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:
- HP Amplify 2024
- Broadcom Q1 FY2024 Earnings
- OpenAI – Non-Profit to Profit
- NVIDIA 3rd Most Valuable Company
- Apple Reinforces its Monopolist Nature, Again
- AMD AI Chip in China
- Marvell Earnings Q4 FY2024
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:
Daniel Newman: Hey everyone, it’s Saturday and welcome back to another episode of The Six Five Podcast. Why did I say it’s Saturday? Because normally we do it on Friday, but actually more and more we’re doing it on Saturday. That’s because Fridays seem to be busy travel days right now. Because we’re back, baby. Everything is back. Everything is back. The travel’s back, the advisory’s back, the market is back for the moment. It’s exploded, except yesterday NVIDIA lost $250 billion in market cap. They gained and lost in AMD. Just another average trading day on Wall Street.
But no, a lot going on. It’s episode 207, Patrick. You’ve been away. You’ve been on a little vacay. But I didn’t let you go too much on vacay because I had to take you with me to Las Vegas. How you doing, buddy?
Patrick Moorhead: I’m doing great. If vacay means a two-day trip to Vegas and working half the day, I’ll take it. Listen, I had some good time on the slopes. I have three kids and I’ve got one left who’s not gainfully employed. This will be his, not the last spring break, but his next to last. Yeah, we went skiing, had fun. It was good. Now we’re back. Just got in today. Our entire city is full of South by Southwesters. Welcome, everybody. Don’t have too much fun out there. But if you do, it’s fine. Our APD doesn’t have the staff to do anything about it.
Daniel Newman: Oh, my gosh. This political message is brought to you by Patrick Moorhead, running for conservative mayor of… Anyway. Listen, it’s funny, I shared my post. I just went back through everything today. I had 25 different requests to moderate, to speak, to be a guest, or to attend, and I’m doing zero. I am absolutely boycotting for no particular reason because I think South by is great. But you know what, sometimes when the party’s in your own city or in your own home, what do you want to do more than anything? Is slip into the quiet spaces. I put a picture up of that Homer Simpson sliding back into the bushes. I said, “That’s me during South by Southwest.” Not that I don’t love it, Pat, but it’s-
Patrick Moorhead: Yeah. I’ve lived here almost 25 years and I’ve been to two. So, I’m there.
Daniel Newman: Well, by the way, you’re going this year though. You’re doing some big stuff. Why don’t you tell everybody what you’re up to?
Patrick Moorhead: Yeah, listen, I’m really, really excited. I’ll be moderating a conversation with Michael Dell on Thursday, and we’re going to be talking about Austin, tech, where he thinks the next wave of investments are. And I’m going to ask some personal questions too. And not too personal, anything if you picked up his book you would see there. But he’s a great guy. I mean, I can’t believe how grounded he is as a human being given his net worth, and I just appreciate all the time he’s given me over the years and paid attention to me when I was, I guess insignificant you would say. And not that I’m saying I’m super significant now, but 13 years into this new role, new role? 13 years into this role, yeah, the company has gained some significance.
Daniel Newman: And there you have it. Well, I mean, look, the man crossed into the hundred billion club.
Patrick Moorhead: He did.
Daniel Newman: I mean, you’re only separated by a handful of zeros.
Patrick Moorhead: No, no, no, totally. I think my net worth is about a hundred thousand dollars.
Daniel Newman: You’ve been making high five figures now for the last several years, and I want to congratulate you on that. But listen, everybody, we have a great show. We’re going to be talking about our visit to Las Vegas for HP Amplify. We’re going to talk about a couple earnings, HP and Marvell. We’re going to talk OpenAI, NVIDIA, AMD and Apple. We have a bonus topic because, well, it’s our podcast and we can do whatever we want. So if you don’t like it, you know where the exit button is. Hit that exit button and move on to the next thing. But if you do like what you’re hearing, we’d love for you to subscribe. So just a quick point over to that subscribe.
We hit the big topics every single week here on The Six Five, and we try to pull no punches. And that’s the way we like to roll. The show is for information and entertainment purposes only. And while we will be talking about publicly traded companies, we ask that you please do not take anything we say as investment advice.
Patrick Moorhead: Don’t do it.
Daniel Newman: Don’t do it. All right, Patrick, why don’t we start off, we were at HP’s massive partner event this year, called Amplify, in Las Vegas.
Patrick Moorhead: Yeah, I have to tell you, the PC industry has gotten away from big tent events. And then you had folks like Lenovo come in. PCs are a part of Dell Tech World, but not a big piece. But HP brought it, they brought it across workforce solutions, across PCs, across printers. And it was really about the connective tissue of AI honing in on what it could do for hybrid work. And I really like the focus. And it’s not that there aren’t consumer PCs or consumer printers, but they really honed in on the work part. I think that’s smart, given that I believe that’s where the AI opportunity is. And also, by the way, it’s where the margins are, right? Unless you’re Apple, you’re not printing money as it comes to the consumer market. So a lot of good insights here.
And I’ve been covering HP for 13 years. I worked for a company that HP acquired, called Compaq, from ’95 to ’99. And a lot of really good things have stuck, like focusing on the channel, focusing on use cases. I really love the conversation that we had with Personal Systems’ Alex Cho on use cases, not specs. Use cases, not specs. And then when you put an entire layer of services on top of that, that Dave Shull is in charge of, and you sprinkle in their printers. By the way, there’s been ink as a service before any of this as a service stuff became popular. And I do like the focus. I mean, Dell and Lenovo had end-to-end, but HP just seems very focused. And I like what I saw.
One thing, my final comment on the keynote, and by the way, you can watch the 13 videos that Dan and I did for all the insights there. What I loved, what they had, is I’ve never seen the industry come out before in a way like this, CEO of Microsoft, CEO of Google, CEO of NVIDIA, AMD, Qualcomm, and Intel. And it was just I’ve never seen that. And I’m not talking about a video that you play that we see a lot at these events. These were on stage. I think only three of them were video, but they were live video.
In fact, one guest came on late, I don’t know, didn’t come in on time. And so they had to do a real time change in terms of guests, and they had to get Pat Gelsinger on there pretty quickly. If you were wondering where the furniture was for them sitting down there, it was not there because Pat wasn’t supposed to be the first speaker. I think it was Satya. But I left the show with a higher level of confidence on what the team is putting together. I think they’re being very conservative on the call of AI PC, but that’s okay. I think that’s a good place to be because quite frankly, the industry can’t show what’s coming down the pike in the middle of the year, which I think will get a lot of people excited.
Daniel Newman: It was a great overall keynote and set of keynotes, Pat. You and I weren’t there for the whole thing, but day two actually continued with the momentum. And there was a lot of rumblings about what it would be, but we ran the gambit. You ran the gambit of the big partners on the OS side. We had Microsoft there. And of course, for Chromebooks, which is a big part of the HP business, we had Sundar there. There’s some interesting inflections on Gemini. Isn’t that interesting?
Patrick Moorhead: Listen, how do you play it? Gemini is under attack big time. Do you hide or do you bring your CEO out and your founders? And that’s exactly what we’ve seen. And Sundar said Gemini five times. I mean, by the way, when he got on and he said, “Here’s our AI strategy,” it was silent in that room. People were on every word, like, “What is he going to say here?” I thought he did a good job. Now he’s got to execute, right?
Daniel Newman: Well, look, sometimes in the process of evolving mistakes happen. We don’t know the exact situation. We can only speculate. It seems that Google is up for the challenge to try to regain the trust of the market, and we will see how that plays out over a period of time. But you had Microsoft and Google on that side. And then of course, we started off with Pat Gelsinger being in good spirits about having to be called up early, made a few jokes, threw a few punches, threw a nice punch-
Patrick Moorhead: I think he literally said, where’s the furniture?
Daniel Newman: Yeah, and he threw a few punches.
Patrick Moorhead: It was so good.
Daniel Newman: About the Core Ultra being the first in-market AI PC. And of course, AI PC means different things. And perhaps over time our team-
Patrick Moorhead: Did he thank Cristiano? Did he thank Cristiano?
Daniel Newman: Yeah, he did.
Patrick Moorhead: He hopes he becomes a customer, like after he said he was first with AI PC, after Cristiano announced his chipset in Hawaii in December. That was classic.
Daniel Newman: Well, there was some jabbing, but there was also some, I would say genuine mutual admiration that went around. I thought Cristiano was very humble, but also knows that they’ve got what looks to be a very strong product portfolio and lineup that’s going to hit the market, Pat. And then of course, Jensen and Lisa showed up on day two, and I watched what they talked about a bit remotely. And by the way, all the memes came out about the cousins, Jensen and Lisa, being cousins.
Patrick Moorhead: I missed those. I knew they were.
Daniel Newman: Is that real?
Patrick Moorhead: That is real.
Daniel Newman: Okay.
Patrick Moorhead: That’s real. Yeah.
Daniel Newman: So basically the two of them own like 87% of all the fabless, and they own about 99.9% of GPUs between the two of them.
Patrick Moorhead: What do you get your cousin for Christmas? Do you get them increased foundry wafer capacity or you go all in on packaging, co-ops?
Daniel Newman: Well, if you’re fighting, maybe what you do is you just do some margin destruction. You’re like, “I see what you got going on there. These MI-300s, I’m going to have your margins next year.” I don’t know. It’s interesting, Pat. But overall, like I said, I walked away with a couple of things. HP is incredibly committed to its partner led strategy. That hasn’t changed. They understand the partner’s role and what it has to play. They see the AI PC wave. I think they’re cautious about it. I actually think they’re very cautious. They’re very focused on continuing to deliver experiences that make remote and hybrid. And they’re very focused on hybrid. And hybrid is not remote.
And they’re also very actively working to transition their revenue to more and more subscriptions. And with things like the Magic Ink on the print side of the business, people don’t always recognize how much they do that’s recurring. But it’s going to be a super competitive market, no question. This next year, standing out is going to be tough. I think HP is up to the challenge, but I’m really excited to see, Pat. I love a little competition and how it can drive innovation in the market. AI PC is going to drive crazy competition in the market. Silicon craze, design, OEM, ODM craze. And of course, Apple, they got to get in the fray at some point. They’re like, “We do an AI PC.” And like, do you? I don’t know. Let’s talk about that.
So, all right, let’s hit topic two, Pat. Let’s talk a little earnings. I think my tweet said one of the best run companies on the planet delivers on top and bottom once again, although it was a little light on its guidance, Broadcom. Let’s talk Hockonomics. Let’s talk a little Hockonomics right now. Company’s up 34% year-on-year, but about 11% revenue ex VMware. So this VMware add really did make a huge delta to the bottom line. The company… eight, almost $7.156 billion of EBITDA adjusted on the first year on its revenue. And I want you to guess what percentage of revenue this company’s EBITDA is, Pat. You know how much I love EBITDA, right?
Patrick Moorhead: Oh no, it’s incredible. And by the way, their margins are just, I mean, like 77% for its margins are just amazing.
Daniel Newman: But guess what’s left after that, what the EBITDA number is?
Patrick Moorhead: I don’t know. Tell me.
Daniel Newman: Take a stab just for fun. Let’s have some fun.
Patrick Moorhead: As a percent?
Daniel Newman: As a percentage of all of its revenue, how much of it’s EBITDA?
Patrick Moorhead: Oh, 20%, I’m going to guess.
Daniel Newman: 60. 60% of its revenue is adjusted EBITDA.
Patrick Moorhead: Oh, sorry, I was thinking of op. Okay.
Daniel Newman: Net Inc. Yeah, dude, don’t worry. It’s such an absurdly high number that the number you gave is very typical as to where companies land, 10, 20, 30 for a well run company. 60% of the company’s revenue.
Patrick Moorhead: Wait, 60% after R&D?
Daniel Newman: Adjusted EBITDA, yeah. Now again, the adjustments, I don’t know how much they’re really-
Patrick Moorhead: I’m embarrassed. I’ve embarrassed myself.
Daniel Newman: Yeah, we can edit that out.
Patrick Moorhead: We are live.
Daniel Newman: Pat, Take a stab, what percentage of their revenue do you think was adjusted EBITDA?
Patrick Moorhead: Typically in the industry it’s like 20%, but I’m guessing 60-ish percent.
Daniel Newman: Yeah, let’s say. That’s probably it. Actually, good job, Pat. It’s 60% on the head.
Patrick Moorhead: ka-ching.
Daniel Newman: So the company continued. It reiterated its guidance of about 50 billion with an adjusted EBITDA of 30 billion next year, Pat. So their guidance was just a little bit below consensus, but it was right there. And of course, the company is continuing to pay down debt, pay a dividend, and the stock has just been high-flying, Pat. I mean, I think it crossed $1,350 a share this week. I think it even broke $1,400, which it was trading at like 800 like six months ago. So while, yes, NVIDIA has been the fastest growing. This one has just been slow and steadily gaining about 100% year to date, in the last, sorry, year, whole year.
Just a couple of other items on the company’s business. The semiconductor business grew 4%. The infrastructure software business accretive to the VMware was up 153%. So big accretive add with the inclusion of VMware. And overall, Pat, all we can say is that Hockonomics work. Hockonomics deliver-
Patrick Moorhead: Is that a new thing? Did you just make up another one?
Daniel Newman: I’ve been talking about it for a couple of weeks now, but I’ve decided to go all in on making sure that, on the record, I’ve never heard anyone else say Hockonomics, but I’m pretty sure that this is a new way of running a business. I did say it to the board in one of my board meetings. And then I did say it to my leadership team in a meeting, that there’s something to be said for the way this man runs this company.
Patrick Moorhead: Sure is. Hey, I’m going to just try to add some filler to what you said. So some big things here. AI revenue quadrupled year-on-year, at 2.3 billion. I thought that was incredible. I got to tell you, software consolidated bookings going from less than 600 million to 1.8 billion, to over 3 billion in Q2. And by the way, that number was so big that Hock got a bunch of questions from investors in the call. And basically he was like, “We’re upselling on VMware.” It’s all about VMware Cloud Foundation, which is compute, storage, networking, virtualization. And I love that number. It’s just astounding. And you know that the investors had to do a double take when he pulled that out. Pretty big.
And then getting the semiconductors, aside from AI, it was very similar to what you would expect in the industry. They sell a lot to Apple, and Apple is down, so their wireless revenue was down. Imagine that. Storage industry is down, and therefore their storage number was down, and so was broadband related to all the carriers, which is down. And we’re going to see some very similar stuff when we talk about Marvell though. And by the way, final thing I love when Hock talks about Tomahawk. He loves talking Tomahawk. Tomahawk is essentially the basis for-
Daniel Newman: You like Tomahawk?
Patrick Moorhead: Yeah.
Daniel Newman: Tomahawk.
Patrick Moorhead: Yeah. Whoa, Dan. Jeez. God, you’re just nailing it today. No, Tomahawk is basically the glue that’s pulling all these AI systems together. And guess what, it’s off the rail. And they just keep cranking it out, cranking it out, cranking it out and printing money. So anyways, stock was down, whatever. I don’t care about it.
Daniel Newman: Down for a moment. That’s not the business we’re in. What does it mean? What does it mean?
Patrick Moorhead: I don’t even care.
Daniel Newman: Listen, it was a good set of results. This company, 20%, 30% of AI compute bomb is going to be networking, and you are going to need a lot of custom silicon. You’re going to need a lot of custom compute. You’re going to need a lot of networking and connectivity. I don’t think Broadcom sits in a bad position on the semi side. And then all the private AI that enterprises are going to need to build to take advantage of their data, it sure seems like VMware Cloud Foundation has the potential to be a good partner for that.
So I think whether it’s at the mainframe, in the cloud or down to the silicon layer, it’s pretty compelling. All right, let’s move on. OpenAI, Pat. Elon Musk went on the record and said, “If you change your name to ClosedAI, I’ll drop the suit.” What’s going on over there?
Patrick Moorhead: No, I know. So it’s a pretty interesting back and forth between the companies. Elon’s definitely going for it. And instead of Sam Altman responding, they have the first check writer to OpenAI, Vinod Khosla, aka, Khosla Ventures coming in to do the dirty work for Sam Altman and OpenAI. And it’s kind of funny watching Vinod talk about all this because, think about this, Dan, let me get your attention here just real quick. What VC invests in a company that’s not going to be for Profit? Zero. Do people think we’re this stupid?
Now you can set up a legal entity that’s very much a non-profit, and then you can have a related entity that is very much for profit. And that is what’s going on here. And so the conversation here is, is it profit or non-profit? Is it open or closed?Clearly, it is a for-profit. What is it worth? Its last money round was worth what? $30 billion, Dan? I mean, it’s completely crazy. We’re not that stupid, people.
And then second of all, is it open or not? And this idea of open, and Musk, by the way, was a co-founder of this, was, “Let’s leave it open so it doesn’t get into nefarious hands.” You distribute it, kind of like a distributed network back when music distribution was the way to do it. They were all ripping it off, but it was empowerment. And now OpenAI is very much closed. We don’t know what the models are, how they were trained, how they were parsed. One person might say, “Hey, that’s intellectual property. Shouldn’t share that.” But other companies, like IBM, have shared the entire process about how models are done. And that is, hence, open. So interesting dialogue back and forth. The memes alone are worth the price of admission.
Daniel Newman: Yeah, I kept flashing you the Musk memes, it was just too fun. That guy’s savage. I mean, just absolutely relentless. First of all, kudos to Microsoft for locking down. And when I mean locking down, I don’t know if that’s irony or if that’s actuality. But the biggest and most important relationship with OpenAI, which is the most reputed and lauded large language model and company building this type of technology on the planet. You see what they’re doing with Sora, you see what they’ve done with Dall-E. It’s not just ChatGPT. The stuff is incredible and it’s very innovative, and we know that there’s things in the lab that none of us have seen yet that are far more compelling. Of course, you’d want to tie that down in any way you can.
And you don’t become the world’s second most valuable company on the planet, or in this case now first, being Microsoft, by not seeing where the technology roadmap is going. Having said that, there’s this whole debate about ethos. The ethos of OpenAI. The reason it was created was to actually make sure it never was distributed in a way that any one particular company could monopolize it. And so the questions that Musk is asking, the questions he’s asking are substantial and legitimate and necessary. And we should be taking this with some level of seriousness as a society, and want to know how do we make sure that what’s being built here is going to be democratized in the way OpenAI’s vision set out?
And/or Musk’s other big concern is, as they flip, because OpenAI has many entities, I read the first page of the lawsuit, there was like 28 entities that were related, and they have for-profit business ventures, how do we make sure that’s governed to not create a very unique advantage to one company? So the non-for-profit status was used to build technology that basically one company then gets its hands on and is able to build unique intellectual property on top of, and build competitive moats in the marketplace versus everyone else.
These are questions that should be asked, need to be asked, need to be discussed. It’s good Musk is asking them. For his political ideology, certain people won’t take his concerns as serious as need to be, but they should be taken seriously. This is a very real topic. And we will see how this plays out. I compliment Microsoft because they made the right move, Pat.
Patrick Moorhead: Do you think Microsoft will put their head in or like, let’s stay away from this thing? If you remember, they were very active when the coup happened, right?
Daniel Newman: They had to be.
Patrick Moorhead: I know Satya is like, “Hey, we’ll hire all of you. Come on in.” He actually announced Altman as joining the AI team.
Daniel Newman: Well, protecting the investment. My point is, it’s kind like tax write-offs, Pat. This is why I have no issue what Microsoft’s doing. This is like tax write-offs. People are like, “Oh, you wrote off a car? How’d you do that?” It’s like, well, if the government’s going to give you the ability to do a tax write-off on something, you can’t be mad at people for taking advantage of that. If Microsoft’s going to allowed to use the not-for-profit technology to build a for-profit competitive advantage, I think that’s bright, that’s smart of them. So it’s going to be something to watch, and we’ll have to keep an eye on it.
Speaking of largest companies in the world, the third-largest company this week as we saw another massive rise. And Pat, this is a daily changing item. When I think I put this topic down, NVIDIA had gained another AMD. They were sitting at close to 2.4 trillion of market cap, maybe even 2.5. I’m trying to pull the chart right now because I don’t want to undersell just how absurd this was. So they peaked out this week. They were trading at $972, which they closed yesterday at $875. So it’s a hundred dollars a share change, Pat. So the company’s market cap had skyrocketed up to 2.4, 2.5 trillion.
But in that past week, even in the past month, this is probably just worth calling out. The company had soared past Google, it soared past Amazon. It then recently soared past Saudi Aramco, which was the only non-technology. And then the irony, I think I tweeted something, and it wasn’t that clever, by the way. But I tweeted something along the lines of, I guess AI is the new oil.
Patrick Moorhead: No, because how many keynote speeches have you heard? And maybe
Daniel Newman: Data is the new oil, right?
Patrick Moorhead: .. Did the same thing. Exactly.
Daniel Newman: Data being the new oil, now AI being the new oil. Well, NVIDIA quickly passed, and by the way, is really one big earnings beat away from becoming the second or most valuable company in the world. That’s the interesting data point of where we’re at. And it’s happened in such a short period of time. If you go back and you want to go on a chart and you go back three months, the company’s market cap has literally grown by a trillion dollars in just the past few months. That’s like Qualcomm, Intel, AMD and a Broadcom. That’s all of them put together. Now this is A, indicative of just how important and visionary Jensen Huang is, Pat. This is also frothy, unreasonable, unruly and needs some check in terms of how fast it can grow, consolidate. And the rug pull last week was really interesting. I’m hoping-
Patrick Moorhead: Hey, did you see?
Daniel Newman: Go ahead.
Patrick Moorhead: No, no, go ahead.
Daniel Newman: I was just hoping to see this rug pull last a little longer so I can go to that MarketWatch piece and do another victory lap about how I told you it was getting a little bit frothy up there. What were you going to say?
Patrick Moorhead: No, I was going to ask, did you see the Jensen interview at Stanford? I mean, it’s pretty good. He’s throwing out a few things like, “We had a 100% inference market share.” I don’t think he wanted to say that, given the regulators. He also said that the next generation of their AI cards, which you and I are going to both see at GTC are going to be water-cooled, which I’m not going to talk about NVIDIA being third most valuable company.
I did want to pontificate a little on this. Water cooling, at least historically for me, has always been the, it’s what you do when you run out of options. Meaning, graphics card, we’re going to make it go faster, or a CPU, you do water cooling. If you want to win in a benchmark war, you do liquid nitrogen. I did a couple of those when I was at AMD, because we were running out of gas, right? This is what you do when you run out of gas. So Daniel, it kind of makes me wonder, have we pulled every lever so far? We’ve done node shrinks, right? We’ve got disaggregated designs with chiplets. We’ve optimized packaging, and whether that’s COAS, EMIB, Intel’s 3D packaging, I always forget the code name for that.
Daniel Newman: Foveros?
Patrick Moorhead: Yeah, Foveros. But what’s next? Are we going to literally start liquid nitrogen cooling these things? Are we going to move to more optical interconnects between GPUs as opposed to copper? Do we do a hard move to ASICs? Is it faster networking that’s better distributing the workload across more nodes? We are running into a freaking wall here, and I’m really interested to go to GTC to see what they have in store. How are we not hitting a wall?
Daniel Newman: How do we get more?
Patrick Moorhead: Yeah, how do we get the next big bump in performance at a reasonable power and heat, right? You saw that Amazon bought a freaking data center next to a nuclear power plant. I mean, that’s just so awesome, right? I mean, I’ve got nothing against water cooling. It’s funny, Steven’s response to me was, “Oh, nothing wrong with it.” I never said there’s nothing wrong with water cooling. I’m just saying, what rabbit do you pull out of your hat after this to get the next big bump in a year and a half or two?
Daniel Newman: Well, I mean, first of all, when you talk like that, it just makes it sound like you know something about semiconductors.
Patrick Moorhead: I don’t know.
Daniel Newman: I don’t think you do.
Patrick Moorhead: I mean, some people may have heard that I know nothing.
Daniel Newman: I just wanted you to know I don’t think you do.
Patrick Moorhead: Yeah, I just read about it.
Daniel Newman: Read and regurgitate.
Patrick Moorhead: Selfie analysis is what I like.
Daniel Newman: I had to scratch my head. But no, listen, I was talking to Pat Gelsinger a couple of weeks back and he was talking about, by the end of the decade, we’re talking about a thousand times order of magnitude more powerful AI silicon. A thousand times or more from where we are today. And so how do we get that performance? How do we do it sustainably? Again, practical sustainability, meaning we can’t have 60% of the world’s power being consumed by data centers. It will not work. And by the way, 100% of inference, Pat?
Patrick Moorhead: He said a 100% market share in inference. Now, in the context, I believe what he means is in the data center for large language models. Because the example that he used was, every time you do a prompt, put a prompt in, that’s inference. He’s absolutely right. That was the context.
Daniel Newman: No, I get that. But then if it’s 100%, then what about that one I did on the Groq? Well, I’m not talking about Groq on Twitter. I’m talking about on the Groq chip. Because I’m inferencing an LLM on Meta’s Llama on that chip. So it’s got to be like 99.9999%. But I’d like to put an asterisk to make sure that we’re accurate here, because I did an inference on a non-NVIDIA chip on an LLM. It’s happened. I’ve done one. Just saying, dude. I got to go there. All right, let’s keep moving. Let’s talk about Apple. So look, Pat, Apple can be a bad actor at times. And once again, that seems to be rising to the surface.
Patrick Moorhead: Yeah, Apple is a leader in consumer design and a leader in consumer experiences. They’ve also become a leader in leveraging their monopoly position to either squash competition, squash suppliers. And in this case, it’s with the DMA and with Epic Games. So literally, I don’t know what in the hell is going on at Apple? This happened in a couple of days. So first off, the EU asks Apple to stop its predatory monopolistic practices with something we’ve talked on the show before, that’s called the DMA. And the DMA essentially outlines gatekeepers for ecosystems, technology, pricing and power. And they asked all monopolists. By the way, it’s not against the law to be a monopolist. It’s against the law to limit competition if you are a monopoly.
So Apple kind of, sort of, maybe complies and says, “Okay, if you stand on your left foot and put your hand on your head and spin around a few times, then okay, we will let you put a payment mechanism in there. We’ll let you set up your own store in here.” So Tim Sweeney, Epic CEO, sends out a tweet that Apple doesn’t like. And they actually put, this is not me making stuff up, this is actually Apple put in their response Tim Sweeney’s tweet that essentially said that Apple Management is completely screwed up. They turned off Epic’s right to publish their App Store in the EU. Turned it off. They rescinded their developer contract and they cut them off. In a shocking speed, the EU, which typically, if you look at the Adobe Figma, operates at glacial speeds, really slow, fast tracks an investigation into Apple. And then the day after, Apple reinstates Epic Sweden to create their own game store.
And I got to tell you, if this was a one-off, Dan, it would be one thing. But it’s just not. I really, really think regulators should just take the double or the triple take. Who cares about a $1.3 billion judgment? Apple makes that, I don’t know, in half a day, Dan? Fines just don’t matter. Do they break them up? Do they put other restrictions on them? I think bringing in alternative App Stores into iOS globally should be the next step. Is it going to be as pristine? No. But charging 20%, 30%, and yet I know lower for very small companies, for something that you created how many years ago and you literally invest nothing into? The App Store basically streams out applications, does the security check. By the way, it’s not great, as we’ve seen from all the nefarious apps that Apple let in. I think we need change, Dan. Bigger change.
Daniel Newman: Listen.
Patrick Moorhead: One final thing. The guy that wrote a beautiful article about this, you can get this in the show notes, is Dean Takahashi. He’s At VentureBeat. He’s been there forever. I’ve known him almost 25 years. This guy never gets excited. He gets excited about a game, but he never gets excited about that. He wrote an opinion piece on VentureBeat that you really have to read. It’s very long, and it also talks about what does this mean for the Apple Vision Pro App Store? Should developers get on? Yes or no? I don’t know, Dan. I keep waiting for the shoe to drop with Apple. By the way, I was part of the Apple ecosystem. Steve Jobs put my product, the Compaq Presario 4540 on stage, flashed it up there during his iMac launch.
So yeah, I’m kind of part of Apple. Did I also tell you Apple tried to recruit me in this same timeframe? We will make another show about that, but that was fun. I’ll tell you the full story about Apple trying to recruit me to be a product manager.
Daniel Newman: You would’ve been a darn good product manager at Apple.
Patrick Moorhead: I think I would have too. In my twenties, I could take punishment a lot. And that’s very much the culture at Compaq Computer in the mid-nineties, ’95 probably to ’98. And by the way, Apple almost went out of business and they required-
Daniel Newman: You remember who wrote them a check? Remember who wrote them a check?
Patrick Moorhead: Microsoft.
Daniel Newman: Yeah, I bet you they regret that now.
Patrick Moorhead: Oh my gosh. But the Feds were so on Microsoft’s back, they had to. But Microsoft could have literally stopped doing applications for the Mac and killed it.
Daniel Newman: There’s a couple companies you could write a check for, maybe help out. Listen, I’ve got kind of a short, this is actually very contrasting to what I believe, but I want to just kind of put another side out here. I believe Apple is not only a monopolist, but continuously and pervasively acts in ways that are non-competitive everywhere, in every opportunity.
Patrick Moorhead: Qualcomm.
Daniel Newman: That’s just one of. Imagination Technologies. But they’ve got everything from small companies that they’ve used supplier power to put out of business, to bigger companies that they’ve used non-payments, threats of legal action. But here’s the thing, and here’s why antitrust needs to be completely rethought. And I’ve said this before on this show. This isn’t new. We’ve talked about this. But the reason it doesn’t work is because in order to drive competition, we also have to deal with how are consumers being harmed?
And what do I mean? Well, the bottom line is this, the consumers like the App Store. They like the experience and they don’t care about what Epic pays. They just don’t. And unless you can start to show them that by using some alternative App Store, they actually personally, financially are going to benefit, it’s going to be very hard to get the public rowdy and focused on actually seeing. It’s basically telling everybody that the company that they buy their favorite toy from is evil. Pat, the company likely performs or knowingly has slaves that build their stuff. Literally. I mean, this isn’t the worst thing they do.
Patrick Moorhead: No, no, no. And nobody talks about it.
Daniel Newman: So what I’m saying is, well, the gut interpretation of the law of the intent of the ethical, the moral bankruptcy of the people that do this stuff. But having said that, like I said, they’re doing that. So it’s like, are we really going to worry about the App Store? People are like, “Ah, my app works. I like it. It’s safe.”
Patrick Moorhead: Tim Cook is so cuddly and friendly. He is like my grandfather that I never had.
Daniel Newman: He’s just a nice guy.
Patrick Moorhead: He is.
Daniel Newman: He’s very nice.
Patrick Moorhead: Just a nice guy until he rips out your throat. By the way, a fun fact.
Daniel Newman: See Mortal Kombat? What’s that one, where they put the hand and pulls the heart out?
Patrick Moorhead: By the way, do you know where Tim Cook worked before he went to Apple?
Daniel Newman: Didn’t he work with you? You guys were on the path, side by side, and you went off to do Moor Insights and he went off to run Apple. And the rest is history.
Patrick Moorhead: I was a group product manager. That was the fancy name. I was a product manager that had other product managers working for me. And Tim was the SVP of operations. I got sideways with his people once because I wanted to take, my product, Dan, was the first high volume product that used ODMs in Taiwan. And Compaq had a bunch of factories. And his team did not like me taking products for final assembly out of his factories. And he said I was basically on my own. And that’s all I had to hear. I was like, great. I’m on my own. I’m 27 years old. I got a billion and a half dollar product line that I’m going to take out and make a ton and ton of money.
Daniel Newman: All right, speaking of making a ton of money, it appears AMD and NVIDIA are going to continue to be challenged to make a ton of money in China. So we’ve heard about NVIDIA’s woes and chip controls that have continually thwarted efforts to build what they kind of call throttled back AI chips that can be used for hopefully what would be considered non-essential, non-military, in many ways, non-economic advantage building capabilities, yet still allow US companies to participate in the significant market opportunity that is China.
Basically this week, Pat, there was a Bloomberg story that broke. It was a China-tailored product by AMD referred to as the MI309, is what they’re calling it according to people. And it’s not clear who’s trying to buy it. But basically more or less that US regulators told AMD that it is too powerful to sell without a license. And so basically, AMD is going to need to go back to the drawing board on this particular piece at this moment. So apparently AMD thought it had met the requirements for the throttled down. Now we’ve talked about it, the requirements have been set, they’re clear, they’re understood. They haven’t changed, but they’re eligible to change at any moment. And there is a malleability to these metrics right now.
And I’m going to do a reiteration here because I think it’s really important. There’s three major reasons that the US is so focused on the semiconductor industry. It’s national security. It’s technology leadership. And it’s supply chain resiliency. And why do I say these three things? Because global economic dominance comes down to having the strongest national defense, the strongest and most robust supply chain, and of course being the global leaders in technology.
So right now, of course, this is where there’s a push and pull with NVIDIA, with AMD. They want to sell these chips into China. There’s a huge amount of demand for them. There was companies like Baidu, Tencent that basically said they have multi years of NVIDIA chips that are powerful enough to continue to advance their products and services. They have multiple years worth of products still. This is where we’ve talked about the fact that we have seen a load of this stuff sold into these cloud-scale companies. They’ve been buying truckloads of these things. Do not, for a minute, think that all the stuff NVIDIA has sold over the last few quarters has been implemented or deployed.
So the question mark basically is, if you’ve got Huawei building their own, we know that’s happening. We know China is going to focus on empowering its own. So if we don’t sell them into China, China will double down. And there is the EUV conversation, but we’ve seen recently, now PC cores are not the same thing. Our mobile device cores are not the same thing as building data center cores. But we’ve seen the newest Honor phone. Absolutely, Pat, we didn’t talk about it, but absolutely gouging market share from Apple with a new design that people are loving, built on seven, I believe, seven nanometer. So without EUV.
So some fascinating stuff going on, Pat. But bottom line here is, another roadblock hit. AMD is not yet cleared. And this is going to be a headline that’s going to be recycled several times, I think. I think we’re going to keep tuning them down because we do not want to let China catch us in the race for artificial intelligence.
Patrick Moorhead: Yeah. So I wrote a research note related to NVIDIA when there was a lot of discussion about this. And essentially, there’s three tiers that the US Department of Commerce looks at. And think of an XY axis. On the X axis, you have performance density. And the Y axis, you have total processing performance. And there’s kind of this red, yellow, and green, right? Green is, hey, don’t bother us. You don’t need a license. Typically, below 1600 TPP and increment on performance. On the yellow, that’s called moderate performance. The vendor gives the US government notice, waits up to 25 days of approval. And these have a TPP of 1600 to 4,800, but are primarily governed by performance density between 1.6 and 6. Then you’ve got red. That requires an all-in-license, right? TPP above 4,800, and nearly anything with a performance density above six. And these are reviewed with a presumption of denial. So if you want to look at the gory details of how this stuff happens.
And here’s the odd thing, is whether you’re AMD or NVIDIA, you know what the rules are and you’re going to go in there, unless of course it’s a red. So it’s just shocking to me that people would put together a chip and spend the time to do that and then it fails that level. But listen, this is the US government. I find it amazingly ironic. Dan, you and I could cross the border and stick one of these cards in our luggage. Not that we would. And I know people are like, “Listen, NVIDIA only sells racks.”
Daniel Newman: Systems, maybe.
Patrick Moorhead: VGX and systems. And they’re right. But you could hypothetically come across the border with a card, AMD or NVIDIA, and marry it up with a system afterwards that you could go over the border. The other thing is that neither AMD or NVIDIA does not phone home for drivers. So if you have the drivers, you have the card, you pull in the system from the other end, you have it. So I don’t think this stuff is even controllable, Dan.
Daniel Newman: Yeah, that, what you just said is probably intentional in many ways. And let’s be very candid, there’s a pretty good understanding that around the world there is a very robust gray market to move this product around. It’s not done nefariously, but it’s kind of like watches, Pat.
Patrick Moorhead: It’s funny, sometimes it is. When I was at AMD one time, in the front of USA Today business section was a picture of my product line in Iran.
Daniel Newman: But that’s what I mean.
Patrick Moorhead: It’s like, how did that get there?
Daniel Newman: This is like arms dealing though right now.
Patrick Moorhead: Oh, 100%.
Daniel Newman: It’s just the arms is artificial, arms-tificial intelligence? I don’t know. We’ll figure out some tacky thing that I can put a wrapper around. All right, so Pat, let’s end on a quickie, kick it back your way. Marvell. So you know, data and accelerated infrastructure, we talked about Avago, Broadcom. Another one that reported this week as well, Marvell.
Patrick Moorhead: Yeah. So again, stock didn’t do very well after this. And I’m going to focus on long-term here. But for the quarter, data infrastructure was 89% of total revenue. Big message here is it slowly is unwinding its consumer assets. And I know it’s hard to believe that Marvell was ever end consumer, but they were the storage technology to the consumer market for years, and they’re still shipping products into even game consoles.
So it’s really a tale of two cities here. First is the data center city, which grew 54% year over year. And then there’s the enterprise networking, carrier infrastructure, and auto and industrial, which had some pretty big declines. And even though data infrastructure was up, sorry, data center revenue was up, it just wasn’t enough to offset the decliners. And I want to be really clear, it’s not that Marvell is doing anything wrong. This is market led. Some interesting stuff that came up on the call that I wanted to talk about, and one was that the company said it’s expecting its two AI compute programs. Read that as AI SOC or AI ASIC, we don’t know what that is yet, to have a very substantial ramp in the second half of the fiscal year.
Daniel Newman: Cloud optimized silicon, Pat?
Patrick Moorhead: That’s exactly right. That’s the AI optimized silicon. We don’t know if it’s an ASIC, like Broadcom does or an SOC. I’m guessing it’s a full tilt SOC, given the intellectual property that Marvell brings to the table. And then I look long term, I got to tell you, the way to lower power and increase speed is through fiber. And this company, more than any company, has some incredible assets that not only connect let’s say racks inside the AI data center, but it connects other data centers as well. And we’re getting to 1.6 terabit PAM for the interconnect inside. And on what they call DCI products that’s between, you’re looking at 400, moving to 800 gigabit per second traffic.
So long term, I mean they’re in the right place. Imagine when these markets that are in the toilet. I mean, we saw what happened to Cisco, enterprise networking, not great. Carrier, people are struggling to find monetization for 5G, down. Industrial IOT and overall automotive is down. Anyways, future opportunities are bright for this company.
Daniel Newman: Yeah, I tend to stay bullish in sentiment on this one because I think the need for the accelerated infrastructure is a lagging data point from all the investment in compute. You heard us talk about two years worth of compute horsepower sitting in a Chinese cloud provider that haven’t been yet implemented and deployed. So have they lit up the north-south on these things yet and all that’s required? Have they even bought it? Because one is, if they don’t believe, again, capital expenditure, they’re buying all the GPUs because it’s like an arms race.
They got to get their hands on them, they got to fill up trucks with them. But you can get the networking chips later. You don’t have to buy all that in advance necessarily. So some of that purchasing can come later. It’s the same thing Cisco’s saying about private enterprise data center, edge clouds, telecommunications, network north-south. But for AI, that’s part of it. But Pat, also look, the numbers are moving and trending in the right direction. I mean, they had quarter-over-quarter growth. It was small, but they had data center quarter-over-quarter growth of 38%, and 54% year-on-year. So they’re getting the bump on a year-on-year basis. And they saw their data center revenue grow to record levels, close to $800 million in the last quarter.
And they had their AI revenue exceed 200 million in a quarter. So they’re near on pace to have a billion dollar annual run rate for AI accelerated infrastructure. They’re going to be building ASIC or system for AI, and they’re going to be able to basically provide that to companies. They’re going to be one of the people answering questions about creating those custom AI chips that are going to be used. This is going to be one of the companies that are going to provide it. So I like their prospects long term.
I mean, look, this is always going to be less sexy than GPUs or even just companies that focus purely on compute. They’re a company that’s well diversified, and that diversification can be very beneficial at times and it can also be problematic at times. So right now with the carrier numbers being pretty horrific, it’s offsetting all the good stuff that’s going on for them in the data center. But there was a period of time where industrial and carrier were carrying while the other stuff-
Patrick Moorhead: Exactly.
Daniel Newman: So very rarely are they all moving. So when you’re more diversified, you tend to suffer cycles. When you’re less diversified, you’re more boom and bust. So I like Marvell’s business overall. I’ve been bullish on it for a long time. I liked it before people even knew to like it, and now it is coming good because that networking bomb, that connectivity, that accelerated infrastructure and those custom chips will all be more in demand in future quarters. So Pat, there you have it. We did our show. We did it on the weekend.
Patrick Moorhead: 57 Minutes. The six seven.
Daniel Newman: The six. Seven six.
Patrick Moorhead: Oh, the seven five.
Daniel Newman: Seven five. God, it shouldn’t be that confusing. All right? It’s only worse than trying to put something on my calendar when I’m in a different time zone. I don’t know why that’s so hard. You think-
Patrick Moorhead: I needed help from you that last time in Spain, we were trying to get that meeting together. I’m like, Dan, can you just tell me?
Daniel Newman: Doesn’t it feel like this is a large language model thing or something you could solve with a really smart AI assistant?
Patrick Moorhead: I hope so.
Daniel Newman: Gosh, you think it could be done by now? I think it probably is. We need to find it. So all right, well you’re going to be crushing it around South by Southwest and I’m actually slipping out of town. I’m going to be up in New York celebrating 60 years of mainframes. Don’t ask, I’ll tell you more about it later. And then I’m coming back and I’m going to be hanging out at the lake in a bunker enjoying a little spring break, and enjoying getting away from the city of Austin when everything’s going on for South by Southwest. But hey listen, good show. It’s good seeing you.
Patrick Moorhead: Thank you, buddy.
Daniel Newman: Welcome back. Let’s have a great weekend. And you out there, have a great weekend. Subscribe to the show. Send your good feedback to me and everything else to Pat. But for this episode, see you later.
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.
