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:
- AMD Acquires ZT Systems for AI Rack Design Capabilities
- DOJ Considers Breaking Up Google
- Cisco Q4FY24 Earnings
- Lenovo Q1FY24/25 Earnings
- HPE To Acquire Morpheus Data
- Huawei To Introduce A Chip In Chinese Market To Compete With NVIDIA?
- Coherent Q4FY24 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.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Transcript:
Patrick Moorhead: Six Five is back, and we moved the show from Friday to Monday. And thank you all for tuning in. Wow. We have a great show for you today. But as usual, we’re going to start off a little bestie chat here. Bestie, how you doing?
Daniel Newman: Hey, man, great weekend. Look, I think we adequately gave notice to everybody out there that we were going to be moving the show. And I’m glad we did because we got a mega topic drop over the weekend, which is going to expand the show. But we were unveiling, or maybe we weren’t, the new studio, or maybe not. But The Six Five wasn’t off, dude. Let’s be clear. The Six Five was grinding on Friday, getting home at what, 10:00 at night, all day out in the bay. We were doing our thing.
Patrick Moorhead: Yeah, we left at 6:00, 7:00 AM in the morning, got back late. We were shooting videos pretty much all day. Can’t tell you where we were, in an undisclosed location. And actually, this Thursday, I think we’re going to another undisclosed location to shoot some Six Five videos. But no, it’s fun. We appreciate our sponsors, we appreciate everybody tuning in. But let’s just jump right in. We have seven topics. Like Dan said, we added a new one this morning. AMD is acquiring ZT systems. We’re going to talk about the DOJ is considering breaking up Google. And we’re also going to talk about the implications, broader view of is it the right thing to break up a company like that. We’re going to hit a bunch of earnings. We have Cisco, Lenovo, we have Coherent. HPE, made a nice little tuck and acquisition of Morpheus data, hybrid cloud provider integrator. And we’re also going to talk about chips because we love chips. Huawei is rumor to bring out a newer version of its Ascend accelerator. So Dan, I am calling my own number-
Daniel Newman: Yeah, we’re going to talk laser beams at all?
Patrick Moorhead: We are going to talk laser beams. I had said we were going to talk coherent earnings. But yeah, coherent, whether it’s shark with laser beams, investors with laser eyes, whatever it takes, Dan.
Daniel Newman: Sorry, I had to do that. It’s a Monday thing. All right, it’s all yours, bestie.
Patrick Moorhead: So here’s the news. AMD is acquiring ZT Systems for $4.9 billion in cash stock. They’re going to do a lot of it out of cash or do a little bit of a debt offering as well. And you might be like, who in the heck is ZT Systems? Well, their biggest customers rumored are AWS and Azure. They design, they integrate, they manufacture and deploy rack level hyperscale AI systems. So think about the entire rack and everything that goes into that and everything that’s connected to it. They have customer support, they have installation, everything. It’s about 2,000 people. They’re located in New Jersey, Secaucus. A company at 10 billion revenue that you never heard of, and they’ve been in business for 30 years. In ’94 they started off with PCs. And in 2024, the company says it ships hundreds and thousands of servers annually. So what does this mean for AMD?
So, competitively, the game has changed. And NVIDIA really drove this with starting at the chip, and then going to the platform, and then doing not only the GPU, but also the CPU and the networking. And hey, let’s just do the whole system. And basically, a DGX rack. And they accelerated that cadence to not once every three years, but once a year. So there’s a lot of innovation, and it’s very hard to keep this wheel of innovation going. So AMD who’s been very competent in hardware, and you don’t get the $4.5 billion backlog without having infrastructure capability, but how do you go from 4.5 billion to attacking an addressable market? Not my numbers, not your numbers, but AMD’s numbers of a $400 billion GPU and accelerator TAM in 2027. You’ve got to find a way, you’ve got to make a big move to parabolically achieve that revenue growth.
And this is exactly what they did here. This adds on to the $1 billion of investment that AMD has made in software with companies like Silo, not that AI and Mipsology. And I believe that this is going to come down to execution. And I think AMD’s Lisa Su, who I got the pleasure of talking with last night is an absolute monster at acquisition. And also, we’re looking at just numbers here, it’s a lot less people and a lot smaller than the last acquisition, which was Xilinx. So I’m not saying this is a layup and not saying there’s zero risk, but it makes total sense. So there’s about 1,000 employees in the design and about 1,000 employees in manufacturing deployment. Lisa is going to spin out and sell the manufacturing arm. It would be totally dilutive. I mean, super micro. Their margins are in the single digits, which would not be good for AMD who operates 40% margins on there. So Dan, I left you a little bit of oxygen, I think a lot of oxygen in the room. I blew through that in about three minutes. What is your take?
Daniel Newman: If I could point everybody out there that’s watching to Pat’s extensive takes, Forbes. I think you posted a LinkedIn article. You definitely use that inside access to give what I would say the most comprehensive rundown of anything I read this morning. I’m not blowing smoke, I’m not blowing smoke. I wrote the second-best analysis because I put some work into that as well. Everybody that’s not watching, that I just winked really loudly. But Pat, look, here’s what’s going on. The number of 400 billion is about twice what our number is in terms of the size of that particular space. But there are reasons to believe that we are grossly underestimating the speed by which AI proliferates. And that has a lot to do with these various bubble perspectives that are out in the marketplace’s perception of a bubble. If it is a slow at first, then all at once sort of implementation at the end.
And then these cloud scale companies, these SaaS and ISP providers are going to be building out AI and delivering it at scale. It’s going to happen a lot faster than most of these CAGR numbers reflect. And that was where Lisa could end up being very accurate with her big ambitions in terms of 400 billion. Having said that, the company’s making the investments here to be able to put the designs together. You didn’t really use the word, Pat. You did in your article, not here, but about being open. But look, there are these two schools of thoughts right now when it comes to design. There’s this all in, end-to-end, DGX Super Cloud, everything built in one place, all NVIDIA, top to bottom. Anything that’s not is all masked as a single SKU, and you just consume it.
And then there’s the other side of the house, which is companies like AMD partnering with companies like Broadcom, building out systems with open architectures, using different standard ethernet network, using advanced GPUs, various different CPU head nodes. And being able to put these things together and then develop upon them. And so that’s also where this investment in software has come into play. You have this big Cuda lock in that everyone talks about. But we’ve seen AMD making big investments in software. We know Intel has referenced a future with one API, which we’ll have to wait until they get to their discreet data center GPU. But having said that, this whole thing is evolving to a software battle. So being able to build the most significant designs, being able to go open verse closed.
And then the other thing that I think is really important to mention is what the hyperscale cloud providers want. And I think there is a push and pull here. Of course, they want what everyone’s going to quickly consume, they want to sell through. And I think NVIDIA has been a big success for them. Having said that, on the other side, I think a lot of them want more choice in openness. They want to be able to bring some competitive price in. They need more capacity. They want to be able to build their own network backends, their own data center. They want to be able to build uniqueness into their data centers with how they handle networking, for instance. We know AWS has gone that route in some capacities, and they want to be able to address that. And so I think AMD should get some credit here for leaving that door open. They’re not going down the manufacturing, they’re not going to go closed end, end-to-end on the box, but they are going to provide the design that enables that open capability, Pat.
So I haven’t spent as much time in this as you have, but it seems like an encouraging way to drive that four and a half billion north, the four and a half billion of committed annual pipeline north. Of course, attaching more Epyc. It’s not just about Instinct, it’s about the whole stack. And then, of course, software. And if it’s true about this expansion into PyTorch and JAX and higher abstraction layers where programming can be done, and of course, they’re adding more capacity, then rockham ROCm can land. And that’s been one of those friction points, is how successful, how quick can the company move with ROCm.
Patrick Moorhead: Yeah, good stuff Dan. And yeah, I failed to bring up that, but I did in my article on the software side. They made three tuck-in acquisitions. And even though ROCm’s has been around forever, it was really focused on HPC, which is not Hyperscaler data center, generative AI. One final thought, Dan, it appears to me that the NVIDIA and AMD combo is putting, with this acquisition, they’re putting even more distance between them and their competitors. I am really, again, interested to see Intel and what they’re doing with next generation accelerators, and in 2025, data center GPUs. Intel has some extensive capabilities, particularly on the hardware side. They get rack scale architecture. In fact, years ago, they actually coined that term, but it’ll be interesting to see how Intel can turn that into gold as well. So hey, let’s move into any final comments, Dan?
Daniel Newman: No, no, no, no. That’s good. Let’s go.
Patrick Moorhead: Let’s hit the next topic here. Department of Justice is considering breaking up Google. You likely read the news on that, but there’s some bigger picture implications. Dan, what do you got?
Daniel Newman: Yeah, this probably could warrant an entire show in itself. So you and I trying to hit this in a few minutes is going to create challenges. So I’m going to really keep this at about 50,000 feet. But first and foremost, very interesting, we know Lina Khan has gone from, on the FTC side, this is DOJ, but there’s been a strong urgency across regulators to show that it can make some hard decisions and take it to big tech. Google, specifically related to its search, the first instinct that I had, Pat, when I saw this is, well, I think a lot of people have long believed that Google had in some ways created a monopoly, whether that’s because its technology was just superior to everyone else’s or because it was doing things like buying access to the Apple platform as restrictive. It has been the most successful search platform on the planet. And there’s no indication that that was going to change anytime soon, except we’ve now entered an era of generative AI, which is about to take the entire search industry as we know it, traditional search, and completely turned it on its head.
You and I have talked about this Pat, but about 75% of my searches now don’t begin on Google anymore. Now you and I, we’re tip of the spear. We are tech evangelists, we’re early in the industry, we are more techno optimists, we’re trying new things, but this is the beginning of a wave of search being disrupted. Now Google’s investing big in Gemini, they’re looking at building Gemini and applications that can go and probably up level, augment, replace, and displace certain search for its future business. But breaking up Google around search right now seems like something that needed to be addressed a decade ago, and at this point, seems like a fleeting investment of time. What happens next? Let me just point to that really quickly because there’s so much here Pat, and I don’t think we have the time to really dive into it. But the real question is would they break up Google? Could they break up Google? And so, I’m going to put my answer out there. One is yes, they absolutely could. Will they? I really doubt it. And here’s my take. In Europe, it’s always about raising money. Here, it’s more about complexity of the law and the amount of time it would take to get through the legal proceedings to do this. Even if a judge ruled, you’d probably see anywhere from three at a minimum to seven plus years of appeals that would be going back and forth.
And if you think about the speed of which tech moves over a three to seven year period of time, how much would change and how much the industry change. Second of all, the unwinding may or may not be good for consumers. Another major consideration, because consumer experience is part of the antitrust constructive thinking. And then the third thing about it is, Pat, is I think, if anything, if Google really did feel that it was going to lose this thing, I think they would do a self-inflicted breakup. That’s really my take on it is, in the end, if Google felt that they had no chance to win, they would be ruled against, they could not win an appeal, I think they would end up breaking themselves up by some different business units, although I don’t think that’s likely spinning off some of their big bets, maybe spinning off parts of a YouTube end of things. YouTube, I think they paid a billion dollars for it. It’s worth like 70, 80, 90 times that now.
And the last thing I’ll note is just Pat, I really worry about the long tail. I really worry about the long tail here. So you break up Google, what’s to stop next being Microsoft, what’s to stop next being Apple? And again, I think major conflict in terms of the construct of antitrust to destroy and denigrate the experiences that these big platforms created in the name of upping competition because I also think this shuts down some of the VC spend. And that’s also a big place where people exit, which has already been slowed dramatically. So Pat, so much to cover. I’m going to stop there, just because I can talk for 20 minutes about it, but those are my biggest top of mind thoughts.
Patrick Moorhead: Yeah, so any trust has changed over the years, but I wanted to give a historical perspective on it. The DOJ wanted to break up IBM in 1969. It was thrown out in 1982. AT&T was the, I believe the second-largest employer in the United States at one time. It was broken up and separated, RBOCs or Regional Bell Operating Company. So it was broken up into what are called baby bells. And if you still have dial tone in your house, those were one of the RBOCs out there. And it’s split into four or five of those based on regions. Microsoft was actually, a judgment came down to break them up. That was in the year 2000. Judge Thomas Penfield Jackson said that he wanted to split it up to Windows and everything else. That was turned over on appeals in 2001. Microsoft agreed to a settlement, but I got to tell you, that whole effort put Microsoft behind 10 years.
Smartphones came out. You had a search that came out. All of the bigger players out there basically were enabled by this happening. Apple almost was on its way to be going bankrupt. And just, you can look at their numbers and their cash flow, they got a lifeline from, guess who? They got it from Microsoft. And what that was to do is Microsoft surely would’ve liked to kill Apple, but they wanted to do it in order to look like less of a monopoly. So pretty clever here. The other thing that I look at is the new threat is China, and the discussion of hey, do we… I’m looking Pan Tech as opposed to just Google, do we break up a company? What are the national defense implications? I think for Google, I don’t think they have that protection. I don’t think that’s going to be a very good emotional argument or something that could be overturned on some presidential decree. Meta, the FTC also targeted Meta through Facebook, and they wanted to break out Instagram and WhatsApp after the acquisition, even after how successful it had been. So we have a radically different antitrust leadership in place, but I do not think that it is out of question that Google could be broken up. Good point, Dan, on people maybe using generative AI first, but based on all of Google’s profit, I’m not seeing any weakness in that at all.
Daniel Newman: No, that’s that’s just a trend line that I think, like I said, you’re regulating things in. It’s like the ninth inning, and it’s the last part of the game. And all I’m saying is everything’s about to turn, and now you’re going to break it up when there’s new tech breaking through. I think you made a great point about the setback though. If they spend the next 10 years litigating this, that will have major costs. I also love your point about China. All of our mega tech companies are required right now for the US to maintain global technology leadership. The perspective of perception of that. Are we willing to shelf our technology leadership? We hear they’re going after NVIDIA, they’re going after Google. When these companies start getting pushed, doesn’t that put some risk of giving China an opportunity to play catch up?
Patrick Moorhead: That’s a very valid argument, which is why I brought it up. No, no, no, no, I know you said that. No, it’s just, listen, I think when it would come to maybe some other companies, I think given that Google’s in the ad business, I don’t think they could use National treasure as a reason. So hey, let’s jump into the next topic. Cisco issued fourth quarter earnings. They also talked about a 7% RIF and a $1 billion restructuring charge. Stock did great. Why? Because it registered a beat for the quarter and had a very solid Q1 guide. I think the biggest thing here is this inventory digestion. And that was inventory actually sitting at customers, has been worked through and that has been an issue over the last two quarters. There was a giant spree of buying. I don’t think Cisco was stuffing the channel, that their customers and their channel just couldn’t get through.
The other new thing that I noticed that came out on the call is the customers talked a lot about all in customer purchases. I think really showing the synergistic benefit of having all of these different kinds of companies, from SaaS all the way to heavy iron with big switching and everything in between. Even custom ASICs out there. And they talked about customers across switching, routing, wireless, security, Splunk, non Splunk observability, and even collaboration. So there were also a major change in leadership. Jonathan Davidson who ran overall products for the company, he is moving into an advisory role, reporting into CEO, Chuck Robbins. And Jeetu Patel who has started off in collaboration, then moved in security, he is now going to maintain the Chief Product Officer role spanning, yes, every product that’s out there. And I think this is a real symbolic move, Daniel, that the company has done a great job shifting from a big iron company, being more additive, making big iron as a service, plus adding all of the different types of software and subscription models that they have. And Jeetu is software guy, is services guy. So, I think that is a meaningful symbol, an affirmation of not only where the company has moved from, but where the company is going.
Daniel Newman: Yeah, that’s a good breakdown. Some substantial changes. The company has been aggressively moving from this big iron, heavy service contract to a subscription ARR software, seeing over 50% of its revenue now moving that direction. The company is trying to attach itself meaningfully to this AI shift. I think this digestion period that you spoke of and that Chuck spoke about has been a bit of a headwind for the company for several quarters in a row, where basically there was a bunch of infrastructure invested in to stand up directionally AI networking and other parts of the AI stack. And then it stalled out a bit, had some underperforming quarters, some underperforming guidance. The company has now done two RIFs over the last quarter plus. I think it was something around 5%, and then another 7,000 now. I don’t know exactly what percent that is, but it’s somewhere around 13,000, I think, over the last couple of quarters.
The street loves that, by the way. I put a post out. I’m not being cynical about it, and I understand there are people behind these numbers, but we saw, going back a few quarters, and Mark Zuckerberg pulled the plug on some of the big investments, got lean, got fast. The market just absolutely loves and rewards that. The company’s taken a billion dollar restructuring on to do this. Seems that they’re going to compensate well, give good packages to people and move on. It’s a very different looking organization right now, and there’s some bigger considerations in the market. I’ve been spending a lot of time looking at this, thinking about this and reflecting on this as to how the size that companies need to be to execute the revenue. And we’re seeing this more revenue per headcount as a big focus now for the tech industry. I think your point about Jeetu makes a lot of sense. Look, all these software businesses are starting to converge, these subscription and software and service businesses. We knew for some time that the collaboration business had been struggling for growth. I think portfolio-izing, is that a word, portfolio-izing?
Patrick Moorhead: I don’t know. You created it, buddy. Centralize it.
Daniel Newman: Make it-
Patrick Moorhead: Don’t be a Richard.
Daniel Newman: Portfolio-izing all this stuff provides some clarity to the market on the direction. And I think the company also has to acknowledge where growth is coming from, where the growth is going to come from, and where growth is not going to come from. The company needs to attach to AI, it needs to really win networking, it needs to focus on that edge to cloud, AI network infrastructure. Not everything is going to be the mega hyper scale size. And of course, Cisco has its internet connectivity business. And that’s substantial too, but you haven’t really heard the name Cisco and AI mentioned in the same sentence very much. Now, what you have heard over the years is Cisco and NVIDIA compared for their respective bubble that people saw of the network era and the internet era with Cisco and now the AI era, I vehemently disagree with that. I disagree that they’re on the same trajectory. I see how people have arrived there. What I do think is Cisco has a substantial role to play. There’s a lot of infrastructure being built out at the enterprise, and I think it’s made some good moves. I think the Splunk acquisition, while it was expensive, I think over time, that will play out well. The company needed that ARR, that subscription, and that jolt to investors that it has successfully made the pivot, and I think it has.
So I’ll pause there, stop there. There’s a lot to say, but I think it’s good. People want growth. And that’s Chuck’s big focus, has to be Chuck Robins’ big focus right now, is getting growth. This year was a down year. It was a down year, but they beat, they’re getting efficient, they’re expanding the portfolio, and now, the next few quarters, it’d be great to start to show that growth taking place.
Patrick Moorhead: Yeah, let’s dive into another infrastructure play, and that is Lenovo. No, that’s not a typo. They do call this the Q1FY24/25 earnings. I thought it was a typo, but I went and checked, and that’s how they characterize it.
Daniel Newman: Yeah, everything different in those markets. Some of them, there’s parts of the world where they only report twice a year. There’s parts where they have multi-year threaded fiscal years, Pat. You and I had the chance to spend some time with their executive teams across their services group, solutions group. I think I’m talking to, I think you probably are too, the infrastructure co-presidents later today. Look, the parts of the Lenovo business that everybody has needed to keep eye on has been its distribution of growth outside of the PC. Now, all the tailwinds coming together at one time after a tough couple of years for pc, a tough past year for parts of its infrastructure. It’s had some new leadership. It’s been very dependent on a few big hyperscalers buying its data center servers. Then of course, it’s trying to grow this one Lenovo around it where these infrastructure that the device groups and the services group are working more collaboratively, but these are big unique business units that oftentimes I don’t really care if it’s all under one label. It’s very hard to build seamless integrations for them.
They’re showing some good progress there. They had 20% year-on-year growth, and a really big uptick in their earnings, Pat. 65% jump on a one-year basis. They saw their non PC revenue hit, I believe it was a record high for non PC revenue, getting to 47%. So if that’s one of the bellwethers, then they’re making really good progress in that particular area. The PC business, look, Pat, you and I have had a lot of conversations about this, but where does this AI PC trendline land. And I think we’re seeing volume ramp. It’s very consistent with what we’re seeing with AI as a whole, is that it is sort of a slow at first, and then what I call all at once. I think they’re slowly ramping up. The early adopters are buying. Companies are proof of concepting these things. They’re starting to get them into the design flow. The early consumers have run out and bought. I think we’ll see the holiday numbers in the next quarter. That’s going to be pretty encouraging. But the PC business was up 11%, which is solid. They noted their 23% market share right now. And I think AI PC is more of a first half of next year boom. But again, that’s my call. I think there’s arguments to be made that we could see a very, very strong fourth quarter this year.
Last thing I’ll say is that 65% number shown through a few times in their Lenovo earnings. Infrastructure was 3.2 billion with a 65% jump in revenue. Massive. Absolutely massive. Now, the thing about that business unit is its only made a profit on a couple of quarters since its inception. So this is a big bet for the company. They’re seeing big growth, not just in data center GPU, but also high performance compute, 30% jump. And by the way, they have some very, very strong technology around liquid cooling, Pat, something you’ve spent a lot of time talking about. And that’s been very strong, 55% jump in that area. Does not surprise me at all. Services saw a steady 10%. I’d like to see that business growing faster. You’d think that as they’re deploying all this AI, the systems and server and solutions should be tying together very, very closely. But it was an overall encouraging quarter. That company trades thinly. So the market doesn’t have a ton of reaction, but it’s a very interesting company to watch. If you’re watching Dell, if you’re watching HPE, if you’re watching Cisco, you really should be watching Lenovo too.
Patrick Moorhead: Yeah, what a great quarter. I mean, just the fact they’ve got a two in front of their revenue from a growth perspective, and with net income going up 65%, that is a monster quarter. It was kind of weird that the stock didn’t pop, but I think you talked pretty well through that. And I’m going to drill down. So for IDG, Intelligent Devices Group, PCs, they were up, which was amazing, but 28% smartphone improvement and tablets up 33%. My gosh, the success story that the company has in smartphones is super impressive. And I think on the PC unit market share they hit an all market share high. So just a very positive quarter. Yeah, and I agree with you on AI PC, they believe that it’s going to be over 50% of their sales by 2027. By the way, why that might seem super small to people is because the roadmaps for AI PCs are unclear on desktops. And desktops are half of the volume out there. And then in notebooks, it’s pretty much a premium game. Christiano came out and made some announcements around AI PCs on X. I think he said $800 coming up. And that will drive even more sales. Heck, I went to Best Buy this weekend, it literally looked like the Copilot+ PC store. It was pretty crazy.
On ISG, this is their infrastructure solutions group, is peeling back the ending on that. Yep, 65% growth. It’s huge. Hyperscalers, that’s the biggest driver there. Some other highlights, storage software and services up 59%. Neptune liquid cooling up 55%, HPC up 30% to a record high. Again, really good numbers coming out. The company’s biggest challenge is to go from hyperscaler to the big enterprise. And that requires a different marketing, different content, a different sales motion, particularly inside of the channel, maybe simplifying the way that companies buy to get a little bit of velocity, improving profitability in there.
Services, yeah, like you said, would like to see over 10%, but double-digit is good in the areas that Lenovo participates. They actually are doing better than the market. They’re claiming that their growth in AI services, an example was twice as fast as the overall market. Good growth percentages. That’s based on a smaller revenue number. But I think strategically, I do think the services group is focused on the right things that a company like Lenovo could be taken seriously for. And don’t forget they made a services company acquisition of an Asian company to give them even more capabilities in that space. So hey, let’s flow. There’s even more acquisition news, and this happened later last week.
Daniel Newman: Feels like the matrix. Morpheus.
Patrick Moorhead: Morpheus. No, no, I think that’s super cool. And I guess they didn’t get sued for that. But listen, you all know that I have been an unabashed lover of hybrid multi-cloud solutions. And essentially, this is the capability to standardize on a certain set of capabilities and vendors that you can use on-prem, private cloud, sovereign cloud, AWS, Google Cloud, Azure and Oracle Cloud. And so, your infrastructure and your capabilities aren’t silo dependent. They can be transported based upon what you are trying to accomplish as an enterprise. I like this tuck-in acquisition. And why do I call it a tuck-in? It’s a couple hundred employees. And one, I would say criticism critique that HPE has deservedly received is hey, all of your services aren’t hybrid multi-cloud fabrics. Now, storage, for instance, are connected to hyperscalers like AWS and Azure, but this extends all of their capabilities to AWS, Azure and Google. The company also did a really good job talking about how some other acquisitions they made like OpsRamp and Zerto, how they plug into Morpheus’ hybrid cloud management platform.
So like I said, my article on AMD’s acquisition, the degree of success comes down to increased revenue, customer delight and how they can do this. And I would say the biggest part is how enterprises and governments perceive HPE as a full stack service and software provider. Now, I want to footnote that saying that HPE does do mix and match. If you want to plug in Red Hat, you want to plug in VMware, you want to plug in Nutanix, and other types of stacks, you can do this. But strategically, and where you just know HPE makes a lot more money is when they go in with the full stack.
Daniel Newman: Yeah, absolutely, Pat. First of all, some good coverage there. Our team put a number of pieces out. We dove deep into this one, Pat. It’s a $6 billion estimated market for intelligent cloud ops by 2027. So there’s some big spend there, Pat. You and I have talked a lot about hybrid multi-cloud. 25%, 30% of the enterprise workloads are in the public cloud, and the rest are still OnPrem. And by the way, those numbers vary somewhat considerably, depending on the organization itself. This is, like you said, a tuck-in. It gives additional capacity and capabilities for the company to head down the journey it has been on. Its journey has been ARR. Does this sound familiar, everybody? ARR subscription helping demystify the complexities of multi-cloud and the fact that most enterprises are on multi-cloud. The push-pull is that the OEMs, the HPEs, Lenovos Dells and everyone else are trying to build subscription based services that that, extend the prem to the cloud.
On the other side, all the hyperscalers are trying to simplify the process of taking those on-prem workloads to the public cloud. And everyone wants the same, but in the end, the customer, we learned a lot about this in the CrowdStrike instance. A lot of these kinds of architectures, you can do these things differently. And depending on how you do them, all the way from cloud to the edge to the device, can have really, really meaningful impacts as to how your business functions and runs. So multi-cloud needs orchestration, needs automation, needs spin ops management, which workload, which place, what’s the best cost? And so, of course, the last piece is trying to unify that. What control plane does the average cloud environment manager, IT manager utilize, Pat, if they’re running AWS, running Google, running Microsoft? And let’s face it, the average growing company that’s going to grow through organic and inorganic means, large enterprises that tend to grow both ways consistently, have a lot of technical debt. They continue to acquire technical complexity in debt.
Because when they bring new companies in, they tend to have different ecosystems and hardware. We’ve talked about multiple acquisitions just here today. And that happens every single day in these companies. And then of course, companies need to be able to do all this with the future of AI in mind. So this is helpful. It moves things in the right direction for HPE. It’s a very competitive landscape. HPE is taking it head on. They were very early in this space. I think both you and I have been covering this in depth. And this will be one to watch if the company can explain that it added meaningful growth. That would be really encouraging for both the investor and customer base.
Patrick Moorhead: Good stuff, Dan. Excuse me. Let’s move to the next topic. And that is, guess what, more AI rumor on the street, that Huawei is introducing another version of its Ascend AI Accelerator to compete with NVIDIA. Dan, what do you think here? What’s happening?
Daniel Newman: Hey, Pat, I think sometimes you say to me, “I don’t really like these speculation ones.” And then sometimes you get done with them, and you’re like, “I kind of like doing these speculation ones.”
Patrick Moorhead: Yeah, I do man. As an analyst, you need to be very… I mean there are people who do great rumor mongering, and they get great page views, but we typically don’t. But it is kind of fun to dive in. It’s what our audience wants. Are you not entertained?
Daniel Newman: And there is this theme though. The whole world really… I mean, the big question, the macro questions, can anybody compete with NVIDIA? And so anything that’s a sub theme to that, whether it’s AMD making the acquisition today or Huawei developing a next chip for China that’s going to compete. And again, the note here is that it’s competing with the H100. So the note is different because some people, when I tweeted it, they immediately went down the path of it competing with the China spec chip. And that’s not the point here. The point is that China has not been able to, through its own means, manufacture a competitive GPU to the H100, certainly not to the B series that’s coming down the line. And that’s been the question about China’s ability to maintain competitiveness.
So I think the first point, Pat, you and I would probably agree on violently is that of course China’s trying to do this. Of course they are. Why in the world would they not want to be able to take more control of their situation right now? The sanctions are adding complexity, it’s limiting their ability to innovate, and it’s forcing them to creatively or gray market a lot of hardware, Pat. What did we talk about those cigarette cartons full of GPUs coming across the border?
Patrick Moorhead: Exactly. I mean, to be honest, they’re less cards now. They’re more of these giant blocks, but you get the idea.
Daniel Newman: Yeah, right. Historic, that you’re painting the historic picture. But look, the sanctions are substantial. I don’t see the US moving away from them anytime soon. They need to do this to maintain technological leadership. Not to mention just capacity right now. There’s so much limited capacity. ASML can only make so many machines with laser beams on them, and there’s only-
Patrick Moorhead: We’re going to get there, big guy. Yeah, we’re going to get there.
Daniel Newman: I just wanted to talk about laser beams. But realistically, design, packaging, building, implementation and launching. So my take on the whole thing, Pat, is China is going to do everything in its power to get here. They are going to do whatever it takes to design in copy capabilities, and they’re going to try to manufacture competitive products. Can they do this as early as October, per the rumor? That seems like a very aggressive timeline, but what we don’t know is there’s a bunch of don’t know. How long has this been in flight? Any specific design updates, partnerships, packaging, relationships, how are they putting this thing together? And then what capacity to manufacture do they have? Is it a handful? We’ve seen them being able to take things down, I think as low as what? Seven through SMIC, but the volume has been very low, the volume of… So they’re not able to do these things in high volume, which has been part of the limitation.
So overall, Pat, I think they’ve been able to make a lot of progress in things like handsets and devices because of the differences in design, but I think with these large GPUs and systems, I just think it’s very interesting and provocative, but I just don’t see the horizon here. I think they’re going to be a year or two out, even if they can get it done. And I think this does make for great rumor mill fodder, but I’m not as sold that Huawei and its limitations are going to meaningfully be coming after the H100, maybe even the A100.
Patrick Moorhead: Yeah, so let me just get some stuff out there. The rumor was around a 910C. Huawei’s high silicon already offers an Ascend 910B that was going after the A100 for AI training and inference. So that’s actually done a done deal. And companies like Baidu in China are already buying this. This is the potential follow on. By the way, you know there’s going to be a follow on. Is it called C? Likely. So this rumor is, again, we try to vet our rumors. This has a very high probability of being true. Now, what’s interesting when it comes to wafer capabilities, you have Groq. The silicon that Groq has right now is done on global foundries.
Daniel Newman: 14.
Patrick Moorhead: 14 nanometer.
Daniel Newman: By the way, Groq with a Q, not the Twitter thing with the K. Right?
Patrick Moorhead: Yeah, that’s exactly right. And well, wait a second. How can they do this? Well, first of all, you have to recognize that design is, for the Huawei Ascend is an ASIC, which is like Groq, like Maya, like Inferentia, like the TPU. So likelihood is that it doesn’t have to be on bleeding edge. And then by the way, it’s a lot less efficient on a process standpoint, but an ASIC is more efficient than a GPU. And the way that you do this, by the way, if let’s say you’re hitting 8200 performance, well, how do you get to an H series type of performance? You have to string a lot of them together through clustering. And it’s done. I mean, how do you think that OpenAI, ChatGPT 1.0 was trained? It wasn’t done in an H, it was likely done on A series or something before that. And what you do is just less efficient. It takes more servers, it takes more clusters to make this happen.
Now, NVIDIA is not just going to let all that business disappear. Another rumor that we cover on our show that I would say is very a high likelihood is this idea of a B20. H20 didn’t actually see the light of day, but an A20 did in China. And that was the Chinese cut down version of NVIDIA’s Silicon. I believe that NVIDIA is likely going through the process. There is an actual process. Check out my website if you want to know what that is. But essentially, it’s a red, yellow, green status. And this would be in the yellow where NVIDIA has to ask permission of the government to determine whether they can ship it in there or not.
Daniel Newman: By the way, Pat, you mentioned something interesting about these XPUs basically being put up head to head with these more flexible GPUs. And I think that is an important thing we can’t dive into today because we don’t have time, but understanding that a lot of these accelerators are being built with more logic cores on them, like we’re seeing with Gaudi right now, where you’re hearing Intel making claims about Gaudi being able to compete meaningfully with the Hopper architecture. I think this is similar to what, I’m sure, Huawei’s doing. I haven’t spent as much time in the Huawei portfolio. Hasn’t been as relevant over the past few months, but to your point, they’ve been able to align something to the A series. Have you heard anything about scale on that? I’m just curious. Have they ever been able to hit any volume? Because that’s ane that I’ve heard the trap over there, is they just haven’t been able to get anything produced in volume, which seems like that would be a big limiter for this.
Patrick Moorhead: I haven’t. They’re limited in the amount of 7 nm smartphone chips they can crank out, but I do not know about these basics.
Daniel Newman: We should put them in the lab, run them side by side. Let’s make it happen.
Patrick Moorhead: Totally. You hear that Huawei? Let’s get your infrastructure into our labs. Pronto.
Daniel Newman: Pronto, tonto, right?
Patrick Moorhead: Yep.
Daniel Newman: What they say. All right, buddy, I know we’re coming up to it.
Patrick Moorhead: We are. We were clipping through here. Hey, Coherent announced their earnings, fourth quarter, fiscal ’24. First thing, I’m going to do is I’m going to start off with, if you’re not familiar with Coherent, who in the heck is Coherent? So think of broad-based materials, all the way to systems tech company. Okay? So all the way from materials that are used in high-tech, to racks of fiber optic connectors for hyperscalers, end-to-end. And markets are industrial markets, comms, electronics and instrumentation markets. Hey, everybody cares about AI, so think about optical transceivers, lasers, lasers, everybody. And even the materials for building AI semis, laser manufacturing systems, cooling and sensing.
Well why are we covering this company on here? Well, Jim Anderson, prior executive at AMD, and then CEO at Lattice Semiconductor is now the CEO of Coherent. The company is around $5 billion and has 26,000 employees, so a very sizable organization. And I’ll let you hit the earnings. What I wanted to do, what I thought was more interesting is just almost giving an introduction to the company, but also what Jim talked about on the call. New CEO, what do investors want to know about? What do you think? What are your first impressions at what’s going to change and what’s in it for me? So Jim reiterated the $60 billion SAM. Biggest growth opportunity, optical transceivers. He said he was also excited about NextGen telecom systems once we get the dipsy doodle up. Advanced displays like the latest OLED, semi cap, equipment, industrial automation, and of course, EVs. Can you get all the hottest buzzwords in there? I think we can.
Daniel Newman: Let’s go.
Patrick Moorhead: And he said he was focused on three things, very classic CEO culture, strategy and operations. He wants to simplify, he wants to speed everything up. Sounds very similar to Lattice, where I think they quadrupled the amount of new products coming out of the pipe at a much higher profit margin. He wants to rightsize the growth engines. That says pour more investment on things that are growing, stop investing and divest in lower performing businesses. And he said stay tuned, more at investor day. A lot on operations you talked about, but I’ll leave some oxygen for you.
Daniel Newman: Yeah, the playbook with Jim at Lattice, if he’s going to bring it over here, was really about building out that culture, building out strength for growth, and then expanding product portfolio. He did that very, very well. Very strategically too. Got the developers on board, went from that very low end to mid-tier. If you notice, there was a trend line for 11 or 12 quarters. But even through its rougher patches, margin expansion. So very focused on operational excellence, very much part of the ethos, and probably why he was identified to take this company by the helm. So one of the things, Pat, you covered a lot of the ground. And you and I are both first timers really digging into this. When the company did a double beat, it is down year-on-year, kind of like we talked about with Cisco with revenue, but I think it’s part of the shrinking that we saw in some different company spaces only for growth that’s coming up ahead.
It was very interesting to hear about how critical their technology is to so many others. It’s another, maybe think of that BASF commercial when I was a kid, “We don’t make most of the things you use, we make most of the things you use better.” Whether it’s giant semiconductor manufacturing machines or very specific materials that go into things like maybe a really smart watch that a lot of people use, this company has technology. And I think that’s going to be one of the things I’m going to be focusing a lot on as we start to inform and educate the market, is where does Coherent technology exist inside of things that you understand and know how to use? Things like materials are very hard for people to understand. So an area that they’re in silicon carbide, this is about thermals, for instance. So this is a company that’s doing materials for thermal.
So if you’ve heard a trend line, companies like Vertiv, where you’re hearing a lot about efficient AI, data center efficiencies and such not, that comes down to a number of different components. It’s systems that are used for cooling, for instance. They create more efficient designs. These more efficient designs mean lower power use. Companies like Coherent are in the mix with these particular types of technology, but this is everywhere. And their portfolio is so diverse, Pat, it really does cover, we say about the lasers, but you’ve got transceivers and you’ve got materials, and just up and down the stack. And they’re involved in so many different designs and manufacturing, that they have a really diversified portfolio, which I think makes them compelling.
You and I, this is going to be one that it’s going to take more education, it’s going to take more time, but we’ve seen this with the likes of Lattice and FPGAs. We spend time on it, we invest some effort and learn, and hopefully everybody out there can get some benefit from this. Pat, it’s an interesting company with some strong results. And now it’s got some strong proven leadership that we know knows how to get it done.
Patrick Moorhead: Great ads there, Dan. Hey, we covered seven topics in an hour, and we appreciate you guys tuning in. Dan and I are going to be with The Six Five crew. We’re going to be back on the road, going to an undisclosed location for a day of shooting prior to a major event coming up. Did I get you guys interested here? But no, seriously, thanks for tuning in. We’re going to be back Friday at 9:00 AM Central on our regularly scheduled time. Dan, it’s great to see you, dude. Let’s, everybody out there crush it this week, crush it with everything you do. Lay it out there. Take some risks. And if you can, crush it and be nice to people too. Thanks for tuning in. Take care.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
