We are Live! Talking Qualcomm, Microsoft, NVIDIA and Arm, Google, Intel, IBM

By Patrick Moorhead - October 30, 2023

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

  1. Qualcomm Snapdragon Summit 2023
  2. Microsoft Earnings
  3. NVIDIA Creating Arm-based SOC?
  4. Google Earnings
  5. Intel Earnings
  6. IBM Earnings

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.

Watch the episode here:

Listen to the episode here:

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<em><strong>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.</strong></em>


<strong>Daniel Newman:</strong> Hey, everybody, welcome back to another episode of the Six Five Podcast. We are broadcasting sitting side by side.

<strong>Patrick Moorhead:</strong> I know.

<strong>Daniel Newman:</strong> And we are live in beautiful Maui. And Pat, we’ve never done this before. We’ve done where we’ve sat in the same room.

<strong>Patrick Moorhead:</strong> Exactly.

<strong>Daniel Newman:</strong> And we crammed ourselves very closely to a camera. But we’ve never actually had the chance to be out in the field with our extended Six Five team, including the awesome Diana Blass from our Connected series. And we’re going to do our show here because you and I both have flights at our normal time. But anyways, how are you doing? How are you enjoying this beautiful Maui experience?

<strong>Patrick Moorhead:</strong> Well, I mean, I need to be honest with everybody, and usually, when you say you’ve got to be honest with everybody-

<strong>Daniel Newman:</strong> You’re just about to lie.

<strong>Patrick Moorhead:</strong> … you’re just about to lie. But I’ve been working pretty much the entire time. I haven’t sat on the beach once, but I have been getting up at 3:00 or 4:00 AM, hitting the gym. And then when the sun does come up, I get a nice little stroll along the beach. But literally, listen, I have no complaints, man. My life is good. Meeting with some great people, learning about some great technology. So, life is good, Dan.

<strong>Daniel Newman:</strong> Nobody likes a complainer.

<strong>Patrick Moorhead:</strong> That’s right.

<strong>Daniel</strong> <strong>Newman:</strong> Let’s just be very clear about that.

<strong>Patrick Moorhead:</strong> That’s right.

<strong>Daniel Newman:</strong> And yeah, it has been a busy week. One of my favorite things to say is conference rooms look the same everywhere.

<strong>Patrick</strong> <strong>Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> And so while there was some truth to that, I do always appreciate at the Snapdragon Summit that they do give a pretty good balance of free time.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> Choose your own adventure. Go to the meetings that make sense. But also, you do get to experience the island at least just a little bit. Pat, it’s a busy week.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> We are really right amidst the earnings palooza blitz. You and I have been on calls with CEOs and CFOs of some of the world’s most exciting tech companies. This week we’ve been on TV, CNBC, Bloomberg. And on top of that, we’re doing the Summit. We’re dealing with some big breaking news, and it’s been a really exciting week here from Snapdragon Summit. So we’ve got a great show. I’m going to do the disclaimers real quick. You good with that?

<strong>Patrick Moorhead:</strong> It’s perfect.

<strong>Daniel Newman:</strong> For everybody out there, just know the show is for information and entertainment purposes only. And while we will be talking about earnings and publicly traded companies, please do not take anything we say here as investment advice. And if it’s the first time you’re watching the Six Five, what a great one to catch us with.

<strong>Patrick Moorhead:</strong> Exactly.

<strong>Daniel Newman:</strong> The first time not at our desk, not at our computers, in person. Pat, just the way it really should be.

<strong>Patrick Moorhead:</strong> I know.

<strong>Daniel Newman:</strong> Just the way it really should be. So let’s kick this off. We do have a bunch of earnings. We’re going to talk Qualcomm. We’re going to talk about some big news from NVIDIA and Arm, and then we’re going to hit earnings from Intel, Google. We’re going to hit IBM, and we’re going to hit Microsoft.

<strong>Patrick Moorhead:</strong> Yes.

<strong>Daniel Newman:</strong> And that’s not even all of them, by the way.

<strong>Patrick Moorhead:</strong> I know.

<strong>Daniel Newman:</strong> There’s ServiceNow, Amazon.

<strong>Patrick Moorhead:</strong> AWS came out and everything like that, so…

<strong>Daniel Newman:</strong> So much. So I’m going to call your number first because I’m not selfish. Pat, let’s dig into… Let’s talk about Qualcomm Snapdragon Summit.

<strong>Patrick Moorhead:</strong> Yeah, so this is going to be an easy one, top of mind, and this was all about on-device generative AI, right? Bringing it to the smartphone, bringing it to the PC. But if I had to prioritize, it would have to be the PC, right? The Elite X or the X Elite Snapdragon or the Snapdragon X Elite platform has finally been unleashed, and we saw some tremendous benchmarking, benchmarketing, all that good stuff.

<strong>Daniel Newman:</strong> Did you say benchmarketing?

<strong>Patrick Moorhead:</strong> Yeah, exactly. Yeah. Hey, I come up with one every month, Dan. So you can bank that and use that without giving me any credit. So anyways, though, we saw some pretty amazing performance and power off the CPU, the GPU, and the NPU that were pretty impressive versus the likes of Apple, Intel, and AMD. There’s an asterisk in that this is a platform that we’re likely going to see probably the middle of 2024, maybe the second quarter, versus products that are currently in market.

But the numbers were so big, right? We saw 2X this, heck, 10X at one point, that I feel innately that this platform is going to be competitive. And it’s being brought to you by a brand-new custom core based on the Nuvia acquisition that Qualcomm made a few years ago and a lot of development around that. A brand-new Hexagon NPU that’s delivering 45 TOPS just from the NPU. And just to give you a sense, that’s about 10X what’s available out there today on the PC.

So, I mean, I’m excited. I’m a big believer that it takes three strong people in market to have a full element of competition. And right now, it’s Intel at about 75% share and AMD at about 25. And here we go with Qualcomm. And of course, I’m leaving Apple out of it, but they don’t do Windows.

<strong>Daniel Newman:</strong> Yep.

<strong>Patrick Moorhead:</strong> And then Snapdragon 8 Gen 3, essentially this smartphone platform that has a lot of those incredible features that we talked about with Snapdragon X Elite, but bringing that to the smartphone, enabling just some amazing type of use cases. And I’m going to kind of end it here, Dan. I like to call it the Borg, okay? The Borg, if you’re into Star Trek, is where all of consciousness goes into one place, and everybody can leverage it. Well, in this case, everything that I’m saying on my phone, I’m texting, I’m messaging, all my video calls on my PCs, all my email, all my content is going to be essentially indexed on these devices. And I don’t think people are going to be comfortable sending any of that to the cloud because we have our personal lives.

But imagine with all that insight, we can have something make us the most amazing travel schedule, right? Or hey, what did Dan and I talk about last week? I have a terrible memory. I write everything down in my OneNote, and I’d love to be able to say, “Hey, when’s the last time that Dan and I talked about this technology or maybe even this deal or what plane you’re taking on your next trip?” So I think it’s upwards and onwards, and it’s game on, baby. I mean, Apple schedules a panic event for Monday. And you and I talked to Pat Gelsinger. He had some interesting things to say about Qualcomm, and AMD ripped up their roadmap and pulled it in. So it’s game on for Qualcomm.

<strong>Daniel Newman:</strong> Yeah, I think them as a third entrant into the Windows PC has been legitimized this week. And we knew since the Nuvia acquisition it was coming. Everything that was between here and there was kind of just a placeholder, and it was like a… You called it a marketing placeholder.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> Look, you covered a lot of the good ground, and I’m going to do something we haven’t done in a long time, but I’m going to actually try to keep our show somewhat on time.

<strong>Patrick Moorhead:</strong> Sorry about that.

<strong>Daniel Newman:</strong> No, it’s okay. It’s just as much my fault as it is yours. In fact, I’m going to ramble on and screw that up right now. But here’s what happened here. The CPU got legitimized from Qualcomm. They told a very strong story about CPU, GPU, NPU, and they made some very compelling cases for the Arm-based PC. We knew this was coming. If Apple does anything well, it legitimizes technologies. And with the M1 and M2 and some of the very outsized results that it was able to get despite M3 maybe not being as good, it did show that Arm… You can develop a very powerful PC platform on Arm. We’ve seen the same thing happen in the data center. And Qualcomm has been long committed to this path.

That’s the big thing that came out of this event. Like always, advancements in hearables, advancement in IoT, advancements in devices. A bevy of CEOs showed up and backed this CPU product. We saw Satya, Mark Zuckerberg. We saw some of the biggest names in tech all saying, “We’re committed.” But you know the fight, the fight on the street, in the channel, the go-to market is going to be real. And while Qualcomm can have the best product, best design, take its mobile provenance and take its low power to the PC, we all know that that’s not always necessarily what drives unit sales. So them getting that market is going to matter.

<strong>Patrick Moorhead:</strong> Yeah, and I will even go as far to say that more times than not, the best technology doesn’t win.

<strong>Daniel Newman:</strong> Absolutely.

<strong>Patrick Moorhead:</strong> It’s a combination of all factors-

<strong>Daniel Newman:</strong> Look at the iPhone.

<strong>Patrick Moorhead:</strong> … like you said. Exactly.

<strong>Daniel Newman:</strong> All right, let’s go on. I’m going to take us over to Microsoft.

<strong>Patrick Moorhead:</strong> Microsoft.

<strong>Daniel Newman:</strong> Yep. Thanks for holding that up. By the way, everybody, we are actually talking from our brains. We are not looking at a screen. We have no notes. So anybody that doubted whether there was one in there, do-do-do-do-do-do, it’s real.

<strong>Patrick Moorhead:</strong> It’s like do we actually understand this content? I kind of think we do.

<strong>Daniel Newman:</strong> I think we do. The only thing now is I can’t read off the revenue number and the earnings result, but I don’t think anyone comes to our show to read the number top line.

<strong>Patrick Moorhead:</strong> They don’t.

<strong>Daniel Newman:</strong> If you want to see the top line, check my tweet. Let’s just talk about what happened with Microsoft.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> Microsoft had, I think, maybe its best earnings call ever.

<strong>Patrick Moorhead:</strong> Particularly in comparison to others in this space.

<strong>Daniel Newman:</strong> In this space. And when we talk about Google a little bit, we’ll call it a tale of two companies. And I’d call it good and great, but maybe I’m eternally optimistic. But Microsoft did what I have been waiting for some company to do with this earnings call. Now, look, the company actually had good results all the way across the board. It had good Windows numbers, and well, Surface numbers. I mean, for there being this looming recession, this horribly high interest rate, we’ve got inflation absolutely running rampant still, and no idea… And the market’s crashing, but Microsoft’s like, “We’re chilling. We’re good.”

<strong>Patrick Moorhead:</strong> It’s so ironic.

<strong>Daniel Newman:</strong> It is. And their cloud number, 28%.

<strong>Patrick Moorhead:</strong> Exactly.

<strong>Daniel Newman:</strong> Best of the group again. Now, again, we’ve always got to deal with the fact that the calculations are not the same company by company and what’s included in cloud. So it’s very hard to actually compare these, but beating the estimate is what matters to the Street. But Pat, the ability to break out the AI number is what I’ve been dying for some companies to do, and that’s what they did well this quarter. They were able to basically say, “We expected 2% incremental growth on Azure because of AI,” and guess what number they got? 3%.

<strong>Patrick Moorhead:</strong> 3%, yeah.

<strong>Daniel Newman:</strong> They got 3%, and the market loved it. On top of that ability to talk about Azure, they’re now able to show a monetizing strategy, $30 per user for Copilot. They’ve sold out the demo or whatever you want to call it, the beta to big enterprises that were paying good dollars to have this test. And let’s face it, Pat, $30 a month, basically what you’re saying on an average-wage knowledge worker, if you can get one hour of additional productivity, it’s a good return on investment. They’ve absolutely cornered the market in terms of being able to explain the value of AI in terms of growth in the company. And I want to congratulate Satya. I honestly could go down the list, but Pat, that was it. That’s why they did so well.

<strong>Patrick Moorhead:</strong> Yeah, two things stuck out for me in addition to what you talked about. That was a good analysis, Dan. A, the citations of gaining market share and, B, giving a drill-down on the number of customers that they have in AI. And I’m going to look at my notes here, but Azure continues to take share. 18,000 organizations are using Azure Open AI. AzureR customers grew, there we go, 21,000, up 140%. More than 16,000 customers using Microsoft Fabric. And this is the transportable data layer that they use between the hybrid multi-cloud.

<strong>Daniel Newman:</strong> Does it connect the back to the front?

<strong>Patrick Moorhead:</strong> It should, but you have to architect it that way. If not, just go with Dynamics 365. So, over 1 million paid GitHub Copilot users. That is crazy. 37,000 organizations. 126,000 organizations on Power Platform to date. There’s 170,000 Copilot users on Power Platform. I mean, talk about the double click here, Dan. It was crazy. Sales Copilot, 15,000 organizations. Dynamics 365 took share for the 10th consecutive quarter. I asked the company who they took it from. No comment. We don’t track the beans, but I’m sure we could go back and check out the financials and figure out which ones it is.

<strong>Daniel Newman:</strong> We’ll know soon enough.

<strong>Patrick Moorhead:</strong> Yeah. Modern Work, 40% of the Fortune 100 are using Copilot in the early-access program, and we’re going to see it go GA in the middle of November. Super exciting. You commented on Windows. We’re seeing some stability in there, and we saw that not only in Windows but also inside of Security. Another quarter for Security. They continue to gain share across all major categories that they serve. But hey, folks, you get the idea of what’s going on at Microsoft. It is up and to the right. And while I can never call a quarter perfect, this was pretty darn close.

<strong>Daniel Newman:</strong> About as close as you can get.

<strong>Patrick Moorhead:</strong> Particularly when you look at some of how the other folks showed up. I’m going to end with essentially the deal goes through. Microsoft-

<strong>Daniel Newman:</strong> Activision.

<strong>Patrick Moorhead:</strong> … Activision, but I almost called them EA. Oopsies. Activision is going to go in, but we’re going to start seeing that and those financials hit the P&amp;L soon as well.

<strong>Daniel Newman:</strong> So much to cover, so much ground, Pat.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> We’re going to take a little tiny break on earnings before we rally through the end. And by the way, good on you for having your shit together. Pardon my language. Can you edit that?

<strong>Patrick Moorhead:</strong> No, no, no, it’s just numbers.

<strong>Daniel Newman:</strong> Don’t edit it. Leave it alone.

<strong>Patrick Moorhead:</strong> Just numbers. And if I’m going to talk about the share gains and some of the quotes, some of the depth, I had to have a cheat sheet.

<strong>Daniel Newman:</strong> I am trying to figure out how to memorize all this stuff, and I just don’t have it in me.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> So, let’s talk about another very relevant… We saw the Snapdragon release of its X Elite. And this week, I mean, the hottest news in tech was that NVIDIA is planning… And they said something about AMD, but I almost don’t even want to talk about it because I’m having a hard time believing that one. But NVIDIA is kind of going to lean in, go all in on Arm-based PC.

<strong>Patrick Moorhead:</strong> Yeah, it was funny, a big Stephen Nellis out of Reuters leak, and it was exactly what you said. It essentially said NVIDIA’s going to go Windows on Arm. To me, this is one of the worst-kept secrets and rumors. And let me step back. The original Windows 8 and the original Surface actually had an NVIDIA SoC in it. Now there were three brands in it at the time. It failed miserably. Microsoft had a billion-dollar write-off, but NVIDIA is not an unknown to Arm. In fact, they’ve ported all of their CUDA libraries over to Arm, and they tried to buy Arm unsuccessfully because China just was a non-answerable.

<strong>Daniel Newman:</strong> It wasn’t just China.

<strong>Patrick Moorhead:</strong> Right. What came out of that, though, is they got an Arm architecture license, right? Now, I don’t know… Actually, I don’t think this is something that is a custom core where they had an arch license. I think they’re taking the Grace Superchip and modifying it for gaming and workstations. Okay? That’s my take, which I think was different from the Reuters Nellis case. And then I’m thinking of, well, games are X86 for the most part, and this is why Apple is terrible at real PC gaming. And so are workstation apps, like DeSo as an example, all of these certified applications. So this is something, if it truly is gaming and workstation, NVIDIA and even Microsoft will have to take care of. I did want to hit on the AMD rumor.

<strong>Daniel Newman:</strong> Okay, it’s all you.

<strong>Patrick Moorhead:</strong> AMD doesn’t need Arm. Let me just put it out there. X86 can be low power if it’s architected and tested, just like we saw Arm can be very high performant as long as it’s architected like that and has the proper ecosystem. Now, if a semi-custom… If a customer went to AMD and said, “I want you to build this chip for me,” and in Xbox and PlayStation AMD creates a custom… I know it’s confusing. It must be confusing, both semi-custom and custom. But they build, and they have done this for a decade, special chips for game consoles. Let’s say Microsoft asked them to do something; I think that they would deliver. And I think if Microsoft wanted to create its own PC SoC or something like that, I think their first partner they would look at would be AMD because they’ve got over a 10-year relationship on creating custom silicon with the company. That’s it. That’s all I got, buddy.

<strong>Daniel Newman:</strong> Well, listen, the rumor created a lot of interest, and then therefore for us, it gave us a chance to comment. And that comment gave us a chance to opine and get attention, and we like that. NVIDIA is the hottest company in AI. Can we agree on that? I mean, maybe Microsoft would be the next in line and then Google, but NVIDIA stole the-

<strong>Patrick Moorhead:</strong> Yeah, I have to caveat with data center AI, yes.

<strong>Daniel Newman:</strong> But I mean, no companies made more money, gained more market share, or got more attention in the media than NVIDIA for this year. Jensen’s been on every stage in the planet and sure does great media and creates great fodder to talk about what NVIDIA is going to do. Like you said, it’s probably the worst-kept secret in a long time that NVIDIA wanted to do more with Arm, and it’s already doing CPUs with Arm. So that’s not actually true; it’s not new. Of course, it’s a top-down strategy. They’re doing very high performant. And could they move down into more, like you said, into a workstation or into maybe even a mobile PC like what Qualcomm is doing? And of course, the answer is maybe. And directionally, with the way Arm architectures work and the IP blocks and licensing, does NVIDIA have the resources and cash to do it if they want to? Would their relationships with OEMs potentially translate? I think they could, but the truth is…

And we’ll talk about this maybe, because Pat Gelsinger, what he inferred too in our comment today. But look, it takes time. We didn’t really say this in the Qualcomm comments about Snapdragon, but they’ve been at this seven years. And yes, the designs are better, but building sell-in and sell-out meaningfully in these channels is not… It’s not a marginal activity. It’s substantial. It’s material. It’s a big active role that these companies have to take. And this channel is littered with people who have gotten very used to certain mechanisms of going to market, including backend dollars that make it work for their businesses.

Will NVIDIA just be able to come to market and everybody’s just going to want it? I don’t know. I think gaming. I mean, what I keep thinking is gaming. A gaming device is probably where it’ll end up happening. It’s not going to be the end of Intel no matter how much people want it to be, but it sure does make for great TV. Unless you have anything on that, I’m going to move on to Google.

<strong>Patrick Moorhead:</strong> Yeah, no, let’s-

<strong>Daniel Newman:</strong> Keep going?

<strong>Patrick Moorhead:</strong> Let’s do that. I think, yeah, you are right. We are on Google.

<strong>Daniel Newman:</strong> Yeah, let’s do it. I’m very Googly. So Google was the tale of the other. And Google, let’s be very clear, Google had a good result. I said Google was good; Microsoft was great. But in an economy where people are pretty skeptical, and we’re kind of on stilts, and we’ve got the interest and inflation, and we’ve got politics and war and all the things going on, good unfortunately doesn’t cut it. But you’re talking about a company that showed stability in its advertising, stability in its YouTube business, stability in its cost controls. It beat on the top. It beat on the bottom, and it missed… I’m not joking. Guess how much it missed its Google Cloud number by?

<strong>Patrick Moorhead:</strong> 20 million.

<strong>Daniel Newman:</strong> $20 million.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> You’re talking around like high hundreds of millions. Like, almost one of those where you’re like, “Didn’t they have anything they could bill?”

<strong>Patrick Moorhead:</strong> Right. Couldn’t you pull in a deal or something?

<strong>Daniel Newman:</strong> Pull in one deal at the end. And I mean, I know, this is how you know this stuff’s real, is that sometimes it does work that way when numbers are this big. But having said that, Pat, look, I went on and I was talking to CNBC about this, and I basically said, “This is a company that I’m seeing real customers, real innovation, real product, real GA. We’ve had time with Thomas Kurian. They’ve moved to profitability. They’re growing the company successfully. This is not end-of-day stuff.” They grew 22% in the cloud.

<strong>Patrick Moorhead:</strong> Right.

<strong>Daniel Newman:</strong> 22%. Yes, Microsoft grew faster. Microsoft took share. And AWS grew 12%. And obviously, it’s always about the guide. AWS is much bigger, so when you’re $80 billion a year plus… But the point is, is that all these companies are different stages. All these companies measure things differently. But here’s why Google got hammered. I don’t think it’s the early AI setback. The early AI setback, I think, they’ve overcome. My personal belief.

<strong>Patrick Moorhead:</strong> They did. And if you look at the charts from Microsoft and Google, they brought that in.

<strong>Daniel Newman:</strong> They railed that in. But I do think their ability to describe their monetization, whether it’s Duet, whether it’s Google Cloud, it just wasn’t there. It wasn’t there. And like I said, it was a flawless execution from Satya Nadella and Microsoft. And it was a very kind of run-of-the-mill earnings presentation, which was fine with good numbers. But the difference right now is when people are going to put a dollar somewhere, they want to be blown away. And when it comes to AI, Open AI, the Copilot story, Microsoft has just done a bit better work so far. But I’m not ruling Google out. I really like what Google’s done. In the time I’ve spent with them, I think they’ve come a long, long way, baby. And I think it’s going to be okay from here. This was not end of days for Google.

<strong>Patrick Moorhead:</strong> That was a good analysis, Dan. I think the clawback had a lot to do with expectations. And I think it’s a natural thing that when you think of generative AI, you would think of a company like Google. And I think that investors were just disappointed that the numbers weren’t a whole lot bigger. So the expectation was that they’re going to be able to take advantage of generative AI, and based on those expectations, they didn’t. The reality is they had a really good quarter. And quite frankly, I think investors should have been happy that the advertising business didn’t crater given the state of the global economy.

<strong>Daniel Newman:</strong> It was good.

<strong>Patrick Moorhead:</strong> Right?

<strong>Daniel Newman:</strong> It was good.

<strong>Patrick Moorhead:</strong> I mean, and the fact that they came back with YouTube really well, I thought, was super impressive. On the search part, it really… How are you going to gain if you Google on search versus Bing, right? And Bing, they announced another share gain on that and the Edge browser. And if you’re not using Edge, you’re using Chrome. Now, investors didn’t know that because it was a day later. But again, and that’s what brings me to the point that this is all about expectation. They have brought Duet into Workspace, but then again, the percentage of revenue and the amount of revenue they drive out of that is somewhat inconsequential compared to hardcore Google Cloud has-

<strong>Daniel Newman:</strong> Negligible.

<strong>Patrick Moorhead:</strong> … has versus the overall advertising business. That’s all I got.

<strong>Daniel Newman:</strong> Yeah, I think you said that really well. And I think we’re going to see continued progress, but it’s hard to compete with near perfect.

<strong>Patrick Moorhead:</strong> It is.

<strong>Daniel Newman:</strong> So, let’s get to Intel.

<strong>Patrick Moorhead:</strong> That’s right. Yeah, Intel. So gosh, a lot of things happening quickly, Dan. You and I met-

<strong>Daniel Newman:</strong> Oh, good job on CNBC today.

<strong>Patrick Moorhead:</strong> Thank you. No, I appreciate that. I was on there with Jon Fortt and Morgan Brennan. I love talking to those two. It’s just so natural. I’ve known Jon 20 years now.

<strong>Daniel Newman:</strong> Well, if they’re going to have to go with anyone other than me, it should be you.

<strong>Patrick Moorhead:</strong> I appreciate that. Well, for every 10 big video, I’ve got to get one, Dan.

<strong>Daniel Newman:</strong> You do a great job.

<strong>Patrick Moorhead:</strong> So, a 10-to-1 difference. No, Dan and I both had the chance also to sit down and talk with Intel CEO Pat Gelsinger right after the call, and I’m going to hit those insights later. But net-net, Intel beat on revenue. They beat on gross margin, and they beat on EPS. It was really a trifecta, and their stock is going crazy. Now, I think it was a very conservative forecast last quarter, which I applaud Intel for doing. You don’t want to be flexing particularly in an area of high risk in the PC industry, where inventory is bleeding off. And then the uncertainty of the CSP re-up out there and the competition for the fourth or fifth quarter in a row in the data-center side. Intel acknowledged competitive pressures in their slide deck.

But I want to hit some of the highlights, though. The thing that really gets me, and hopefully, I’ve been crystal clear on this. The first thing I look for, I want to know the status of five nodes in four years. Why is that important? Because it’s all about IFS, their foundry business. If Intel doesn’t have a successful foundry business, they’re not going to have the scale, and therefore, they’re going to have higher costs and not compete as well with AMD and NVIDIA and Qualcomm. So it’s the first thing I looked at. Pat Gelsinger was all thumbs up. And in fact, I think he called the transistor a work of art. Is that what he called it? A Picasso or a Michelangelo. Pat was very proud of that.

<strong>Daniel Newman:</strong> He really doesn’t call it anything else.

<strong>Patrick Moorhead:</strong> I mean, it was cool. I mean, you could tell how proud and how stoked he was for it. So I was-

<strong>Daniel Newman:</strong> He was feeling it.

<strong>Patrick Moorhead:</strong> … feeling the positive vibes from his positive vibes. The other thing that went a little unnoticed, maybe they brought it up on the call, I don’t know, is in the Pat G press release, he talked about new customers for IFS. And I might butcher that, but I think he said three new wafer customers and two packaging customers just this quarter. Now, I want to know who they are. You want to know who they are. I have no idea who they are. I need to do some back of the envelope because I’ve seen Qualcomm commit to TSMC. I’ve seen AMD and NVIDIA commit to TSMC, so I’m kind of scratching my head. Is it MediaTek? I’m pretty sure AWS is a packaging customer for some of their own custom silicon, but we’ll have to see. I don’t trade in rumors, but I would like to know, just to see how big-

<strong>Daniel Newman:</strong> We don’t trade at all.

<strong>Patrick Moorhead:</strong> … of a deal.

<strong>Daniel Newman:</strong> Just to be clear.

<strong>Patrick Moorhead:</strong> No. In fact, any company that I have an NDA with, I do not trade in their stocks.

<strong>Daniel Newman:</strong> Just want to make sure that’s on the record.

<strong>Patrick Moorhead:</strong> I appreciate that.

<strong>Daniel Newman:</strong> But yeah, it was good to talk to Pat. We had a week between F1 of seeing quite a few people. We saw the head of IFS Japan, which probably felt pretty good about himself, given their near 300% growth. And yes, it’s a small-

<strong>Patrick Moorhead:</strong> He had a big smile on his face, didn’t he?

<strong>Daniel Newman:</strong> It’s a smaller part of the business, but I’ve said this for a long time, Pat, I think Foundry… But people that don’t understand policy and the macroeconomy, they don’t understand the importance of the US being more prevalent and capable. And Intel’s really the only company that’s US based that has the capacity to step up to scale at the leading edge. They’re the only one.

<strong>Patrick Moorhead:</strong> Yes.

<strong>Daniel Newman:</strong> Is it happening fast enough? It’ll never be fast enough, but that growth is good. Packaging, wafer wins. You could tell Pat’s feeling it there. The Mobileye business continues to be rock solid, and it gives some encouragement for what they’re doing with the PSG business as they spin it off, is that they’ve got this kind of we spin you off, we let you go public. We control most of this stock, but we let the shareholders get the value. And of course, Intel gets the value as that grows. So some good financial engineering there.

<strong>Patrick Moorhead:</strong> What was his response to the Qualcomm stuff? I don’t know if we’re going to hit that or not, but I think that was-

<strong>Daniel Newman:</strong> Yeah, so that’s all on there. But I want to see year-over-year growth. We’re still not getting it. I mean, we did get beatings on expectations. The bar wasn’t super high, but you know what? He’s executing. He’s executing. He’s executing. You know what? That’s what the market wants to see.

<strong>Patrick Moorhead:</strong> That’s right.

<strong>Daniel Newman:</strong> But I did ask him about the Qualcomm Snapdragon PCs, and you know what? He really didn’t argue the quality. What he argued was is they’re basically telling a story about a product that will ship sometime next year. And when it starts to ship, you’re talking hundreds of thousands of units. And yes, what they’re committing to the market is higher performant than what they have in market today. But what he’s kind of saying is, look, we have in-market products with X amount of TOPS, 10 TOPS. We’re shipping these things today. We’re ramping them up. We’re going to have millions and millions and millions of units that will have shipped by the time this new stuff has even shipped. And by the way, by the time the new stuff has shipped, we’re going to be on to next-generation technology that’s going to be higher performance, lower power. And by the way, that’s the problem with this whole benchmarking game, is it’s always leapfrog. Like you said, by next Monday, we may see a completely new competitive landscape when Apple’s emergency event comes out. And who knows what other announcements are going to get made?

<strong>Patrick Moorhead:</strong> Right.

<strong>Daniel Newman:</strong> Overall, though, Pat, I mean, I think it’s an encouraging moment for Intel. It’s good to see Pat in good spirits. It’s good to see Intel… A successful Intel is good for the world. It is good for the world because with the supply chain, with semiconductors, with innovation, with what’s going on, the tensions around the world, we need more than one strong foundry at the leading edge. We just do.

<strong>Patrick Moorhead:</strong> Yeah. And in fact, we’re even regionalized now in that it’s no longer a global game. It’s really a regional game.

<strong>Daniel Newman:</strong> So, let’s get onto the last topic because I want to-

<strong>Patrick Moorhead:</strong> Yes. Are we just getting through there? Are we going to actually be able to eat lunch?

<strong>Daniel Newman:</strong> We’re not going to make it, but…

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> Yeah, we still went over 6.5, but we did better than we typically do. And I still think we’re good. We should do it every week in person. You know what? We should just combine forces.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> Call it Moorturum.

<strong>Patrick Moorhead:</strong> Moorturum?

<strong>Daniel Newman:</strong> Moorturum. Moorturum Research.

<strong>Patrick</strong> <strong>Moorhead:</strong> Is it Moorturum? Mortuary?

<strong>Daniel Newman:</strong> Mortuary Group. Yep. All right. You heard it here. This might happen.

<strong>Patrick Moorhead:</strong> Yeah.

<strong>Daniel Newman:</strong> But IBM. I mean, let’s not forget about IBM. Big Blue had a good quarter.

<strong>Patrick Moorhead:</strong> They did.

<strong>Daniel Newman:</strong> We had the chance, by the way, you and I got to spend some time with Arvind at the F1 race.

<strong>Patrick Moorhead:</strong> It was good.

<strong>Daniel Newman:</strong> It was nice to see him.

<strong>Patrick Moorhead:</strong> Yeah, that was good.

<strong>Daniel Newman:</strong> The picture’s on the internet in case anybody doubts it. I’m joking. We wouldn’t post it.

<strong>Patrick Moorhead:</strong> I know.

<strong>Daniel Newman:</strong> And then we also had a call with CFO Jim Kavanaugh-

<strong>Patrick Moorhead:</strong> That’s right.

<strong>Daniel Newman:</strong> … who’s been gracious each quarter to kind of walk us through what’s going on.

<strong>Patrick</strong> <strong>Moorhead:</strong> Yeah, I appreciate his time.

<strong>Daniel Newman:</strong> Let’s talk about two things here. One is this company operationally, financial and operationally is just rock solid. Creating cash, expanding margin. When you’re growing in single-digit percentages, you have to operate really well. Having said that, the company’s been really on the money as it’s pertained to its strategy around AI. And that to me was kind of the highlight of the quarter. Things like hybrid cloud, consulting software, parts of Red Hat, all of it, it’s like it grew, it grew, it grew. Z had a good quarter. There were some offsets in that particular unit.

<strong>Patrick Moorhead:</strong> It did. I mean, it shouldn’t even be doing well.

<strong>Daniel Newman:</strong> Unexpectedly doing well.

<strong>Patrick Moorhead:</strong> It’s like mid-cycle.

<strong>Daniel Newman:</strong> But Watsonx is the story.

<strong>Patrick Moorhead:</strong> It is.

<strong>Daniel Newman:</strong> And they’re talking now in the hundreds of millions. They’re talking now high customer adoption, GA early, which is really impressive. They did their legal indemnification now where customers can adopt it faster, taking risk off the table, which I think is really important. If companies want to get on the bandwagon of generative AI, they want to be sure that if there’s risk, that they’re not in it alone. And so with these partnerships, I think that’s really compelling. When it comes to pure enterprise AI, IBM’s story, very compelling.

<strong>Patrick Moorhead:</strong> Right.

<strong>Daniel Newman:</strong> Overall, though, my take on it is this, is ramping the AI customer growth, being able to share the customer success stories. Of course, everybody would love to see growth go into double digits, Arvind more than anybody and then followed by Jim. But steady, steady, steady in the enterprise game does tend to win the race. And IBM is finding its sea-legs as a partner to the cloud companies, as a partner to the prem companies, consulting to security, data to governance. And even like with FinOps right now when companies are looking how to spend, and they closed that deal early too.

<strong>Patrick Moorhead:</strong> Yeah, that was a good acquisition.

<strong>Daniel Newman:</strong> It was a good acquisition with Apptio. Is it Apptio?

<strong>Patrick Moorhead:</strong> Apptio. Yeah.

<strong>Daniel Newman:</strong> Yeah. So off we go, rock and roll. But I thought it was a good quarter for IBM, encouraging quarter. What do you think?

<strong>Patrick Moorhead:</strong> Yeah, that was a really good analysis, Dan, and I’m going to hit two things. So first of all, I just want to remind everybody that IBM was the first enterprise company to go GA on a full AI platform, Watsonx. Watson AI, Watson Data, and Watson Governance. And it’s very rarely that you hear IBM and first-to-market in the same sentence. This was not a fake GA either, right? I asked for the spreadsheets of which features by what country. Is this thing really GA? It is very much GA. So all the way from training to solutions to consulting, it’s all right there. And the second thing… Well, actually it’s funny, I’m going to add three. But I also want to remind people-

<strong>Daniel Newman:</strong> Of course you are.

<strong>Patrick Moorhead:</strong> … that IBM was first to indemnify its customers not only for copyright, but also for the programming underneath. Okay? And then what happened? We saw Microsoft and we saw Google, by the way, still haven’t done the indemnification on the programming. It’s all about the copyright. So a big differentiator. I want to hit on Red Hat, right? I think both you and I, when we first got the release, we saw-

<strong>Daniel Newman:</strong> 8%.

<strong>Patrick Moorhead:</strong> … 8% for Red Hat. And kind of digging in there, and this came out in the call that, in fact, recurring product revenue is 19%. OpenShift and Ansible is 40% growth.

<strong>Daniel Newman:</strong> Much better.

<strong>Patrick Moorhead:</strong> And RHEL, the core-

<strong>Daniel Newman:</strong> Enterprise Linux.

<strong>Patrick Moorhead:</strong> … exactly, is double digits. And it was the consulting that brought them down. Now, I still don’t fully understand why consulting around Red Hat tanked. It’s certainly not a lack of what I would say desire to go to the hybrid multi-cloud. But I don’t know what happened. But it wasn’t all doom and gloom. I think if you peel back the data, Red Hat actually had a very good quarter, well, aside from consulting.

<strong>Daniel Newman:</strong> Well, and that sort of lays the groundwork for the whole quarter: mostly really good. And like I said, the macro looks rough, but the quarter so far for tech companies, it really hasn’t been terrible for many of the companies, the enterprise companies that we cover. And we’ll keep following it. We’ll be there. We’ll be on it next week when the next wave goes. But Pat, we’re here. We’ve got meetings to go to. I got guacamole to eat. I’m not going to lie. I’ve got five minutes to get to a meeting. That means I have four minutes to eat guacamole.

<strong>Patrick Moorhead:</strong> Yes.

<strong>Daniel Newman:</strong> But hey, a lot of fun doing it here. Glad we knocked it out.

<strong>Patrick Moorhead:</strong> I really enjoyed this.

<strong>Daniel Newman:</strong> Better in person, better together.

<strong>Patrick Moorhead:</strong> It really is. Yeah, definitely better together. And Diana, behind the camera, the producer shooting this stuff, thank you so much.

<strong>Daniel Newman:</strong> Yeah, she really crushed it. And by the way, check out our Connected with the Six Five series. Diana Blass rocking it here and wearing multiple hats. But for this episode of the Six Five, live from Maui.

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