’t use that exact configuration. But I think they’re a player and they’re going to be a huge player in the future of networking.
Daniel Newman: They’re not a player, they just crush a lot.
Patrick Moorhead: Yeah.
Daniel Newman: That’s why the world’s the best moderator.
Patrick Moorhead: No, you really are. I’ve asked you before and you told me that. So, it is confirmed.
Daniel Newman: Yeah. So, listen, they were good results. The problem is good isn’t crushing it. And sometimes with the fickleness of this market, it can literally be the day and Marvell reported the same day as NVIDIA, it probably would’ve gone up as a reaction. You have to understand the emotion, so then we have to step back and get away from the emotion, get away from the immediacy of how things trade and think about what is the long-term prognosis here. Longer term prognosis is the underpinnings of AI data centers is going to be optical transport and the ability to move data very, very quickly.
And Marvell has a role to play, Marvell came out originally and talked about having about a $400 million expectation, I think for the year. I believe that’s what they said. And this quarter they showed a run rate more like $800 million. So, they actually are showing a very stable growth in revenue around its products that will support this AI data center growth. But what they couldn’t overcome was the extraordinary slowdown of CPU and traditional silicon in the data center where their products and services acquired.
So, actually, if you look at their AI trajectory is very good. But you look at their core business, and unlike NVIDIA, which their entire business was AI, they are more like an Intel or an AMD where they’re seeing big falloffs in traditional compute. And they’re seeing significant growth in AI compute, but not enough to turn that directionally in the near term. So, then you have to basically make an assessment based upon that and say, “Well, who are the companies that are over maybe 6, 8, 10 quarters going to really benefit?”
And I think Marvell with some level of comfort can say, “Every quarter our AI number will get better.” Actually, that number will start to offset how CPU, and the thing is we’re not at the end of the CPU. But you do have to know that right now what we are is we’re in a buying cycle where dollars are being allocated and when they have a dollar to allocate, instead of maybe 20% going to AI and 80% to CPU, we’ve seen that literally turn on its head right now. Everybody is-
Patrick Moorhead: Well, and Dan also look at what happened with IAS, right? So, what happens is these hyperscalers buy for a year and stuff shows up over like six months. And if you bought more than you would expected to get the capacity in, you’re going to sit on it, you’re not going to deploy all of it. So, that’s the big thing that’s happening there. What was AWS’ growth? 12%.
Daniel Newman: Yeah. It was in the mid-20s, which is a massive fall from a year ago, so you’ve got that. So, stick with me, strength in automotive, 87% of the revenue of Marvell came from data infrastructure, which means they’re very, very solidly placed in the middle of the transport of data, which is a good place to be around AI. Company is being well run, it got cost optimized over the last year, meaning the business got right sized. It’s delivering on its commitments and its promises, but there is no second NVIDIA.
And so, the market really wants to know who the second NVIDIA is and it doesn’t exist. It simply does not exist right now. And so, if you basically don’t destroy your numbers and offer ridiculous guidance, everybody shrugs it off. But I like where the company sits, I think over many quarters consistently it’s in a good position. I like Broadcom here too for the same reason, Pat. But I think it was a bit of an overreaction. I don’t think we can under weigh the fact that we’ve got the Fed speaking today. The fact that we’ve got concerns about persistent inflation, that the economy is not in particularly great shape.
We’ve still got microaggressions with China, we’ve got concerns about Ukraine. There’s a lot of other things and by the way, consumer data is indicative that the second half may or may not be as good as the first half. So, there’s a lot of other concerns weighing on the market. I think Marvell did a good job because doing just good right now though, it’s just we’re in one of those markets where anything less than immaculate and amazing is seen as a shrug. Just keep performing, Marvell, just keep performing and the right things are going to happen for you.
All right, let’s keep moving Pat. Let’s talk about not earnings, can we do that? You know I hate talking about earnings, right? I don’t like doing TV, I don’t want to talk to the press. I’m so apathetic about it and I’m frustrated that you even make me do this on the show. I wish we could just talk about VMware Explorer and updates to Tanzu all the time, that’s what I [inaudible]. Pat, you’re not going to defend yourself? You’re just going to let me have that one?
Patrick Moorhead: Yeah. Sometimes when something’s so obvious, defending doesn’t even make sense.
Daniel Newman: I’ve been through that this year. Yeah, I’ve been through that exact thing actually, continuously. All right, so I’m going to be broad on this. I know you like to geek out a little bit more than I do. So, I’m going to basically say for me, there were three themes of VMware. One, the company is actually one and two go together because it’s about the combination of Broadcom, its leadership and its vision. The company actually had a very strong keynote, which I was concerned about when we’d had some of the internal briefings because it was very hyper product focused. But I thought that the keynote was actually well-delivered and hit on some very important high notes.
Having said that, Hock Tan’s presence, the visibility of Broadcom VMware, it felt to me for the first time that VMware was truly acquiescing to the fact that this deal was getting done.
Patrick Moorhead: Yeah, it’s like this is a done deal.
Daniel Newman: I just think whether it was the way they presented products, the safe harbor statements that were hyper emphasized, which they have to do, but the amount of emphasis on it was unique.
Patrick Moorhead: I’ve been going to events for 30 years and that is the longest statement I’ve ever heard in my entire career.
Daniel Newman: Yeah. It usually it gets flashed and they go on with it. But I mean they were very clear that like, “Look, this is kind of how we’re developing. If VMware remains an independent company, this is kind of the roadmap we’re on, but basically we have no idea if this is how we’re going to continue.” And that’s the bottom line is because under Hock Tan, you can absolutely be sure just by looking at his track record of acquisitions, that he’s going to be very bold in looking at the company, looking at his products, looking at its services, figuring out how to optimize, maximize, create efficiencies.
This is his playbook, so of course I’ll never speak to anything that we would know that’s specific. But what I would say is just generally speaking, his playbook and VMware’s current playbook, VMware’s probably too broad, has too many products, too many distributed focuses. They have too many things, they’re moving slowly, need more focus on a few of its best products, maximizing the margins and doing it with probably less headcount. And that’s just like I said, that’s the playbook, but this deal’s getting done.
I just absolutely left the event more sure than ever and obviously having the US regulators basically walk away decided to not pursue anything was probably the biggest news of the week. Because in the UK we knew they decided and then it went official. But the US one, everyone was waiting on. And that was because the US has been busy trying to litigate everything that’s bigger than $10 billion. LeadIcon apparently decided this one’s going to go. The only other thing I wanted to talk about was AI. I wasn’t quite sure how VMware was going to talk about AI and I thought it did a really good job.
Besides bringing Jensen on stage, which every company does now. They’re like a rule, you’re not really an AI if Jensen doesn’t come out. And then you’re not really an AI if Jensen doesn’t come out and present you with a GPU, even if it is a gaming GPU.
Patrick Moorhead: Patrick Moorhead. I know, man. It’s basically “kiss the ring,” that’s what this is about.
Daniel Newman: But in all seriousness, what was he supposed to do with that RTX?
Patrick Moorhead: I don’t know, you can’t run any AI anything on it. So, by the way, it almost amplified the we can’t get any H100s.
Daniel Newman: I can’t even give you a fake one backstage.
Patrick Moorhead: In my head, it totally backfired. I’m like proof positive, you can’t get H100s-
Daniel Newman: But he didn’t even say, even on stage, you can’t get H100s then he made a joke about it?
Patrick Moorhead: He did.
Daniel Newman: But I do think that the VMware private AI foundation, which is its services to basically enable private data in generative AI in a single stack, sounded compelling. Ecosystem, infrastructure partners, software stack, it seemed to have all the pieces, it seemed to be well thought out. And the weird bringing our lawyer on stage thing, that was probably the worst part of the keynote for me. I didn’t really understand what they were trying to do there. But I think what they were basically trying to say is that large enterprises are going, and especially in regulated industries that run hybrid architectures are going to have a load of complexity about trying to do generative applications and run generative tools in their business.
To have an offering that’s hybrid that focuses on data privacy and security and allows for prem is going to be important to those companies. And I thought the company, like I said, did a good job at obviously having all the parts, pieces, the GPUs and DPUs from NVIDIA and partnering with the likes of Dell, HPE and Lenovo on the hardware side to enable prem and cloud and private AI to be delivering generative tools. So, those were my two big takeaways. Basically they did a good job on AI, which I thought they might fumble and they didn’t and this Broadcom deal’s getting done.
Patrick Moorhead: Wow. For not knowing quite what to say, you certainly had a lot to say.
Daniel Newman: Hey, that’s why it’s called the six-ten.
Patrick Moorhead: No, exactly. Just wait, sit back, get a cup of coffee folks. No, there is so much to talk about at this show. We could probably take the entire show-
Daniel Newman: It costs extra, by the way.
Patrick Moorhead: And talk about it. First off, it’s an odd show for me because I’m used to showing up and meeting one-on-one with CEOs, presidents and the business unit leaders. That doesn’t happen at this show which limits my ability to come to conclusions. Because part of my research methodology is to meet with, now I did meet with the acquiring company CEO, Hock Tan but not with Ragu. By the way, I did appreciate him doing unmoderated NDA Q and A, but there’s nothing like meeting face-to-face to really get to know what’s going on. And hey, that’s part of my research methodology, it’s what I think makes more insights great.
So, a lot of stuff was announced in areas that wouldn’t be a shock. Just like you said, increases in multi-cloud and a new on-prem and orchestrator for AI. Not a whole lot about the client stuff with the exception of automated workspaces. So, let me dive into the multi-cloud part. First, I had to contend with, hey, Tanzu is changing, Arita is changing and I’m going to have to do a lot of work to untangle that. I do think that VMware has the best hybrid multi-cloud story that encompasses apps. It encompasses networking and certain elements of security. It’s not taking off financially, I don’t understand why. But then again, on the other side of my mouth, that growth is around 30%, which is larger than the hyperscalers.
So, it is growing just not adding enough as many dollars as I would expect. And I’ll be honest, I don’t have the answer at this point. My instinct tells me it’s a go-to-market issue and it’s a sales issue. That partners can’t punch it through, their salespeople can’t punch it through. And I think that enterprises are contending so much potentially with this new AI burden that it could be an issue. But out of the other side of my mouth, I’ll say to really pull off AI, you really have to be an arbiter of multi-cloud.
So, I need to get underneath that. I especially liked the end of the multi-cloud section where they talked about the capabilities and it’s like, “Oh, it’s all rainbows and unicorns,” I love that. Their president is a great guy in terms of how he can deliver this message. But I think it’s a go-to-market and sales execution issue, that’s the only thing I can place. Now, things like NSX don’t have all the capabilities that these enterprises needed for multi-cloud. That’s where NSX plus comes into the stage. I also thought it was interesting just how deep the company is getting into ransomware, which is interesting.
Because if you look at Veeam, Cohesity, Haiku, Dell Technologies, they’re now competing with many of the folks that they partner with. But let me move to AI here. Dan, like you, I thought the story was one of the best ways of showing how complicated it’s going to be to get your on-premise or private data infused into generative AI. And I really liked the discussion about the difference between what they call predictive AI, which is essentially high-end analytics, ML and DL versus generative AI. But one thing, again, the story is great.
I thought what enterprises do need to fully understand is that it’s not just putting a customer service chatbot out there and getting access to public data. You got to combine marketing, supply chain sales, HR, legal, R&D, customer experience, manufacturing. It’s the ultimate connecting the front end to the backend, if you really want to do what enterprises want to do. And if you think about the companies, let’s just say 75% of the data’s on-prem, does this drive people to put all their data into the cloud, this type of data? Or is this going to be a boon for on-prem?
And I don’t have a definitive answer yet on that. First of all, I need to know how many GPUs NVIDIA is actually going to send to enterprise. So, if you don’t send GPUs to enterprise, not only can you not do inference, you can’t do training. And yes, the big companies with the proprietary data are going to do training on-prem. The chief legal counsel going on stage, I thought the timing was off, which made it a little bit off. But I did like the message which was, “Hey, you’ve got private intellectual property, you’ve got private data and you need private access. How are you going to work with all this in Generative AI Land?”
Finally, and I’m going to breeze over these because we’re running out of time and this can’t be the 650. Two main offerings, first one was an open architecture that they specified. Now, you can’t buy an architecture but it’s a framework for everybody else other than NVIDIA to come in and add value. But the second thing they did is, like you said, they rolled out Jensen and there is a VMware private AI foundation with NVIDIA, which essentially is more of a prepackaged, pre-tested, it works. It’s leveraging not only NVIDIA hardware, but CUDA, but also, and I think even more importantly, the libraries, the frameworks that come in there that come along when you have NVIDIA.
So, with NVIDIA means to me that they’re opening the door with AMD, with Intel, with Groq, somebody like that. Net-net got a lot of work to do to figure out everything. There was not a date for delivery for private AI, not even a year. And I think Dan, this might lead to or connect with what you talked about related to the disclosure at the beginning. Are these announcements real? Could they be reversed in six months? We’ll see, and again, I’m not trying to spread FUD here. This deal is going to go through, but with a gigantic statement like that at the beginning of the show and not having dates for private AI, you got to wonder.
Daniel Newman: Yeah. I just think everything’s a little bit, you know what I’m saying?
Patrick Moorhead: Yeah.
Daniel Newman: And until it’s not like, it’s going to be like. I’m just trying to give people a reason they have to turn the video on. You got to turn on the video because if you saw what I just did, it was awesome. It’s one of the world’s best moderators. Okay, that joke’s going to end here guys. I’m not saying it again, because I’m not. I’m like the top three though on that list that I gave. All right, so anyways, let’s move on. Fifth topic, it’s a little bit more VMware, but Oracle had to get in on the action. So, they got in on the action around VMware Explore.
Patrick Moorhead: Hey, thanks Steven. Thanks buddy.
Daniel Newman: Hey, turn them off. I don’t want to see that.
Patrick Moorhead: All right, done. Bye Steven.
Daniel Newman: Hide it.
Patrick Moorhead: See you later buddy.
Daniel Newman: Hide it.
Patrick Moorhead: So, more VMware. So first of all, what is the VMware Cloud Universal program? The program essentially, it’s a subscription program, i.e., as a service that you can purchase credits and be used everywhere across VMware’s multi-cloud portfolio. That includes all their multi-cloud services, but also aligns with AWS, Google Cloud and Azure. Now Google, sorry, Oracle Cloud, OCI is part of the action now. So, you can subscribe to Oracle Cloud VMware solutions as part of VMware Cloud Universal. So, it allows on-prem customers to migrate right on-prem VMware into the cloud, essentially using existing skills, best practices tools.
Think of companies like FedRAMP where this would be a giant, there’s different classes and I think this meets Class A of FedRAMP for compliance purposes. But Oracle to their credit, rolled out a bunch of customers, Cybereason, Atos, Telefonica, TIM, AYA Bank, San Jose Water, Maxim’s, Prophecy international. These folks cover finance, telco, retail manufacturing government who have gone all in on Oracle cloud VMware solutions. Big picture, net-net this is my bow here. This is yet another proof point that OCI Oracle Cloud competes in the big leagues with the IS folks, AWS, Azure and Google Cloud. That’s it, that’s all I got Dan. You sleeping? You do an email?
Daniel Newman: Oh no. It’s just I’m so used to you droning on for eight to 10 minutes on a topic that when you hammer something out this quick, I’m completely at a loss. So, look, we’ve talked quite a bit about this, about Oracle and Oracle’s getting in the game. They’re getting into the game with the right technology on the right platforms and they’ve continued to impress in that way. It’s Oracle plus VMware, it’s scalability performance. It’s basically giving the right good levels of control planes and it’s giving the people that are, remember Pat, Oracle is the fastest growing cloud right now. I know, hold on, everybody, stay with me.
It’s the fastest growing cloud right now. Now, a lot of large numbers, it’s not the fastest growing by total amount of revenue growth, but it is by a percentage basis the fastest growing cloud. It’s seen a few very, very good quarters. But the one thing that Oracle, while they’ve really shored up their capabilities Pat, is always going to be about services. So, tying into VMware is going to be important to it. So, this tie up is one more that’s going to… what did you say to me the other day? We were talking about some product.
I want to take every objection off the table and VM, having all the right partnerships. If you’re a hyperscale cloud provider, having the right services is taking objections off the table. So, I don’t want to give Pat’s secret sauce away, everybody, but Pat’s secret sauce is he never leaves a meeting with an objection. And so, everybody wants to buy. That’s why. I may be the world’s best– but he’s the best salesperson I know.
Patrick Moorhead: All I know is I crashed and burned in my first sales job, it was my first job. And then, I don’t know, I think I’m a pretty good salesperson.
Daniel Newman: So, a personal anecdote is after having a record sales year, winning every award in a company making the biggest bonus check out of anyone, I was like 24 years old. I went chest thumping into the CEO’s office to demand a raise and he pointed to the door. I can look at that now and laugh, but I didn’t think it was funny at the time. But you know what? Just being a great salesperson is not enough. There’s a lot of other components to make you great. It was one of the career inflection points for me though, when I realized that ego sometimes needs to be checked at the door.
Patrick Moorhead: Yeah. So, this isn’t about you, right? We are talking about Oracle Cloud, right?
Daniel Newman: No, I’m totally digressed into some personal thing, but I was done with Oracle.
Patrick Moorhead: Shocking.
Daniel Newman: I was done with Oracle, so I was just shooting the breeze. Because people want to know about you, Pat.
Patrick Moorhead: I don’t know, they don’t have to know about you. They can just turn on the TV and your big mug is on there.
Daniel Newman: That’s such a good flex. It was-
Patrick Moorhead: Literally your head was bigger than the lectern. It was twice as tall.
Daniel Newman: Okay, so here’s the thing. Have you been to Bloomberg’s HQ before in your years?
Patrick Moorhead: Yeah, 2001.
Daniel Newman: You’ve done a lot of TV. They’ve got a really cool place, by the way. The best experience out of any in terms of broadcast, the waiting area, they’ve got a cafe, they’ve got every different kind of food you can eat. They’ve got fresh-made peanut butter, they’ve got a barista serving coffee. It’s a great experience and they got all these different studios. But when you’re going on TV all over the Bloomberg are TVs that have the what’s coming up next? And so, literally at one point I was in the studio for technology when you saw that picture. My face was everywhere, it was like the whole Bloomberg, the whole floor. Every one of the studios had me coming up next with these giant monitors with this big not so handsome mug on it.
So, very humbling to literally walk around the place for about five minutes before I went on air and my face was everywhere in the building. So, you know what, it is what it is. Everybody should try that once. All right, let’s talk about an IPO. So, this was something that actually happened and came and passed this week, Pat. I want to talk about this more rather than just ranting on about it as our last topic of the day. Let’s just have a little bit of a conversation here, Pat. Is there an appetite for an IPO right now?
So, we’re in this weird inflection where the market’s done better. We’ve seen tons of growth in some tech names in terms of growth off the bottom. We’ve also seen a pretty healthy pullback, we’ve got prolonged inflation, prolonged expected high interest rates. Homes are unaffordable, rents are still very high, cars are still barely being produced, but you can get laptops now. And Arm, interestingly enough, is set out to go at $60 to seven $70 billion, which again is almost 50% to 75% premium over what NVIDIA had intended to pay.
Patrick Moorhead: Crazy, right?
Daniel Newman: And here, get this Pat, it’s smaller than it was a year ago. So, it’s not growing. So, what is Arm? Well Arm basically creates designs and instruction sets for silicon makers. So, pretty much every company on the planet is using Arm right now and almost every device that you would use has Arm based components in them. But their business model is interesting because it’s not that good. Their profitability hasn’t been that good, their growth hasn’t been all that good, their CAGR is like 16%. So, Pat, I’m going to actually play host a little bit here.
I think this is the biggest inflection in a long time to see is, are we warm for another IPO? Arm is pretty cool, it was obviously on the NVIDIA shopping list and NVIDIA’s pretty cool right now. But is the market ready to pay these huge premiums for an IPO right now just because it’s been so long since we’ve had one?
Patrick Moorhead: So, I may or may not answer your question directly.
Daniel Newman: Oh, come on. Then I’m not the world’s best, anyway.
Patrick Moorhead: So, the things that people need to understand about the Arm revenue growth and profits is that what was in there is what I consider a failed attempt at IoT. So, if you pull out the IoT stuff, their growth is exceptional and there were ways they could have written that off. But Arm ended up taking the brunt of that write-off when to me it was mostly a SoftBank thing. I like to look at what they’re doing, let’s say in the server market. Where it used to be that Arm probably 10 years ago was just trying to get people to use supersized smartphone chips for servers and storage controllers.
And they also didn’t really have any leadership over the ecosystem. It is freaking black and white at this point. They have multiple platforms and the way they do that, they built an ecosystem all the way down to consistent boot logging up the stack. Operating systems are there, middleware applications, and if nothing else, AWS and Apple have shown what you can do with optimized Arm silicon. They’ve also changed the model where it’s not just about the architectural license. You can move up and get multiple flavors of the IP where the company is likely 20% market share in the data center. A lot higher market share in automotive, but not 50%.
So, the company has a heck of a lot of room here to move. I also am very confident in the leadership with Rene Haas, I think I’ve known Rene for 15 years. Gotten to know his management style not only in NVIDIA but also at Arm. So, I’m looking at the growth opportunity and yeah, I do think RISC-V will take a little bit of a bite out of it, but primarily at the low end of the stack. I think the biggest risk could be how China views Arm and what they can do. But also remember folks, it takes 10 years to build a software ecosystem if you want to go in and compete.
And I would say RISC-V is probably six or seven years into a 10-year period. And Arm taught the ecosystem how to move off x86 and move to something different and RISC-V is able to take advantage of that. So, we’re going to have to see what happens. I’m very optimistic about this and all of semiconductors are down, so why would we expect Arm to be up in 2020, like massively up? The only companies that are massively up is NVIDIA and Lattice.
Daniel Newman: Lattice, in the semi space. Yeah, that might be true.
Patrick Moorhead: ADI doing well too. So, there’s a lot of people doing not as well as they could be and we shouldn’t expect Arm to be any different.
Daniel Newman: But the timing is important. So, they’ve decided to do this now and like I said, they’re year over year down. You cannot underestimate the impact for SoftBank that they’ve been trying to sit on this, after just, monumental stupid from MASA. Between WeWork and some of the other things though, the vision fund has just been hammered. This is one of the better assets right now Pat, but you got to be pretty clear. It’s hard to go public when you’re not growing and it’s really hard to convince the market to pay a huge premium when you’re not growing. Having said-
Patrick Moorhead: Well, I got to tell you, 70 versus 40. I mean-
Daniel Newman: No, it’s a great story if they can get it, but I’m just saying that’s what they’re trying to get. The question is, is the appetite there? I tend to think it will be. I tend to think just the drafting off of its role in these Grace Hopper systems is going to create a lot of momentum because people are going to see that tie to NVIDIA. And of course, Apple, they’ve got a very strong story. All the Apple silicon is based on Arm and of course if Apple gets its iPhone off Qualcomm, now either way they get Arm. But people will be excited because of Apple, it’s just a thing, it’s not necessarily even strategic, it’s just the way people feel.
Again, this is going back to the emotions, not the fundamentals. All right, so we’ve hit it, there you have it. Six topics, NVIDIA, Zoom, Marvell, more NVIDIA, NVIDIA, VMware, NVIDIA, Oracle, and then Arm and NVIDIA.
Patrick Moorhead: That was so good.
Daniel Newman: Thank you, thank you.
Patrick Moorhead: A big smile on my face.
Daniel Newman: I’m the world’s best friend.
Patrick Moorhead: Moderator.
Daniel Newman: I’m the world’s best friend.
Patrick Moorhead: Yes, you are.
Daniel Newman: Thank you Patrick Moorhead. So, all right everyone, you heard it here. We appreciate you joining us this week and each and every week. Now next week, I cannot confirm or deny if we’ll be doing this podcast because we may be going really, really fast. Instead of potting next week, we’ll probably find a time to fit it in though, but we might also be crashing and burning, literally crashing and burning. So, this is a story for another day, if you can’t insinuate what we might be doing next Friday instead of podcasting, you might want to watch.
Patrick Moorhead: And we’re racing.
Daniel Newman: We’re racing on Monday.
Patrick Moorhead: Come on we’re going to be racing around–
Daniel Newman: We’re going to be racing around. I’m really excited about this because while I’ve been a car fanatic, I’ve never actually tracked in my life. So-
Patrick Moorhead: By the way, speaking of racing you’ve got to hit, Lando is up on max for staff and going into two P. So, P2 I mean.
Daniel Newman: Is Lando going fast again?
Patrick Moorhead: He is, but I think Max just is toying with him so at the very end he can clip him.
Daniel Newman: They are like chummy, the two of them.
Patrick Moorhead: They are.
Daniel Newman: I just wonder, will Max still like him if he ever beats him?
Patrick Moorhead: Probably not.
Daniel Newman: Because you know, just a little therapy moment Pat. But after I beat my dad at golf, he never played with me again. So, sometimes you don’t realize, you think you’re chummy until you beat your dad at golf. Anyways, everybody hit that subscribe button, join us for all of our shows here on the Six Five. We appreciate you tuning in. We’ll be off at Google Cloud Next, next week, we’re going to be putting a bunch of Six Five episodes live before and after. And then while we’re there, we’re going to be paying attention to all the great announcements. So, stick with us for now for this episode. Got to say goodbye, we’ll see you later.