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:
- Microsoft Q2 FY2024 Earnings
- Google Cloud Q4 FY2023 Earnings
- AMD Q4 FY2023 Earnings
- Qualcomm Q1 FY2024 Earnings
- Apple Extends Qualcomm Licensing
- Amazon Q4 FY2023 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: We are back with the Six Five weekly podcast. We are hitting episode 202. We’re back in Austin. Traveling a bit, got back. Was in Seattle for the week. My favorite day, favorite episode, favorite hour of the week. Is that possible, Dan?
Daniel Newman: It is. The time we spend together should be cherished. Although Wednesday we went to dinner and celebrated together. Did you see that?
Patrick Moorhead: I did.
Daniel Newman: Everyone out there saw it.
Patrick Moorhead: Yeah. I mean it kind of shed a tear. And I know everybody wondered why we were embracing and had a candle in front of us with a big, huge cannoli.
Daniel Newman: It was a magic moment.
Patrick Moorhead: It really was. It was great to see Dan O’Brien from IBM. Boy, that guy’s career is on a rocket ship there.
Daniel Newman: Absolutely. What a star.
Patrick Moorhead: I know. I love it.
Daniel Newman: Good company though. Sometimes it’s just good to hang out with good people. And by the way, great dinner. Gina’s downtown Austin. Anybody checking that out? It was French.
Patrick Moorhead: Yeah. A lot of French, a little bit of Italian sprinkled in there. And I got to admit, it being a block from my house is pretty nice.
Daniel Newman: When you got besties though, a real bestie and you’re coming in from a long trip, right?
Patrick Moorhead: Oh, I know that 15 minute journey. I mean, isn’t your house closer to Oklahoma than it is to Austin?
Daniel Newman: I think it’s Lubbock. It’s on the way to Lubbock, Pat.
Patrick Moorhead: I love that. Hey, we’ve got a great show for you. But I want to hit a disclaimer. Don’t take anything we say for investment advice. We’re going to talk a lot of earnings today. We’re going to be talking Microsoft, Google, AMD, Qualcomm, Apple and Amazon earnings, and a little special segment about Apple, Qualcomm licensing. Let’s dive in. Boy, Microsoft, what did they do and why does it matter?
Daniel Newman: Why does it matter? I don’t know. It was the Tayvis moment of earnings. The Tayvis, everybody knows Tayvis Kelce, Taylor Swift in case you didn’t pay attention.
Patrick Moorhead: By the way, I didn’t notice it the Friday. I didn’t get it the first time, buddy.
Daniel Newman: The Tayvis moment of technology, it was the biggest quarterly result. Everybody’s eyes were on it. And this was a mega week. It was a mega, mega week. We saw Meta crush it. By the way, Meta crushed it because they fired a lot of people. I’m just being honest. And by the way, layoffs are abundant right now, so don’t be surprised when any company is doing that. There’s a lot going on. Anyways, but look, Microsoft is a combination. It’s a juggernaut of all things. It’s consumer, it’s prosumer, it’s enterprise, it’s cloud, it’s AI, it’s PCs, it’s software, it’s applications. And so when you kind of want to get a rounded outlook at the market and its potential, there might not be a company that has a more holistic look, especially as it points to technology, than Microsoft. So everyone’s eyes were on Microsoft.
And of course, Google went the same day. And we’ll talk about them in a little bit. But the first and foremost set the tone of whether or not things are looking bright, the economy’s looking good. We had a Fed week. Were they going to cut rates? They didn’t. Came down to what did Microsoft do? And Microsoft did fantastic. Now again, beat, beat, but in range guidance. And for whatever reason, nowadays, apparently being in the range of what everybody expects isn’t good enough. So after beating on the bottom and beating on the top, showing really, really good results, talking about 53,000 Azure customers, 30% growth of Azure, which again, we’re going to talk all the different clouds today, the comparisons are becoming more and more difficult because of how the companies book cloud revenue. But 17.6% year-on-year growth, a $2.93 per share income. But yet people weren’t happy. They still sold the stock. Why is that? Frankly, it’s because, one, there was a melt up. As we headed into the earnings right now, all the technology names were up bigly. Bigly is a word by the way.
Patrick Moorhead: I’ve heard it a few times.
Daniel Newman: It was up bigly. I mean, and we’ll talk about AMD. They were up 20% a month. Microsoft had reached all time highs, 3 trillion market cap. So some things are like, why did everyone sell? Because everybody bought into the earnings. Over the last few quarters, if you haven’t noticed a trend, it was sell the news. It was buy the room, sell the news. So everybody knew that they were going to do well. But unless you do a beat, beat and some sort of mega raise, and you’ll see that when you look at Meta and Amazon, who surprised a little bit. Everything’s kind of a beat, beat and guide and then people sell, taking some profits off the table.
But let’s talk a little bit more about the business. I mean, look, one of the numbers that I was most excited about last quarter was when Amy Hood talked about the 2% of Azure revenue being impacted by the company’s generative AI technology and solutions. This quarter, I think they indicated something like 6%. So what we’re seeing is, in a very short order of time, the amount that AI is impacting cloud growth is going up in orders of magnitude. You’re talking about three times order of magnitude, quarter over quarter. When I joined CNBC and talked about it earlier this week, I was kind of previewing on this news that IBM came out with a similar number that they doubled their generative AI and 5Xed their proof of concepts.
So you see, there was a lot of strength right now in AI across the portfolio. You also saw some strength in their PC business, Pat. You saw strength in their business apps. When I say strength, I’m talking double-digit growth in these different categories. And another thing which, Pat, was kind of interesting. He didn’t give a number, but I like this one from Satya. He talked about, they saw an increase in billion dollar Azure commitments. I mean, think about that. Individual customers making billion commitments to spend with Azure. So overall, really, really strong quarter from Microsoft, Pat. It’s the bellwether of tech right now. They are the $3 trillion plus juggernaut of the industry. And it seems that they’re on a just absolute terror. And Satya’s leadership has been really, really strong. But it seems that they’re just so well positioned, so well diversified. The AI/PC movement sits with them, OpenAI, they’re just are getting it right, they’re getting it early. Others are catching up, but then every time others catch up, Microsoft seems to have another turbo-boost of acceleration in what it’s doing. And it was indicated in this quarter’s results.
Patrick Moorhead: Yeah, really good overview. It’s funny, you can beat on EPS by almost 6% and it becomes a yawner. And yeah, I’m not confused. I know it’s about the guide and everything, but I’m going to pull out some nuggets I thought were important. And it’s interesting, Dan, we talked about this in our 2023 wrap and our predictions for 2024 that AI was going from kind of this NVIDIA, building stuff, to actually enterprises using it. And the way that Satya talked about it was moving from talking about AI to applying AI. So I feel very much in alignment there. Some things that stood out for me, a third of the 53,000 Azure AI customers were brand new. And I think that was for the half. Half of Fortune 500 users are using Azure AI. They did come right out and say that they believed that they gained market share. And who they gained that on, we will see. We’re not the bean counters. I don’t know if it’s on AWS or Google, but it could be the smaller folks.
Couple discussions that went on. You look at the questions that came up, it was on two things, the 6% AI lift for Azure, how could that possibly be a bad thing? But they just couldn’t quite understand that. And I’m trying to wonder, and it’s always dangerous to think like Wall Street, but do they think that that demand could go away over time or that OpenAI magically does something different? Because in the Azure number is OpenAI, right? It’s basically an IaaS and a PaaS customer. So I think it’s positive. And the other thing, something about CapEx. CapEx was going up and they said it was a material increase to scale AI. To me, that’s a bad thing if you can’t at least be margin neutral or improve your margins.
Well, they came right out and said, “Our gross margins are improving with AI, gross margins, and OpInc AI leverage.” And if you look at those two things, I think that’s huge. So if you’re adding CapEx, but you can get OpInc leverage lift, and by the way, that’s code for productivity increases. What do most people at Microsoft do all day? Well, the engineers code, and we’ve seen what you can do with GitHub Copilot. In fact, GitHub Copilot, they have 1.3 million paid subscribers. That just blows me away. And you initially do a side eye on it because it’s so big. But my son at college, and he’s a data science major, he uses, and everybody uses GitHub Copilot to help with coding. So pretty darn exciting there.
We always talk about too, the best AI, you have to have the best data. And boom, CosmoDB transactions up 42%, Fabric Data up 46%. That is just amazing. So yeah, things are coming in line. I’m going to end on PC and Windows. Satya came out and said, “In 2024, AI will become a first class part of every PC.” And I think we’re going to see some serious action hitting in the middle. I did a panel at CES with Intel. And Pavin, who runs engineering across Surface and Windows, basically said, “We are re-architecting the operating system,” and I’m paraphrasing him, to deliver AI capabilities. I think it’s going to be exciting and I’m really glad that Microsoft brought it up. So hey, let’s move to our next topic, and that is Google Cloud Q4 earnings. I’m going to focus in on Google. If you want to hit the advertising and stuff like that, Dan.
Daniel Newman: I don’t want to, but I’ll let you have the good stuff and I’ll take the rest.
Patrick Moorhead: No, I appreciate that. So first off, $9 billion in revenue. I can safely say that would mean a $40 billion trajectory for revenue, up 26%. Quite frankly, at the end of the year, they could be bigger than SAP and Salesforce as a company. And that is amazing, right? They don’t sell hardware, right? It’s all services, which I think is just amazing. They made almost a billion dollars in OpInc. Do you remember when part of the conversation on all of our podcasts was, are they going to ever make money, right? But 864 million in OpInc. That’s not in net income, but you can very much compare that with the AWS line that’s in there.
So Vertex, 6X API request, which is big and interesting. Samsung Galaxy S24, they brought in as examples, and it’s funny, I’d always thought that as B2C, but it’s B2B. It’s Google Cloud. And a lot of our analysis on the new S24 and Galaxy AI were the services that they were leveraging from Google Cloud. And I just thought that was fascinating. So they reiterated, 75% are generative AI unicorns. That’s been a talking point for the last three quarters. They’re sticking to that. I think it’s pretty easy to say they’re getting some lift from generative AI. I wish they would put a dollar or percent lift from generative AI like we’re seeing from companies, but maybe we’re going to have to wait till the next quarter.
Daniel Newman: And there you have it. Straightforward, Pat. But yeah, I mean look, they’re running towards a 40 billion a year business, so it’s significant. It’s consequential. It’s interesting, Pat, I do think, and I said this earlier in my Microsoft remarks, how the accounting for cloud revenue is becoming so disaggregated in terms of each company’s approach that the comparison of who’s one, who’s two, who’s three is going to get harder and harder as time goes on because it’s just what’s being baked in as cloud is not going to be the same. Having said that, Google’s growing a very significant business. It’ll be interesting to see what Oracle comes out with, by the way, in the next quarter as well. But the rest of Google did well.
I mean, look, and when I say do well, I mean it beat. Having said that, it didn’t do it in the right areas. People wanted more out of YouTube. They wanted more out of overall advertising. Those numbers looked a little soft. And when you saw Meta’S numbers come in and how well Meta did, it definitely put some additional pressure on Google because it kind of kicks around. I’ve said for a long time, Google’s above the fold, Google Ads. But Meta, for whatever reason, it’s like they found another gear. When they finally turned off the I’m nuts for Metaverse and got focused back on their core business, they tend to be really good at that.
Now, again, not trying to distract from the Google conversation. I’m just saying Google’s got a strong rise. Their business is mature, the growth rates have become mature. They’re not as exciting anymore. Cloud’s one of their biggest growth areas. It will be interesting, Pat, to actually hear what you said because we need to hear what you said, is how much is AI? We always said Google Cloud is kind of the cool AI cloud. It was the one that originally we thought was more data-centric, AI centric, and that was a differentiator. I would love to hear them talk about how that’s impacting the business. That’s something that I’m waiting for. But having said that, I mean, what a really great growth trajectory and run. And also in operating income, Pat, almost a billion dollars of OpInc coming out of that business.
Now, I haven’t gotten underneath it to see if there was any accounting done. I know the first time they made a profit, there was a lot of scrutiny as to how that was done, with depreciation and some different things. But you know what? Like I said, nobody scrutinizes non GAAP earnings anymore. That’s just what we’ve all become accustomed to. So having said that, overall, advertising I think remains strong. Google is core. I’m also interested in kind of the Gemini move, how that’s maturing, how that’s being adopted. It was a very exciting launch. Also had a little controversy around it, but largely was positive. But again, how is that being adopted? How’s that being used? How’s that driving revenue?
I mean, look, what has made Microsoft so successful, in my opinion over the last four to six quarters has been a willingness to disclose the impact that AI is having on its business. And other than NVIDIA, very few are doing that. And so people want that. When you’re not giving that, knowing how good it’s been for the market, you kind of worry that there’s a reason. But having said that, maybe it’s also a coming out moment. We heard Tim Cook this week say he’s going to talk about generative AI sometime later this year. Pat, that’s two years after. He’s two years late. You know what? He’s chilling. Tim Cook’s chilling. He’s like, “We’re fine. Apple doesn’t need to be early. Haven’t been early in a long time.” And it works. Someone said to me, what was it? That Apple could come out with a new product, which is basically they could take a dump in a box and there’d be 10 million people willing to buy it.
Patrick Moorhead: Yeah. I don’t know if you put that meme out there, but I saw that too. And I’m reading Steve Jobs’ biography, another one. And the classic comment comes up that the best artists steal. That’s his line. And well, there we go. Rarely first, but they make an impact when they come out.
Daniel Newman: One of my MBA professors stole a line that was basically that the best marketers copy and steal everything. So he stole a line that ended up talking about stealing. Anyways, that’s China. China’s entire business strategy, right? Copy and steal.
Patrick Moorhead: It was Taiwan before that, and it was Korea before that. Yeah, the wheel moves on. So hey, Dan, anything else? Okay, AMD, man. So did they beat this beat, beat stock goes down?
Daniel Newman: They were on the same path as everyone else. I think they were in line right on earnings per share. But Pat, I mean that stock was up 20% in a month. It was on a 240% annual growth rate.
Patrick Moorhead: I mean, they’re up. They’re up 15 bucks since earnings.
Daniel Newman: Yeah. So the $3.5 Billion number, which I think where that comes from is largely from one really great customer, which we’ve already talked about today. We don’t know that for a fact, by the way. It’s just something I believe to be true. But anyways, earnings in line. Revenues up. They are the unencumbered number two right now for AI data center chips. And I’m working on an interesting bull case thesis for Intel. I’m going to publish a MarketWatch. Now, again, I always say it’s interesting because it would also be very easy to do a bear case for Intel. But having said that, AMD has a very strong bull case right now.
Patrick Moorhead: Bear cases on Intel are boring, man. I think you and I were the only two analysts that gave the company even a remote shot, or maybe it was just me, I forget.
Daniel Newman: I’m writing the bull case right now. There’s some things I’m actually very positive about. I just think, again, there’s kind of the being right and being early. And sometimes you can be wrong because you’re early, and eventually you become right. And then you and I just have to wait to become right, because we were too early when we were right. I think that there’s going to be competition. Pat, I saw a very interesting chart that went around this week, and this is relevant to AMD. It was showing GPU market and I think 98% of revenue right now is going to NVIDIA, 98%. It’s a little over, actually.
Patrick Moorhead: By the way, I don’t think that’s global, but it’s definitely the West.
Daniel Newman: Yeah, yeah, yeah. Well, I think to your point, there’s Huawei and others that have lower end.
Patrick Moorhead: I can’t wait for Futurum Intelligence to start cranking out this stuff.
Daniel Newman: Yeah, we had a chip set data that’s coming sometime later in the first half of the year.
Patrick Moorhead: Can’t wait, man.
Daniel Newman: It’s going to be a first pass. And the thing about intelligence is it is as much art as science. It is not perfect. Any numbers you see, you’ve got to take them with a little bit of a grain of salt. The only numbers you can know to be true is most of what gets filed in these earnings reports tends to be right, but the way they file doesn’t always give you exact parts, pieces and volume. So you’re still working backwards to try to figure this stuff out.
But having said that, the company did really well, Pat. I mean, look, the data center and the MI300 series, I think you saw a forecast in December of about 2 billion of expected. I think we came out what, at three and a half. She came out at three and a half in the earnings report. Am I right on that? I’m just trying to remember. And Lisa also was very generous by the way, Dr. Lisa Su, spent an hour with us analysts yesterday allowing us to basically do rapid fire grill questions. There was at least three or four good ones in an hour.
Patrick Moorhead: I know what you mean, man. Some of the questions are so dumb. I just can’t even believe it.
Daniel Newman: It’s like when you have an analyst that should never be in front of a CEO. And by the way, that’s okay. There’s that kind of span. But it’s like, I want to ask a question about a granular subject inside of a granular business unit about a single niche product that’s…
Patrick Moorhead: When you’re with the CEO ask the CEO CEO questions. It’s as simple as that.
Daniel Newman: Well, Lisa is so impressive though that there was never one that she didn’t actually know.
Patrick Moorhead: I know. I mean, if you wanted to know the bump pitch on a product three years ago compared to this one. She’d be like, beep boop, boop beep. There it is.
Daniel Newman: Absolute rockstar. I’m just saying figure it out. So the company’s got great partner positioning with its data center chips. I mean, again, publicly, Lisa talked about Microsoft, Oracle, Meta, some great ones. And of course we know that there’s some density there as to where it’s going. Outside of that business, look, some of the embedded stuff was a little bit soft. PCs are on the rise and we’re seeing that consistently from all the chip makers now, TSMCs numbers on devices. We saw it in Intel’s numbers. We’re seeing it in AMD’s numbers. By the way, this is going to accelerate. The AI/PC trendline is going to be really good for AMD. So that looks very, very good.
But I just want to be straightforward, Pat. Talking about anything else with data center right now just doesn’t interest anyone. Actually, I was kind of reviewing the Intel one. They could have beaten in every category like 90%, but that data center number just absolutely ruined it for them. And so right now, the reason AMD is getting that really good bump post after the kind of initial selling was they almost doubled their forecast in a month, Pat. I mean, their GPU forecast went from 2 billion to 3.5 billion in a month. As these big customers pick up, I think people are just drawing lines on charts. Charting’s all BS anyways, like most. So these spreadsheets and charts.
And here’s the other thing, I put this out, Pat, and I publicly said this, and I think you would agree with me. Lisa’s conservative. So what I’m saying is if she’s saying 3.5, you can be absolutely sure that she knows she’s got that in the bag. She’s not the kind of person that’s going to say 3.5 and is stretching. She’s very conservative and I admire that about her. And by the way, AMD trades at a ridiculous multiple.
Patrick Moorhead: Dan, do you remember what I called prior AMD earnings of what that number would be back on the pod?
Daniel Newman: Four?
Patrick Moorhead: I said five.
Daniel Newman: Okay. But to some extent, you might still believe it’s five. She’s saying 3.5.
Patrick Moorhead: And the question, very public question I asked her, is it demand or is it COAS or waiver?
Daniel Newman: Yeah. It’s a good question.
Patrick Moorhead: And I appreciate that. And she came back very clearly that she needs to see a little bit more before she can make that call. But you heard it here. I said it was going to be five prior. It’s going to be five, I’m pretty sure about that. I don’t know why. But actually, I do know why. I mean, look at all of the product that NVIDIA is shipping and look at all the product that NVIDIA can’t ship. There’s so much demand out there, and the software ecosystem is in place for CSPs. It just is, right? You go Python, sorry, PyTorch, you’re in. And to AMD’s credit, they put a ton of investment in that. And here we are.
Let me do some comparisons too for your Intel piece. So Intel came in on data center, was up 38%. Intel DC AI was down 10%. So we got a 48% swing there. I know those are just me adding percentages together, but it’s remarkable, right? On the PC, AMD was up 62%. Intel was up 33%. So yeah, it’s pretty clear that AMD grew share at least on a revenue basis in both of those areas. But I think even more important are some things that came up on the call were very clear. They said we gained share, we gained server share in the data center just because on a percentage basis, of course, they gained share on accelerators.
And a couple of other things that came out is that the overall market for CSPs, they did a ton of business in North America, but the market was off in rest of world. I just thought that was what was interesting. For the first time AMD talked about Epyc customers doing inferencing on models like Llama 7B. That’s a seven billion parameter model they’re doing on Epyc. Intel has been talking about this forever. We saw Ampere make a play on this. But this is the reality, and nobody likes to talk about it, but I think AMD and Intel need to start measuring the size of this and say, now it’s harder because general purpose. That’s why it’s harder, because it can do so many different things.
Probably the final thing is on market share on the guide, they did say that they expect to gain market share in Q1. So Q1 year over year, a double-digit increase and we’ll gain share. That’s pretty hefty to make a share call in the beginning of month two there. So AMD, good earnings. AMD was the only company that had decent earnings. By the way, the guide was off and their stock is up if you look across everybody that we’re talking about today.
Daniel Newman: Well, today’s a bit of an up day, and I think the Apple, Amazon, Meta numbers kind of got everybody back on the ship.
Patrick Moorhead: Excited again?
Daniel Newman: Yeah. We’re so fickle. We’re so fickle.
Patrick Moorhead: Not us. I think we’re smart. Well, not smarter than Wall Street. We just look at different things.
Daniel Newman: We don’t trade any of this stuff.
Patrick Moorhead: Exactly. For the record, I make no directed trades on any company that I have an engagement with. So boom, there we go.
Daniel Newman: Important. Make that call. Make that call. What do you want to talk about now?
Patrick Moorhead: I want to talk about Qualcomm. How did Qualcomm do? Basically they crushed it on EPS, 16%, and revenue beat by 4%. And by the way, this was not a no-brainer. I did some analysis going into my Yahoo Finance gig and I said, “Hey, here’s some of the stuff that I’m looking at.” And then let me compare how I did on that. The one thing I was a little uncertain of is that the market was up about 8% the fourth quarter calendar. Apple gained share, Samsung lost share. Qualcomm has more profitable content in Samsung than they do Apple. They sell to both of them. So I was unsure how that would work out. What that ended up doing was a 4% revenue boost, which kind of makes sense. They didn’t get the full 8% lift, but they got about half of that.
One question I had was on Samsung, which is, with this new stuff coming up and Samsung doing a little bit of Exynos here, can they maintain that 92% or 95% market share in premium Android? Boom, Qualcomm comes out and basically announces that they’ve extended their agreement with Samsung, which was great for premium smartphones. And if you remember, I wrote a piece around CES, around ARM’s Blackhawk coming out. It looks like Samsung will be going with Qualcomm and not Blackhawk. But hey, we’ll see.
The other question I had was on automotive. It’s like, hey, automotive share content gained versus a car slowdown that we’re seeing from a couple of semiconductor guys going on. I said I expected big Qualcomm growth, and 30%. So hit that one. I said that IoT would not be good. It would be terrible because quite frankly, every other IoT and embedded play that we’re seeing is going down. Heck, even the Lattice went down after 19 quarters, and they are 100% embedded. And yeah, IoT went down substantially. So is this a little bit of a victory lap on this? Yeah, kind of. Sorry.
Daniel Newman: Wait. Pat Moorhead doing a victory lap. And in other news, the sun came up today. Oh, buddy.
Patrick Moorhead: I got to hit it. Got to hit it when you hit it. I don’t hit all of them, but I’m feeling pretty good about me calling it. By the way, if you want to look at five minutes of video glory, check out my interview on Yahoo Finance.
Daniel Newman: …my CNBC. Oh, sorry, what?
Patrick Moorhead: Were you on CNBC for Qualcomm?
Daniel Newman: No, I was on CNBC about the whole tech industry. I generally get asked to opinionate about the entire market.
Patrick Moorhead: Opine. It’s called opine.
Daniel Newman: Opinionate.
Patrick Moorhead: No, no, no, no. Opine.
Daniel Newman: I know. I just messed up. Now I’m having a hard time because I have an ego because I’m an analyst admitting that I even said the wrong word. It’s going to take me a while to get around to this. Should I talk about Qualcomm now or can I talk more about CNBC?
Patrick Moorhead: Just start with the victory lap. And if it comes to Qualcomm-
Daniel Newman: I just want to point out in June of 2022 when the market bottomed out and I said NVIDIA and Microsoft were the ultimate buys. That was really, really right. Really right. You should drop a link on the show notes if anyone’s actually reading them before they post them. There’s a moment where I said, drop a link. But no, Pat, your interview was actually really good. And by the way, the best part about it was you only had about a minute to process what you looked at. And those are always the funnest interviews. That’s my specialty, by the way.
Patrick Moorhead: They actually are.
Daniel Newman: Is that quick, kind of instant, visceral reaction. I expected good from Qualcomm. If you listened to the last quarter, you knew there was a turning point. Bottoms had been communicated. And most of the device makers, if you looked at TSMC’S results, you can actually make some pretty good prognostications about other companies depending on different processes that they talk about, different volumes and different ramps. Qualcomm is of course tied closely to Samsung, to Apple, to all the other major. And basically what we knew was the inventory burnoff had happened. There had been an indication of that, which meant orders were going to start to flow. So the expectations were somewhat in line, but really good. Meaning it was good execution against a better market condition.
Handsets are really stable, still waiting for some AI revenue. I want to understand the AI revenue. I think Qualcomm’s working on a lot of interesting things, and I can’t really speak to all of them, but what I can say is I do think they’re going to find new ways to monetize AI. Pat, the automotive business is super exciting. And by the way, they’re completely countercyclical to that business, because automotive is not strong right now, but they’re strong in automotive.
This is the ultimate win, chest thumping moment for Antonio. Antonio? Christiano and Nicole. For Christiano and Nicole, they knocked it out of the park, that 30 billion automotive pipeline that they’ve developed. What you’re now starting to see is the designs are becoming production and production is becoming revenue. And you’re seeing this ramp is really easy to predict that it will continue as more designs come out. And if this is the softer part of the car market, wait until volumes start to ramp on some of these cars, both domestically and globally. That’s super exciting, Pat. And I was actually forecasting that out, in about five to six quarters that could become a billion dollar a quarter run rate revenue for the company. So automotive, great win.
Pat, I’m going to tell you one more thing. I don’t think they spent a lot of time on it, but Qualcomm has a really interesting new business with the AI/PC. They got a super performance, can’t wait for Signal 65 to start taking a look at some of this stuff. Super performant NPU with some really exciting designs. And they are entering the market, and they’re not coming in soft. They’re coming in guns blazing. So I’m very excited to see how that translates. I’m chewing words today, I swear. How that translates to revenue in the second half of the year because there’s a consistent understanding amongst this industry, that second half is when we really start to see this.
Patrick Moorhead: That’s a great way to end. And it was interesting that, of that entire five minute Yahoo Finance interview, the headline in the written document was, “Analyst basically says Qualcomm has a sizable AI advantage.” And boom. And Yahoo Finance was very interested in that AI/PC market. But hey, let’s move on. This is kind of an adder, this next topic. On the earnings call, it was announced that Apple is going to extend the patent license agreement for an additional two years, which I think this is very interesting. And this might be quicker than the earnings discussion, but this is important for a couple of reasons. So a decent amount of the company’s profit comes from their licensing business.
Now, it becomes a much smaller percentage of that over time. And quite frankly, it used to be 50/50. And if we look at first quarter results, QCT, which are the actual chips, was 8.4 billion. And QTL was 1.5. Now, where the QTL, the licensing business kicks in is that it has a EBT margin of 74%, which is a lot better than the 30% margin for QCT, and it’s a higher margin business. Everybody’s licensing business is that. But this is important. If you recall, and Dan, you and I wrote and talked about this in multiple interviews. A few years back, Apple decided to stop paying Qualcomm for its IP that went into modems. And also, there were UI things that, yes, Qualcomm has UI patents that Apple, quite frankly, were stealing. The stock tanked, a bunch of layoffs, a bunch of restructuring. They actually had to get out of businesses like the server CPU business. Apple was working with worldwide regulators to get them to sue Qualcomm. In the end, Qualcomm ended up winning on the Apple front.
Daniel Newman: Everything.
Patrick Moorhead: And on the regulator front. And Apple had to crawl back to Qualcomm, and not only pay for license, but also buy modems. And Qualcomm didn’t have to change any licensing structure of their business at all. And Dan, I look back at this and I just think it’s such a shame that you can have a company spending hundreds and billions of dollars over multiple decades to create this intellectual property, and then a company decides we’re not going to pay, right? It’s not that we’re going to just reduce the amount and then sue you and then go from there, but cut it all off. But then again, we’ve got a very recent case here that Apple lost, which was Masimo, where they stole their IP for Pulse Ox in their Apple watches. And so it looks like Apple’s track record on these is not very good. And I’m just wondering, Dan, does it even matter? Do investors, will anybody ever care that Qualcomm basically steals intellectual property and doesn’t pay?
Daniel Newman: Apple, you mean, steals.
Patrick Moorhead: Apple, I mean. Yeah.
Daniel Newman: No. Just to be clear, Qualcomm builds the IP. So look, this is a tribute to, what did I read, the badassness of Qualcomm’s technology. I mean, we are very bullish, positive on Qualcomm for a good reason. We actually understand the complexity of the technology that they make. And if there hasn’t been a better validation than the fact that Apple, whether it’s Infineon from Intel, or the purchase, whether it’s been the legal and lawsuits that they’ve tried to pursue, or the fact that despite absolutely holding a gun to Qualcomm’s head, that it has had to crawl back and pay not only for chip set agreement, the modem agreement, but also for patent agreement. Because it simply cannot build this iPhone product without help from Qualcomm, direct and indirect, through the portfolio and through the direct access to the modems. If you want to make a call or actually any sort of outward communications from your iPhone, you can be sure that there’s some Qualcomm technology enabling that to happen.
So it’s a really interesting thing, Pat, does anybody care? I really don’t know. I mean, look, Tiger Woods proved to be maybe not the best guy on the planet, but people still love watching him hit the golf ball. I feel like Apple’s like, everyone knows that they’re kind of a bully and mean, but they still like their stuff. And by the way, Tiger wasn’t a bully. He had his own thing. But my point is, people seem to quickly come around even after they get really angry and triggered by something, they seem to come back around, but oh, it’s my phone. I mean, Pat, they apparently implement or use slave labor of some type to build their phones, right? Isn’t there some speculation to that, the Uyghurs and everything? Am I allowed to talk about that on the podcast or is this going to get blocked now?
Patrick Moorhead: No, no, no, no. I think it’s very appropriate. Heck, I had even forgotten about-
Daniel Newman: What I’m saying is like, are you mad they stole IP from another big corporation? People don’t even care that they potentially use slaves to build these things. It was like the Daniel Tosh joke, I don’t care. Just keep slapping my iPhones together. We need more stuff. I mean, we need our stuff. So I don’t know. It seems like we’re kind of ethics and convenience come together. When it’s convenient, we care about ethics. But when it’s like, I need an iPhone, I don’t care.
Patrick Moorhead: I mean, Dan, it’s very related to-
Daniel Newman: Well, I have an iPhone, so I’m certainly hypocritical.
Patrick Moorhead: I mean, AirPods are the best, and their watch are the best. So I think their phones are middling. And the only reason I have an iPhone, I have a Samsung phone too, is because the green bubble, maybe. My family.
Daniel Newman: Green machine. Aren’t they going to have to undo that though? They’re going to have to start letting, what is it?
Patrick Moorhead: Well, there’s RCS. That doesn’t solve the whole green bubble, but it gets really, really close to solving that. Yeah, I think they should. So I don’t know. Do ethics matter? I don’t know. I mean, it’s amazing what comes out of Apple’s mouth and then the way that they act are so completely different. It amazes me.
Daniel Newman: I’m amazed too. Are we done or we got more?
Patrick Moorhead: Nope. Take us home, Dan. You’re leading us on Amazon here.
Daniel Newman: God, we’ve really crossed some lines on this pod today. All right, so last one, Amazon. So fourth quarter, and by the way, absolute banger. Great stuff. Beat by what, 20 plus percent on the earnings line. By the way, I still can’t get used to calling it LSEG versus Refinitiv. It took me like a year to get Refinitiv right. So they beat on earnings, they beat on revenue. It’s funny, when it’s like 170 billion versus 166, you’re like, oh, they only beat by $4 billion. Remember how much a billion is, by the way. It’s a lot. And Pat, they were in line on web services and they had a really good beat on advertising. I think the company showed the expected growth. It was holiday season in it. They did mention some of their results. Another company that made some substantial cuts, 27,000 workers cut. But on the more positive side, strong revenue growth and saw AWS grow, and back in double digits.
There is a theme here, Pat, by the way, now that we’ve done Amazon, Google, Microsoft. Cloud is accelerating again. Cloud’s accelerating again across every company. Now, this is where I say it’s interesting because they got their fourth quarter revenue to 24.2 billion, which, if you can quickly math it, Pat, that’s almost a hundred billion a year run rate for AWS. So you’re talking a really, really big number. But there is a question mark, because if Google Cloud’s growing 26 and Microsoft’s growing 30, is there market share being ceded? I mean, the logical answer is yes. The logical answer to that question is yes, but the problem is the construct of the cloud numbers is still confusing because AWS doesn’t have the app side of the business. So there’s some question mark. And I’d love to get your take on that too, while we talk.
It is down on a year-over-year growth. So when I say cloud overall is accelerating, AWS is double-digit growth and they’re growing by a lot. When you see 12%, 13% to 24 billion, you’re talking about billions of growth on a year-over-year basis. The other two though, are actually annually growing year over year as well. So there’s some market share questions that are going to need to be addressed. But I do still think it’s by a long shot, on the infrastructure side, AWS is the biggest.
Just a side note about Amazon, you and I don’t cover the commerce stuff as closely. It is really interesting, Pat, though, how big the advertising business has gotten. Their ads business now is almost $60 billion a year, 14.7 billion with a mid 20% growth. I mean, if the rates stay this way, within three or four years, web services and advertising will both be a hundred billion businesses, a hundred plus. Ads will catch up. So really good result. I mean, positive streak. Loved it. Absolute banger overall. Looking good. Pat, I’ll turn it back to you.
Patrick Moorhead: Yeah, so let me just fill in the cracks here. It was a good job, Dan. So I want to focus on AWS’ profitability. Actually, let me dial it back. The biggest turnaround on operating income is literally we saw almost a $6 billion turnaround in North America. And then internationally, we saw about a $1.8 billion turnaround, which was quite remarkable, which helped the bottom line because the year before, they had a net income of 278 million. Oh, they increased that by 10.4 billion to 10.6, right? So pretty remarkable. But let me point out some AWS. AWS may have increased their revenue. I think it was in the teens, but their operating income was up 38%. And that is just remarkable. And I also want to point out that AWS brought in more than half of the company’s operating income. So company did 13 billion, they came in with seven. So it is the cash cow. It is feeding everybody. And I’m wondering someday if we’ll ever see North America, International, AWS all making operating income.
I now want to swivel to some of the stuff that I thought was interesting that came off the call. If you remember, I think it was about a year ago, there was a lot of talk about customers looking to save money because there was this risk. Some demand was down, and companies were looking to do that. So some really good signs. Andy said, “Hey, our customer pipeline remains strong as existing customers are renewing their larger commitments over longer periods of time, and migrations are growing.” So I take that as a, we are back, baby. By the way, AI was brought up 40 times on the call, just for those who are counting. And hey, the chip story came out on the call too, and they essentially said, Graviton, 40% more price performance than other X86 alternatives. And they talked about trainium inferentia. What’s interesting is they didn’t talk about compared to GPUs, which I don’t know if that’s just a détente there, but they called it enabling an advantageous price performance versus alternatives.
Daniel Newman: We could test that at Signal 65. I would love to do some of that.
Patrick Moorhead: No, totally, totally. Because one thing for a company to say, and it’s another for a third party to say it. Couple of adders here on the security side. Very rarely does AWS talk about gaining share, or even saying superior stuff like that. But they came right out and said, “AWS’s advantaged security capabilities and track record relative to other providers.” I thought that was a harpoon that was sent at-
Daniel Newman: That again, I want to hear that again. I want to make sure.
Patrick Moorhead: “With AWS’s advantaged security capabilities and track record relative to other providers, we see momentum around customers wanting to do their long-term generative AI work with AWS.” Scud missile at Azure.
Daniel Newman: I know. I was trying to hear where that was going. That wasn’t even veiled. Surprised they didn’t just say it.
Patrick Moorhead: No, no, no, no. I know. And the final thing I’m going to say is, I wish AWS would just talk about how much AI is layering on improving their business. But they did say ultimately it’ll drive tens of billions of dollars for revenue for Amazon over the next several years. Kind of soft. But I don’t know if Amazon or AWS needs that. Dan, that is it. Any other ruminations or anything on Amazon?
Daniel Newman: I mean, no. I didn’t talk about it. I’ll just point out in my online commentary, I did point out that I like the bedrock strategy. I like the open approach, the multimodel. I think Amazon’s going to be very much what Amazon’s done with Silicon. It’s going to be what they do with generative AI. It’s going to be merchants, it’s going to be use whoever else’s model, use ours.
Patrick Moorhead: Does anybody not have that, Dan?
Daniel Newman: No. I think we’ve seen the pivot, but definitely, everyone didn’t start that way. But I also think there’s, just like a funnel, Pat. There’s the funnel that starts with we have our own and we are going to proprietary lead with our stuff. And if you really want to, you can use theirs. They’re, I think, the opposite of this. And so what I mean is there’s two continuums. No, everyone realized it, Pat, because after the near hostile takeover of OpenAI, I think the one thing Microsoft realized is they had something to button up there. But I think AWS has one inherent advantage, and that is the massive amount of infrastructure deployed around the world and companies that aren’t going to move it.
And so all that data and all that infrastructure, there’s going to be AI applications that are going to sit on top of it. It’s substantial. And the ISVs that sit on top of AWS are substantial, and they’re going to be building gen AI on top. So having said that, no, there aren’t. But yes, there are. So I hear a lot of testing opportunities. By the way, some economic validation opportunities too in there.
Patrick Moorhead: Totally.
Daniel Newman: All on the podcast. But if you’re listening to this, ring the phone, man. Ring the phone, let’s help you.
Patrick Moorhead: Yeah, so it’s one thing to make a claim about performance benchmarks. I would say that vendors making those claims, there’s like a 10 to one ratio on believability. Get a third party to do that, like Signal 65. And then when it comes to translating the superior performance or power into total cost of ownership or total economic value, you should also consider doing a third party study, which I think, Dan, you might offer that.
Daniel Newman: We do. We do.
Patrick Moorhead: What’s it called?
Daniel Newman: The economic validation? Are you talking about that?
Patrick Moorhead: Yeah. What’s the official name of it?
Daniel Newman: I don’t know.
Patrick Moorhead: Okay.
Daniel Newman: It’s a really great question. I wish you’d given me a chance to prep for that.
Patrick Moorhead: I’m sorry.
Daniel Newman: Hold on. Let me see if I can-
Patrick Moorhead: It’s being built.
Daniel Newman: Let me see if I can find it now because I think I shared it. Didn’t I share it with you?
Patrick Moorhead: You did.
Daniel Newman: I shared it with you, didn’t I? Yeah. I’m getting a little old for this, but I think it’s called Futurum Group’s Total Economic Value Study.
Patrick Moorhead: Excellent. So hey guys, thanks for tuning in here. We talked Microsoft, Google, AMD, Qualcomm, Amazon. And I want to get a shout-out. We, Dan and I, will be in Barcelona with The Six Five, in addition to our improved bench of talent, folks like Lisa Martin, we’ve got Dave, we’ve got Keith Townsend, we’ve got all the more insights and strategy and Futurum Group analysts to choose from. Looks up.
Daniel Newman: We got some new exciting ones coming in too. Coming in hot.
Patrick Moorhead: Coming in hot, baby.
Daniel Newman: The way we used to come. But for now, I’m going to just have to make everybody sit at the edge of your chair and wait for the announcement to come.
Patrick Moorhead: Hit that subscribe button if you liked what you heard. Give all complaints to Dan, all compliments to me, and I’ll do the victory lap. If you do send those to me, I will get you out there to my 41,000 very tuned in subscribers on X. Thank you. Take care. Love you.
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.
