We are Live! Talking Oracle, Ampere, Microsoft, Intel, Cisco, Splunk, HP, and Apple

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Transcript:

Daniel Newman: Hey everyone, it’s Friday and we are back with another episode 185 of The Six Five podcast. I am the co-host in chief today. The main pilot, not the co-pilot. That’s going to be Mr. Patrick Moorhead. Yes, I did that. Yes, I did that because I had to do that. Because we’re going to do that here on the show today, because did a lot of co-piloting this week. Pat, how you doing buddy?

Patrick Moorhead: Man, I’m doing great. Three events, both coasts, 13 videos. I’m just feeling glad to be alive. I can’t believe we’re back in Austin. So we started off in-

Daniel Newman: How do you do that? How do you do three events in three cities that all required flights, none of which are nearby and yet still be home to work a full slate on Friday?

Patrick Moorhead: You work during the day and you fly during the night. It’s very simple. That’s what you do and that’s what we do. We are committed to not just having one job but having two jobs. Analysts by day, Six Five by night.

Daniel Newman: I think I’m up to like 12 jobs, dude. I cannot for the life of me figure out how I could work more hours. I can’t, because I need to because I’m not getting enough done. I love weeks like this because they fly by. We saw so many of our customers. We had great conversations, had a chance to reconnect, connect, rekindle, inspire, and like you said, we really did wear the … we wore the two hats.

We wore the analyst advisor hat that we do with our two firms, more insights and strategy in the future and group. And then we put on our joint hat, The Six Five. We did what we like to do. We came for the news and we gave the world the analysis. And I’m going to stick with that theme until it sticks, buddy. But hey, we got a great week, big show. So much ground to cover. We were at Oracle CloudWorld, we were at Intel Innovation. By the way, you’re even figuring out a way to squeeze seven topics in. You’re making orange juice over here.

Patrick Moorhead: Seven companies.

Daniel Newman: Seven. By the way, it’s going to be more than that because we’re going to squeeze probably some talk about Splunk in there maybe, and that’s not technically on there. And we might talk about NVIDIA and we talk about GPUs and new PCs and yeah. Anyways, bottom line is we’ve got a lot to cover this week. If this is the first time that you’ve ever watched the podcast, I’m going to ask you why. It’s the first time you’ve ever watched this, because it’s the best. But in all serious, The Six Five is six topics, five to ten minutes each, usually closer to ten, and that’s because Pat talks a lot, but every once in a while I get a word in edge wide. That’s a joke. That’s a Friday joke. Look at Pat. He’s all offended. He’s probably going to, I’m not even going to get a hug here.

Patrick Moorhead: Does a smile look offended to you, buddy?

Daniel Newman: Yeah, you know how it goes because generally my brevity is well documented and it’s like, anyways, we’re going to cover a lot of ground. But if it is the first time, make sure it’s not the last. Stick with us often. We are for information and entertainment purposes only, and while we do talk about publicly traded companies, please do not take anything we say as investment advice. So we’re going to talk Oracle CloudWorld, we’re going to talk Intel Innovation. We’re going to talk Microsoft’s AI event in New York City.

We’re also going to talk about a $28 billion deal that we all knew was going to happen. We just didn’t know when. We’re going to get a little geeky and talk about a cool new foldable 17-inch device that Pat probably has and I wish I had. And then we’re going to make fun of Apple. No, I’m just kidding. We’re going to talk about Qualcomm and Apple, and don’t be discouraged by our infinite jealousy of Apple. It just is what it is. But anyway, so let’s get started. Let’s dive in. Let the comedy hour end. Let’s let the analysis begin. Patrick Moorhead, kick us off. Oracle CloudWorld, lots to cover there.

Patrick Moorhead: Yeah, so Oracle is such a diverse company. I mean, not only are they SaaS and still have even on-prem apps and on-prem databases, but they also have IaaS and cloud infrastructure and they have traditional infrastructure. So such a diverse company. Dan, five years ago people were wondering, what is this company going to do? They’re kind of the old tech company and to their credit, just come storming back.

First and foremost, Steve Miranda got up, he runs Oracle Fusion apps and announced exactly what you would expect. Two generative AI features and a new data platform for generative AI. And brought a bunch of partners on kind of singing the praises, but here’s what I loved is Steven went off script and I think it just shows the kind of company that Oracle is and the customers like talking about didn’t believe anything that the salespeople said and the implementation was a challenge, but they got through that. And I really appreciate that because, Dan, you and I sit in the audience just like watching these customer stores and they’ve got nothing. They have no constructive criticism. And to me it comes off fake. This came off very genuine.

Key messages. This was less about I think picking up market share, more about getting the installed base of customers to go in and dive into these generative AI features and also those customers who might be still on-prem with some of their features to get in the cloud. So this is going to go long, isn’t it?

Daniel Newman: No, man. You’ve got one minute.

Patrick Moorhead: I’m going to move this forward. So new Fusion data intelligence platform, right? It combines the data models, the AI, ML, analytics and apps. I think what we’ve seen over the last nine months is you have to have the models close to the data and this is what that does. And while most uninformed people think analytics are going away, that is ridiculous because technology is additive. We have analytics, ML, DL, and of course generative AI features. And finally, Steve rolled out multiple generative AI features across every part of their portfolio. ERP, SCM, CX, sales, marketing, pretty much across the entire gambit.

And while I don’t think this is as many features, the Oracle strategy is to put up not the 100 features that 10 will get used, but put in the 20 to 30 features that they know that their customers need and can activate that data and either save money or make or drive more revenue. OCI, big victory lap on HeatWave Lakehouse, very simple. You put MySQL in memory, it going to be really fast. Why the other vendors can’t do this, I don’t know. I love the middle finger charts showing Redshift, Databricks, Snowflake, Google BigQuery. I’m a fan of Google BigQuery, but when you pack MySQL into memory, it is just going to be fast.

Final comment on OCI. I’m leaving you a lot here, Dan. Very interesting. They had Ampere on stage and they’re an arm-based data center processor play. And a couple announcements there. First off, Clay Magouyrk, who runs OCI for Oracle said 95% of OCI plus new Fusion customers run on Ampere computing. That was a mind-blowing moment, right? I know you whispered to me or asked me, “Hey, I wonder what that means to revenue.” When we’re watching this, Oracle is a huge investor and I think has invested billions into Ampere. All I know is that it has to be a bunch. And I’m sure we could spreadsheet this out, but I’ll wait to do that. Dan, I left you a ton of content here, the Microsoft stuff. Go for it.

Daniel Newman: Listen, because there was so much going on, I want to just kind of boil it down to a couple of themes. The company, and this was really well articulated by Clay Magouyrk, but the full stack is really when you can take together the infrastructure layer and tie it to enterprise applications and industry applications. And what does that mean? Well, there’s the concept of building apps that are very specific to a use case in industries, financial services, supply chain use cases, and then there’s the actual applications for enterprise, which is ERP, CRM, all the things that we kind of regularly talk about.

What Oracle has done that’s very, very interesting, it kind of has quietly happened is it’s really created this virtuous circle of completeness in its offering that you can argue no one else, maybe Microsoft is doing this, but Microsoft doesn’t have the traditional core ERP database at nearly the scale that Oracle does. And the reason I point this out is Oracle is kind of increasingly becoming this gelatinous blob of capability to serve the entire enterprise.

Patrick Moorhead: Hey Dan, can you write a paper on that for me?

Daniel Newman: Called the gelatinous blob?

Patrick Moorhead: Gelatinous blob.

Daniel Newman: Listen, just stick with me now.

Patrick Moorhead: Yeah, your point is spot on.

Daniel Newman: Fastest in memory database, you’ve got hyperscale cloud infrastructure. You’ve got partnerships in peering globally with leading infrastructure companies. You’ve got platforms, you’ve got Cerner, an industry focused application that is basically one of a very small number of apps that’s globally used, compliant for highly regulated industries that ties together that enterprise app, that industry app, and plus the infrastructure layer.

This has been visible in the company’s recent performance and its growth. It is the fastest growth infrastructure play right now. It is. It’s had strong growth across cloud, but the infrastructure number has grown very, very quickly. So Clay rightfully did his victory lap. And let’s face it, I know we talked about this last week, but seeing Satya Nadella, who by the way had a nice chat with you and I yesterday, we should put that photo up, but seeing Satya-

Patrick Moorhead: It wasn’t just the two of us, of course.

Daniel Newman: It was just the two of us and the couple people behind us, but also sitting down with Larry and literally coming together and saying, look, we sort of know the world is hybrid multi, Pat. We’ve been saying this for a little while. We understand that we have customers that might see more benefit in one public cloud or another, but we want to bring the highest performance utilization of Oracle regardless of which cloud it’s in. And at the same time, we want to make an attractive reason for these two companies to be cross-selling. And obviously there’s got to be a reason those two want to work together. There’s someone they’re collectively chasing maybe out there.

The only other thing I’ll leave and then we’ll move on from this is I did want to give a shout-out to Steven Zivanic and his team we’ve worked closely with, we went to the Database Summit momentarily and they’re numbers, the MySQL Heatwave numbers are just mind-boggling, the performance. I think people have kind of not noticed maybe at scale how much it is outperforming all of its peers right now. And that’s put a lot of pressure. It’ll pressure innovation from the other hyperscalers, but it also is probably part of the reason that if latency and query speed and all that stuff is a priority, Oracle’s got a compelling story right now. And if you run Oracle on Oracle in Oracle, you’re going to get the absolute best of breed performance, which maybe you could call that an attempt to get lock-in or maybe you could just call that an attempt to build the best solution for customers so you could look at it across the continuum.

Patrick Moorhead: Yeah. Good analysis, Dan. One thing we never talk about is the cost base of Fusion, right? You have Salesforce and ServiceNow who have to sit on, they have to pay an AWS or an Azure or somebody to do all this goodness. So there’ve got to be some cost advantages in there as well, don’t you think?

Daniel Newman: I think we saw some companies like Zoom make big commitments to Oracle over the years because I think they were looking at those potential cost efficiencies. All right, we could go on this one for a while. This is why we call it The Six Ten podcast and we hope everybody appreciates there’s so much analysis here to do. But let’s move on to the Microsoft AI and surface event. Pat, we brought The Six Five, we brought the analysis.

First of all, just a really good event. I love these kind of pop-up, one day, high impact, lots of announcements, big mix of media personalities, analysts, executives, a lot of access. And when I say a lot of access, Pat, first time what in five years that Satya sat down and really did an in-depth conversation with the analysts here, was amazing. And not only did he sit down, but he was very engaged, connected and grateful, which I loved. And gave us a lot of great feedback. Pat, we covered the gamut of hybrid on-premise data. You asked a great question. I think you got great question twice in one answer from him. So that was the most great question that he gave to anybody all the way to where I was asking him about regulatory and policy. And he really gave us a very succinct feedback on all of that. But moreover, let’s talk about what got announced.

I’m going to talk about the copilots, Pat, and I’ll leave you to talk about the devices a little bit maybe, and obviously as much as you want to talk about the copilots, but we’re entering an era where we need to bring simplicity and we need to bring generative AI value to our organizations. We’ve been hyping and talking and Microsoft has been at the forefront since November of last year when ChatGPT hit. It made its early announcements, Pat, we were in Redmond beginning of the year. We heard about the first Bing with GPT inside of it and then it started moving through the M365, it started moving into Edge and Windows 11, it started moving into productivity tools and of course D365. We’re going to see co-pilots in everything.

But really the idea is a copilot for everyone and it’s kind of starting off with a copilot for the consumer and a copilot for the enterprise. And then as we move forward, and this was something I’m very interested in, we’re going to start to see Microsoft really attempting to deliver a copilot for your life, which is going to blend the physical and work and digital and consumer experiences together. And yesterday was really a moment where we saw some GA happen. I think one of the biggest announcements, the ones I got most excited about was the copilot going GA for M365 and their productivity suite.

Pat, I have been waiting to try this. I know, I believe I’m really influential, but they did not let me have it. So my ego has been in a cobweb in the corner of the office for a while, but my ego’s coming back because I’m going to be building PowerPoints in two seconds when it’s going to be able to read my mind. And Pat, another thing is I loved was the Outlook tool, the sound like me tool that was announced yesterday.

I don’t know if anybody knows, but I really love the way I write. I’m kidding. Today I’m just feeling spunky. But the idea of a lot of generated text is you read it, Pat. We’ve talked about some analysts that probably shouldn’t be proud of the fact that they do most of their writing with ChatGPT or other tools now. I call them-

Patrick Moorhead: Gross.

Daniel Newman: They’re just tools, period. But the idea of it being inspirational is great, but what about the idea of it being inspirational and then being on tone to sound like you? When I write an email, there’s a way that I address people. There is a way that I send off people. There is kind of an inflection that I use inside of in my writing that right now when I use tools to look at it doesn’t sound anything like that. And that’s mostly been testing for me, Pat.

But the idea that we could have these tools sound just like us with the click of a button is very, very cool to me. Yesterday was, but in my opinion was really all about, I put out a tweet like a too long don’t read. And I said it was all about the democratization of the copilot for bringing the copilot to the person. And that’s really what happened yesterday. Whether you’re in Windows, whether you’re in the Edge browser, whether you’re in the applications, and Microsoft really showed its hand that it’s going to move from the consumer Edge of the browser and Windows all the way to the enterprise Edge of your dynamics and of your enterprise search.

And I felt, Pat, that was a really powerful point. We had some good time with the leadership team, not just Satya. We got face-to-face with fellows. We got face-to-face with heads of surface, heads of AI strategy, Pat. A lot of talk about responsible AI, and so I’m going to leave it there, let you kind of chime in here. It was a really exciting … I don’t know, I left energized, although I won’t lie, I did fall asleep on the flight home. I was exhausted.

Patrick Moorhead: Well after all the New York deli stuff, I would totally understand that.

Daniel Newman: It was like a four pound turkey sandwich and I ate yours too.

Patrick Moorhead: I know, half of it.

Daniel Newman: Well, I was hungry.

Patrick Moorhead: So Satya did a really good job kicking it off, really making the case for this being a new category, new interface, new reasoning engine equals new category. And if you look at how long that we’ve been using keyboard and mouse to get in there and trackpad, I think he has a good case. And I don’t think he stretched it too far at all. Like you said, really the punchline of the event was copilot. Two products, one experience, and this cuts across consumer and businesses. And I think this is a differentiator. They’re the only company at scale who is doing this for both right now.

And there’s a lot of arguments for Google and what they’re doing. They don’t touch as many businesses, but they touch more consumers. I expect Apple to show up at some point and they’re primarily a consumer play. One thing that a lot of people missed because I saw some of the coverage from some of the press, it’s like a way to hold an event for nearly no new products in GA for Microsoft 365. This capability is now embedded into Windows and it’s adding generative AI capabilities into photos. It’s adding generative AI into things like Clipchamp, which is so easy I might actually use to get some of my videos and content onto Instagram.

And I think that’s what people missed, a black and white upgrade and big image creator using DALL E 3. I mean I was not that impressed. I probably wouldn’t have used much of the content that came out of the original Bing image creator, but I can see myself using this one now.

Daniel Newman: Looked great. It did. It looked great.

Patrick Moorhead: It did look phenomenal. And the first version, right, this just came with DALL E, faces were weird, hands were weird, humans were weird. And I think I saw enough to know that this is going to be different. New surface devices surfaced as well. And I think the one that I’m most excited about, and probably you because you carry this as your daily go-to, is the Laptop Studio. I carry a 15-inch surface, but I just really enjoyed some of the usage scenarios running circles around the MacBook Pro M2 Max. They did a visual imaging demo and it lapped the MacBook by three to four X as they were running a Llama 2 instance. I love that stuff and really gave us a peak to what the next generation of generative AI experiences are going to be.

Some of those experiences will be delivered through the cloud, primarily delivered through the cloud. Some of them will be primarily delivered on the client computer and some will be a hybrid mixture of those. So I like their strategy. Again, huge Azure, huge capabilities, huge SaaS particularly on the personal productivity side and then very big capabilities. And these Windows capabilities are not just on Surface, they’re in other brands as well as provided by the Windows operating system. Great stuff.

I want to follow up on my one question I got with Satya. If we’ve ever been at an event together, a big part of my research that I’m trying to get my head around is public cloud is 14 years old and first AWS service was 2009. It was a queuing service. Yet 75% to 90% of enterprise data is still on-prem or in devices and not in the cloud. So how does anybody activate these types of experiences if you’ve got to have access to the data and you either have to infer on it, you have to train on it at a minimum, you have to prompt against it?

And one way to do it is send it up to the cloud. And that’s what we’ve seen in these first level experience. But I asked him, “What is your strategy with this in mind?” Net, net, he said, “Microsoft is going to activate data wherever it sits.” And he cited the Oracle database at Azure as a good example. He cited some things that I took as Azure stack and if I read between the lines of his response, I wish I would’ve recorded it, I saw little pieces of federated learning and federated learning is doing the activation wherever the data is. They have Azure Stack as well, which is as I find … so that’s one thing I’m going to keep my eyes on, but Satya seemed very confident in his responses to me on that.

Daniel Newman: Just a quick boomerang because we got to keep moving here, but the idea of a natural language interface and reasoning engine was a big takeaway here, and this was kind of my Shazam moment is the human machine era begins when we are able to naturally interface with the machine and the machine understands and reasons with us in a way that feels empathic and human. As you tie these things together, it gets really interesting and really exciting, Pat. So we’ve got a lot of topics left. I know we can spend … God, it’s going to have to change to like The Six Twenty. We’re going to need to start doing two-hour Fridays.

Patrick Moorhead: If we keep flagellating ourselves about how long it is and get to it maybe we’ll get through this.

Daniel Newman: Hey, hey, I want to do The Six Thirty. Maybe it’s my favorite thing to do. Why you got to ruin my fun? I want it to be three hours long.

Patrick Moorhead: Okay. All right, all good man.

Daniel Newman: Let’s talk innovation.

Patrick Moorhead: Yeah, so Intel Innovation, we spent about a day and a half there meeting with executives, going to keynotes and of course knocking out seven onsite videos. So I always like a combination of thought leadership and product launches and having run thought leadership at a certain chip company, I can appreciate good stuff and stuff that’s not good. And I really appreciated that CEO Pat Gelsinger started off with this notion of the sil-economy defined as an evolving economy enabled by the magic of silicon or semis are essential to maintaining and enabling modern economies.

And it’s funny, he could have done this two years ago when we were not shipping $100,000 cars because of a 5 cent chip, but right now front and center with the lack of ability for NVIDIA to be able to ship silicon. But his macro point was how it makes economies and it builds culture in a way that oil used to before.

So I really like that. Some of the biggest announcements, an Intel developer cloud, essentially the unique part of this is whether it’s CPU, GPU, NPU or even an FPGA using a similar set of APIs and developer tools to do what you want. And that’s to accelerate, to my surprise, it’s not just for developer, but you can actually run. In fact, we interviewed two customers that were running production workloads on that.

Pat also coined the term AIPC at the event. He did allude to it in his previous earnings, but he showed not only benchmarks with what he called the VPU, which is a discreet solution, but he also gave a flash the next generation actually two generations of silicon where he was running Stable Diffusion music generation. So this is going to heat up with Qualcomm leaning into this and Intel leaning into this and AMD leaning into this I think, and Microsoft as we saw something big could happen and this could mean a rebirth or another mega cycle in PC upgrades.

I’ll leave you some oxygen here. Final thing that came on my radar is Intel’s fifth generation Sierra Forest demo, which comes out in 2024. They had originally said it was 144 core solution in one part, it’s actually 288. That’s the old intel that I know and didn’t always love when I was competing with them or even their customer, but that’s a classic Intel move.

Daniel Newman: Look, it’s twins.

Patrick Moorhead: No, exactly. Exactly. And what’s the one thing that Intel’s CEO Pat G brought on The Six Five was that, he loved that. Absolutely.

Daniel Newman: How about the glass substrate? That was pretty fun.

Patrick Moorhead: I was going to leave that for you, but I’ll follow up with, I do have to do research on this 288 core deal. I need to know the power. I need to know the bandwidth. If you can’t feed the cores with the memory, it’s not necessarily going to be doing what you want to do. And wow, it does include hyperthreading too. So 288 cores, 576 threads. I think most of the cloud folks will turn hyperthreading off for QOS, but it’s there if you’re looking for a beast.

Daniel Newman: Yeah, I’m going to take a little bit of a different lens here. The innovation event is a developer event and it’s focused on making that connection. Now if you’re following the AI era, what you realize is, Pat and I love to say you can’t … silicon or semiconductors will eat the world or rule the world or whichever way we want to say it. And that’s because you can’t run software on air.

And the reason developers show up at silicon events is because they understand they can’t actually develop software if they don’t have the memory, the cores, thread, all the things that Pat loves to talk about. Pat G and Pat M actually, both Big P and little P, you both love talking about this stuff.

And my point is you kind of go, why are developers at a Silicon conference? Well, same thing with NVIDIA. NVIDIA has been able to change the sort of perception of the company by saying, “We’re not a silicon company, we’re a software company.” And in many ways Intel is very, very actively trying to change that same perception, whether that’s its developer cloud where it’s been partnering. Pat, we talked to some really interesting companies that are building and developing with Intel next generation AI-focused apps. And Intel’s been able to really start to talk about with its strategy around OneAPI, OpenVINO, it’s building software tools that are going to, as this AI era proliferates, give flexibility and optionality to the developer community. And this is something that has been heavily debated. The reason the market doesn’t believe companies like AMD and Intel will make a dent in the AI world is that everyone always talks about something called CUDA locket.

It’s the NVIDIA proprietary software ecosystem that people are developing for AI. But the truth is we’re starting to see companies, companies going on stage, they fabletics and other companies that are basically committing long-term to building on Intel silicon.

The other thing too is that we are seeing this kind of shift where people I think are starting to see that when all this training bonanza comes to the foregone conclusion, and it will happen. I don’t know if it’s 4, 6, 8 quarters into the future, but I promise you this unbelievable growth rate on these high-end GPUs will slow at some point when all these large hyperscalers have deployed their required infrastructure to train their large and mid-size models. It’s not going to end. It’s going to slow. And then what ends up happening though is a lot of this compute shifts to these other architectures that Pat Gelsinger talked a lot about here.

Intel is not yet able to compete at the high end of discreet GPU with what NVIDIA is doing, but with its A6, with Gaudi 2, with some of its Xeon core processing for inference on databases and whatnot, which something they’ve talked about for a long time. A lot of the inferencing is what’s going to come out of all this training. So all these apps that we want to run on the edge or these AIPCs, it’s going to be NPU driven, it’s going to be core CPU driven, it’s going to be for data center applications. It’s going to be driven by traditional core Xeon and Intel has a big role to play there.

And so you kind of see the cycling of everything runs on silicon and the developers want to build apps that are going to be usable and you start to see where their role is to play. Now again, this doesn’t mean they’re going to grab massive market share in the big data center GPUs the minute they roll one out, but what it means is they’re trying to make software easier. They’re trying to give developers a playground with their cloud developer ecosystem and they’re trying to drive more development on Intel silicon, which in the end is going to require more utilization and purchasing of silicon, which is a long game.

But Intel did show to me, Pat, that they’re very much in the AI game. They have a story that’s continuing to proliferate, their five in four is very much close to being in line, which is something you and I both said adamantly is going to have to happen. And so it was a strong overall showing from the company. The next few quarters there’s a lot of work to be done and that continued ability to meet the expectations, but the fact that developers are there, developers are hungry to build AI on Intel is a good sign for Intel’s longer road ahead.

So let’s talk about a deal. Sorry, I never do that. I don’t know what. So we woke up, Pat, on Thursday morning to announcement that Cisco went back to the well. You remember it was probably about a year ago that there was rumors of Cisco going in to buy Splunk. And now apparently a deal has been reached at around $28 billion for this acquisition to take place. Now at the high level, let’s talk about what’s happening at Cisco. CEO Chuck Robbins over the last couple of years has been steadfast that the company needs to shift from a very hardware-centric CapEx to a very ARR and software centric business model. The company has leaned in heavily in security, has leaned in heavily in observability, and then of course it has its collaboration platforms as well. But these have been the areas where the company had substantial opportunities to grow in software.

Well, Splunk sort of it’s a bifecta. Given the company’s interest in both security and its interest in observability, ThousandEyes, AppD plus Splunk, you now have a very complete observability portfolio and you’ve expanded your security and by the way, bought a company that has made successfully the pivot from traditional software licensing model to an ARR model. And that’s really been the directive of leadership. So going back to Doug Merritt, who we worked very closely with at The Six Five, Pat, who was CEO, he started that transition and then later when Gary Steele, the new CEO was brought in to lead the transformation the rest of the way, we saw the company substantially growing its ARR, substantially growing its recurring and its cloud business, which was very important. So what’s Cisco getting? Cisco’s getting one of the leading names in observability to package up with its existing observability portfolio, $1 billion plus of ARR.

It’s getting a opportunity to quickly become the pretty much undisputed market leader in monitoring and observability across security and IT ops. And it’s able to do that by making this acquisition and also giving more value to its shareholders long-term by continuing to pivot the company’s revenues to higher ARR and higher cloud numbers and software numbers, which is what Cisco has been promising to the market.

So Pat, this was a kind of a deal I always expected to have happen. I wasn’t sure they actually came back richer than the original price tag, but over the four quarters since they talked about this, three to four quarters, they also did substantially increase their ARR and their cloud revenue each quarter at Splunk. So that continued to push multiple push value and I think over the last few weeks, as we’ve seen IPOs come off, as we’ve started to see more activity in M&A come off, prices are coming off the bottom and this was just another indicator that prices are coming off the bottom.

I think it’s a good move for Cisco. It’s a great thing for Splunk. Splunk investors have seen their stock absolutely pummeled and held down for a long time. This is going to give a nice return to those that stuck with Splunk for the long run. And I think for Cisco it helps meet the objective that the company’s had, which is that pivot that I’ve now reemphasized at least seven times since I started this little diatribe.

Patrick Moorhead: Wow, Dan, take a breath there. So I’m going to take a slightly different tack on here. I don’t want to repeat what Daniel says, but-

Daniel Newman: That was really smart.

Patrick Moorhead: A couple mega trends, or actually I wouldn’t call them mega trend … Well one’s a mega trend, which is data management platforms are super important as we get into, I don’t want to say the generative AI age, but it mattered with AI, it mattered with DL and it matters with analytics. We’re creating so much data that it needs to be tamed and managed and we talk about getting value from it and you need to have a data management platform.

And ironically, these were not in NDA Q&As, but my comment to Chuck and his executive team was the one thing you’re missing in your strategy is a data management platform, right? I like the observability as a service. I like the networking and security as a service. No, by the way, I really like that it crosses any type of cloud. It doesn’t matter where your infrastructure is.

Cisco is making money all along the way. Maybe I floated Cloudera to them as well, but they opted to do probably a 3X acquisition of Splunk there. And I’m not confused at Cloudera and Splunk. They do very different things, but this just makes sense. The other trend you have going on is that enterprises are sick of having 54 different security vendors, right? Over time, pretty much all new markets have these best in breed point solutions that enterprises have to integrate, architect and keep up with all of the revisions that go on. The other thing that we’ve always seen in IT is that just gets out of hand because what happens is these “best in breed”, if you’re integrating three additions after the new one, you’re not actually getting the best bits and you’re potentially creating security holes by having this plethora of vendors.

The other thing is the security game has become a data game, and I think they say that only 5% of red security issues actually get looked at by a human. It’s because there’s so many and you have AI coming in to … you get in this spy versus spy situation where humans can’t keep up. And the only way that you can do this is to have a data platform where you’re capturing all this data on the security side and you have some sort of AI to be able to better figure out what’s a red, what’s a yellow and what to ignore and what to act upon. And sometimes you act upon it automatically and that’s where this market’s going.

So Cisco’s one of the biggest security vendors out there. I think they’re number two to Microsoft’s number one. This makes sense. I need to think a little bit about the market concentration of this for regulators, but last time I checked, observability is a very fractualized market where concentration levels aren’t exactly that high, but in the end all depends how the regulators want to define market. And we will see. I’ve seen no articles, I’ve seen no analysis that said this is going to be a regulatory challenge, but it does need to go through the regulatory process.

Daniel Newman: Yeah, I don’t see it being a challenge at all. That’s good insights though, Pat, for sure. Let’s get into the mud a bit here and get to a product.

Patrick Moorhead: Gosh, Dan, why’d you call Oracle this bloated, homogenous-

Daniel Newman: I’m not going to say bloated. Come on, man. I’m going to get a nastygram about that. I said it’s a, I don’t know, I can’t even remember what I said, but it says it’s like an amorphous blob, but it’s growing-

Patrick Moorhead: Amorphous blob and then, yeah.

Daniel Newman: But anyways, let’s talk some cool next generation hardware from HP.

Patrick Moorhead: Yeah, so there’s very few pieces of new PC hardware that I lust after, but I lust after this one. I’ve never used it. I’ve never held it. And by the way, I never do that either, but I have to have this. This is a 17-inch three in one, and it’s a three in one as in that you can use it with a keyboard and have the full 17 inches of glory. You can also turn it on a side and you can use part of the display as a keyboard and of course if you want to do the tent mode, you can do that too. So by the way, I want this, it’s only a mere $5,000. HP, can you hear me out there? I would love to demo this for you. But they also went out of their way to, I would say fix some of the things that are just so annoying with some of these foldable devices.

So first of all, keyboard in the bag magnetically connects and it connects out of the box without having to mess with Bluetooth. I love that. Comes with a pen. You’re probably going to use this with a pen. If you ever use a pen for any drawing comes in there and you don’t have to set it up. It also comes in with an adapter, right? If you want to set this up on a bigger display. So it’s literally all there. It’s $5,000 but it’s coming with hundreds of dollars worth of accessories that makes this make sense. By the way. Pull that back. It doesn’t do tent mode. The third orientation is to have the magnetic keyboard in front and then you’re looking down at a display and then you’re looking up at a second display. I can’t live with less than two displays when I’m doing any type of work that’s meaningful.

I have four displays right now, one behind me, on the right, in front of me and on the left. So we talk about what’s going to drive the next supercycle. Three years ago, I’m not going to use the P word so we don’t get censored, but that did drive an entire supercycle of PCs. We had a growth that we hadn’t seen for a decade and it was awesome and then it stopped and now the PC industry is looking for more use cases to get people excited.

I think the full rollout of Windows 11 and the enterprise is going to do that. I think that the improvements we need to make to hybrid work is going to drive that in the enterprise. But scratching my head. On the consumer side, maybe it’s going to be the AIPC. It could be if Microsoft and its partners do their work and make investments. It might be the different form factors. I think like we’ve seen with the Samsung foldable, it’s very expensive, but it is taking customers away from Apple. Probably the only thing that’s taken customers away from Apple on the smartphone side. I want to see this. HP, please send me this. I’d love to see it.

Daniel Newman: Send it to him after you send me one, please? We’re not competing, but you know. Pat, look, I love a good geeky device. My historic best social post ever was when I showed off a large form foldable device at CES last year and I said I want one and I think it got a million eyes on it. So people societally love cool form factor devices. We’re entering the era of foldables. You and I both have or use one of these somewhere along the lines. You have been a better user than me. I still haven’t quite found full utility, but I love the idea of more power and less space. So this makes a lot of sense.

HP continues to blend its continuum of entry level, high volume, Chrome based devices all the way to very high end devices. And the company has made some strides in terms of earning market over the last few quarters and has shown some of its wares on the premium end of commercial devices. And this is where I’d say this sits.

Pat, I think we’re going to see this year at CES a lot more. This is going to be a big thing. Last year it was a little thing, this year it’s going to be a big, big thing. Foldable is becoming more practical, more realistic. I mean heck, I wouldn’t even be surprised to see a foldable iPad at some point. I know, I know it’s weird, but I could just see it making sense because who wants a eight inch when you can have twice that real estate? I needed to do the math there. What’s eight times two? Is that how it works? I don’t know. Anyways.

So for me these kinds of things to really be able to give a great assessment, I need to touch it, feel it, use it. I like what you said about the peripherals. I think at that price point it needs to include it, Pat, I don’t think these kinds of things come inherently. So this is what I’ll put on our list of six, five items. This is more to come from me when I’ve had a chance to kick the tires. But Pat, I am excited about these form factors. I am excited to see some innovation in the PC. And of course with the AIPC on the horizon, I’m interested in seeing how new form factors plus more on-device AI could maybe really shake up the industry and create another supercycle of growth long term. Okay, I’m the host. Sorry. All right, so last topic, Apple. Oh god, I love it. Apple’s spectacular failure to replace Qualcomm. Now this is not your and my headline.

Patrick Moorhead: Exactly.

Daniel Newman: This is the Wall Street Journal’s headline, and Apple and Tim Cook must’ve been absolutely, what would I say? Pleased, excited, staggering happiness after it saw this title.

Patrick Moorhead: How funny is this though? This is written by Aaron Tilley and we saw Aaron the week before, so he’s literally conjuring this and we’re talking to him and he’s not giving up. He didn’t bring this up to his credit, but good job, Aaron.

Daniel Newman: Yeah, and this was a piece that a few weeks ago, Pat, the announcement that Qualcomm got the big contract from Apple came out and this kind of happened in a really busy week. This was the Arm week, this was Apple’s new launch week. This was, so it kind of got a little bit muted in the middle of that, but this was a multi multi-billion dollar deal for Qualcomm. It gave some additional legs. Qualcomm had been trying to convince the investor class that losing Apple was going to be something it was prepared to do. And it was, but how much better for a Qualcomm if it can keep providing to Apple for another two to three years? It’s three years in the contract.

And in your and my opinion, when they first came out with this news at the end of their long settlement after Apple tried to sue Qualcomm into selling itself to Broadcom, that’s not exactly how it happened. But if you piece it all together, they were trying to weaken Qualcomm substantially and then basically potentially maybe see it sold to a company they had a better relationship with. Again, speculation. I’m putting that out there. Lawyers, I’m just saying. But long and short was you and I both said, Pat, it ain’t happening. They’re not going to get this done. Apple bought, what was it? Infineon?

Patrick Moorhead: Intel bought Infineon.

Daniel Newman: Infineon which was the business that Intel was supposed to be able to build the 5G modem. That was the split in Apple’s last 4G phones. They were able to buy that in split, but throughout that entire time, the Qualcomm part always outperformed the intel part. And as that transition to 5G got closer, Intel’s group could not make it. So Intel ended up having to shed that business on a fire sale to Apple with the hope that Apple could bring these resources in and ultimately figure out how to build this 5G RF system that has proven to be nearly impossible.

Now this article, Pat, basically exposed and it was rehired all over the internet that effectively it’s been a “spectacular failure”. And this goes back to 2018 was when this really started. So we’re now talking five years. And the idea was is Apple believed it could make more money if it could build its own chip like it’s done in so many other parts as it’s tried to vertically integrate. This is the Tim Cook special. And basically what’s ended up happening is with a few parts from namely Qualcomm and Broadcom, it’s either been determined they can’t do it more efficiently or they can’t do it at all.

And so in this case, this is the, “We can’t do it at all.” They were trying, Pat, right up to the deadline of last year. This phone was supposed to be the first one that had this new Apple part and not only they couldn’t make it small enough and they couldn’t make it perform. So these things were overheating, they were too large, they were non-performant. And effectively Apple had to go crawling back to Qualcomm begging for its part, which was super interesting, Pat, because this had to be an absolute nightmare for Apple. Pat, are we the pilot or the passenger? What’s going on here?

Patrick Moorhead: I don’t know, dude.

Daniel Newman: And in the end now what’s happening is Apple’s got chips that are probably three to maybe even five years behind when it comes to an RF modem system. And we’re looking at 2026 or later before Apple’s going to be able to make its own part. Having said that, Pat, I will say while I was a 100.1% sure that they were going to have to come back for this round, I do feel the next round I will be surprised if they have to come back again. This is my early prediction, but over the next three years I’ll be surprised if they aren’t able to make this happen.

Patrick Moorhead: So I know we’re coming on time, but I am going to get my fill here.

Daniel Newman: Yeah, I’m not rushing. Go, go.

Patrick Moorhead: I told you so. Not you, Daniel, but everybody out there. In 2019, I said this was going to be a stretch. Intel was 18 to 24 months behind when they bought this. And my statement was, “How much money and how long to catch up?” It took Samsung and Huawei eight years to field a competitive motive and they own the network. Okay?

Daniel Newman: They never were that competitive.

Patrick Moorhead: Right. And the game changed, right? It’s not just a modem game, it’s a 5G modem plus RF game. That’s what I said. July 25th, 2019. Now I never said they couldn’t do that. I said it was going to be very, very painful to get there. And let me just take a quote from this article, “The engineering teams working on Apple modem chip have been slowed by technical challenges, poor communications and managers split over the wisdom of trying to design the chips rather than to buy them.”

So they don’t even have internal alignment on the strategy, Daniel. Now that could be between the semiconductor folks and the iPhone folks, okay? Because the iPhone folks, they want a competitive modem and they want to maybe save a little money. But Apple is notorious and yes, I’ve been recruited by Apple before. I didn’t take the job by the way. I never said that publicly, but there we go. And they operate in hives. And these hives don’t talk to each other. They’re not allowed to talk to each other. But that’s also one of the ways that Apple gets secrecy. You cannot do a modem by being secretive and being in your pods and not talking to each other. So Intel’s way of doing work does not apply to doing modems in this case.

Here’s the other thing, there’s I think, yes, we’re to four modem vendors. You have to invest in research. Do not confuse research with research and development. Research is 10 years out. You are defining the telecommunication standards in 10 years. If you’re not investing in that and you’re not in the standard, you will be late. So how is Apple who doesn’t take front and center on the standards boards because they’re secret, but modems can’t be secret. They have to communicate with everything.

And it’s not just 6G. It’s 6G, 5G, 4G, 3G, 2G. These systems have to interoperate. You have to be able to make a phone call on a 2G network, not just stay in this network. So there’s historical baggage, which I think they got from Intel, but there’s also the testing that you have to do and the trade-offs in the RF, and that RF subsystem needs to talk like five languages at the same time.

So what’s my final point? How long is the board of directors going to let this lunacy go on? I think there were quotes around, I’m paraphrasing, Apple hates Qualcomm, but when does common sense and pragmatism come in and say, you know, this just isn’t worth it. I need to put these thousands, I mean thousands, maybe tens of thousands of resources on maybe making a better processor or a GPU or an NPU. Intel and Qualcomm and AMD are after Apple on all of this other intellectual property and processors, but board of directors, investors, this is a spectacular fail to replace Qualcomm. Not my words. Wall Street Journal, Aaron Tilley. I’m going to leave it at that.

Daniel Newman: And we might, based upon historical commentary, agree. We might. Pat, did you get your fill?

Patrick Moorhead: I did. Thank you very much. I feel better. Thank you.

Daniel Newman: You’re feeling good? You feeling great?

Patrick Moorhead: I am.

Daniel Newman: Favorite part of the week is now over. I’m sorry.

Patrick Moorhead: It’s okay.

Daniel Newman: There’s nothing else today that’s going to be better than this last hour for you.

Patrick Moorhead: Yes.

Daniel Newman: I want you to know that. This was the best hour of your day.

Patrick Moorhead: It is. I always say that.

Daniel Newman: And it was the best hour of mine and I hope it was the best hour of yours. Thanks everybody for tuning in. Hit that subscribe button, join The Six Five for all of our podcasts, events on the road. We appreciate all of you out there in this community. But for this week, for this show, bye-bye now.