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Making Markets EP19: Oracle Soars, C3 DoD, Intel Spins, HPE, Salesforce, Splunk, and Marvell do Well
by Daniel Newman | December 10, 2021

In this episode of Making Markets, we dive into Oracle’s big result that sent its share prices soaring. We also look at Tom Siebel’s C3AI $500 million DoD Win. Then we take a quick look back to last week where HPE, Salesforce, and Marvell all delivered growth in a turbulent week of trading.

Topics in Order

  1. Oracle
  2. C3AI
  3. Mobileye
  4. Salesforce
  5. HPE
  6. Splunk
  7. Marvell

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Transcript:

Announcer: In a busy 10 days, we have seen a barrage of tech earnings, but also some really big news in automotive chips and a big win for Tom Siebel’s C3 AI. Oracle jumps big as it continues to over deliver and Marvell battered any doubters it may have left. All this and more on this episode of Making Markets.
And off we go.

Daniel Newman: Hey, everybody, welcome back to another episode of Making Markets. This is episode 19, and it’s been a big week. We’re in the week of December 6th, 2021 heading into the new year. And of course it’s a great time for all things markets, except for when it’s not. We’ve got a lot of data coming out. We’ve had employment data this week, we’ve had inflation data. Inflation was red hot. Came in above, but just barely what was expected. I think the market’s already been bracing for that. We’ve got tapering of bond buying by the fed. And then of course we have huge tax spend bills that are trying to make their way through the house and Senate.

All of these things are impacting markets. People have question marks around growth. People are wondering what’s going to happen next? What does 22 look like? Of course, we’ve got a midterm election. So there’s so many things happening right now. This show, Making Markets, likes to focus in on big tech. We talk to the CEOs and leaders of the big tech companies and try to get in between the lines and better understand their businesses. But also I like to come on, talk about all kinds of different earnings results, investor days, big breaking news, acquisitions, mergers.

And this week we have a whole lot of things to cover. So if you’re tuned in strap in, we’re going to be moving pretty quick this week, because there are so many topics. I want to go back to last week. Last week I was in Hawaii. I didn’t have a chance to sit down and record a full episode. So we’re going to talk few of the earnings that came in last week. We also of course, had a great sit down with Qualcomm CEO, Cristiano Amon. So if you haven’t had a chance to listen to that episode yet, I implore you to go ahead, log in, listen to that. It was 24 great minutes cutting across a lot of different topics. And it’s one of the funnest CEO interviews I had because I got to do it in person and live on the big island in Hawaii.

And yes, it’s beautiful. And then I left and then they had a blizzard on top of the mountain, but that’s kind of just what happens. So let’s talk about what we’re going to talk about today. We’re going to talk about Oracle. We’re going to talk about C3 AI, Mobileye, and Intel. We’re going to talk Salesforce. We’re going to talk about HPE, Splunk, and we’re going to wrap up talking about Marvell. Ready to go? All right, let’s do this.

So first and foremost, let’s talk about Oracle. So Oracle reported yesterday and their stock went surging. Now were the results that good? Yeah, I think the results were really good, but I think it wasn’t only that the results were good. It’s also that they continue to be good and that as the company is gaining confidence and as the company is getting more transparent, I know gaining confidence, Oracle. Let’s just say gaining confidence in its cloud story, it’s becoming more transparent.

And that transparency I think is giving its investors a jolt. And then of course the company has also had a really strong year of making moves that investors like. Such as raising the dividend, such as increasing share buybacks, but all the while growing revenue on a year over year basis. And then, like I said, really convincing the market that their big bets, cloud and SaaS are paying off. Now it’s worth noting, Oracle is a company that has over 70% of its revenue in a recurring form one way or another. And so when you look at the stability of this company, there’s a reason why its stock has run up well over 40% year to date while still paying a dividend and saying, “Hey, Oracle may be a company that media and people love to hate, but it’s hard not to like it if you are an investor.”

So this quarter of the company delivered a buck 21, a share and earnings on adjusted basis versus a buck 11. It came in at 10.36 versus 10.21 billion. Again, not huge beats, but beats on both sides gave guidance that also indicated similar growth in the year ahead. And probably what was most convincing for me once again, was that the company came out and gave some more guidance on its SaaS and cloud business. And this is the Oracle Cloud Infrastructure. This is also its SaaS businesses like Fusion and NetSuite and more data, more information, more clarity that the company is doing well. It had 22% growth in its overall cloud business. 2.7 billion on the quarter, meaning it is well above a $10 billion run rate. And this is what has put the company in some lists above Google as the third cloud. It’s going to be a hard race to get to AWS and Azure, but I know Larry and Safra, that’s what they want.

Larry came out this week when AWS went down and he said, “Oracle never goes down.” So let’s hope for Larry’s sake and for Oracle’s sake, that he’s right. And a couple other things that continue to be good for the company is Fusion ERP and NetSuite ERP. These are the SaaS applications that the company is building around. Both up in the high double digits. Fusion ERP up 35%, NetSuite up 29%. This is faster growth than the previous quarter on a year over year basis. And the company also announced that it has over 36,000 subscription customers on Fusion and NetSuite ERP. Great quarter, solid guidance, good delivery. And again, the market was there to reward them. So, that was Oracle, let’s jump over to C3 AI.

C3 didn’t have earnings. It had earnings a few weeks ago. And C3 has been one of those companies that has been on a turbulent run ever since its IPO that shot it up over $100 and down into the twenties just recently. And it’s been part of that wider growth sell off that has impacted so many SPACs, IPOs, basically new companies that came into market. C3 has been a bit of a company similar to Oracle. And I guess with Tom Siebel at the helm and his history, it’s also sort of loved to be hated by some on Wall Street. This company is one of the most shorted stocks at over 15% of the float, but that also created a good opportunity for the company to see its share price go up in the event of something good happening. And that is exactly what came to bear just last night on December 9th, when C3 AI put out an announcement that the company had won a $500 million contract with the department of defense. Now, C3 is all about enterprise AI and enterprise AI is really you think about oil and gas.

You think about banking and finance. You think about fraud detection. You think about some of the most complex utilizations of AI to help enterprises grow and scale: weather data, economic data. Being able to, like I said, look at millions of transactions or more concurrently to be able to help companies inform their decisions. This is a company that adds customers on a low overall number basis, but every customer is substantial and relevant. And this agreement in itself, in my opinion, was a strong indication that C3 is being validated, that it has unique and differentiated technology and the company needs to be taken seriously. The DOD doesn’t mess around when it gives contracts. C3 AI has some sauce that is going to help the company with capabilities that it needs for threat detection, to basically improve operations, to do more research, and utilize all the data at its disposal.

So big win for C3, big loss for the shorts. I think the shorts thought they could just literally drive this thing down to nothing. I think winds like this will continue to put them on their heels. And like I said, in the end, good technology always wins out. All right. So another piece of news that broke this week, I had the chance to go on Bloomberg and I talked to Emily Chang and I also wrote an opinion piece. But early this week, news broke CEO Pat Gelsinger of Intel came out and said the company’s going to spin off its Mobileye. And that’s the autonomous driving business that they acquired in 2017 for around $15 billion. And so that was met with a pretty positive response. Intel, another company that’s had a tougher year growing at a much slower rate than some of its fabulous counterparts like Nvidia and AMD and Qualcomm, but has been quietly executing pretty well.

And especially since Gelsinger took the helm, has been more transparent about its process, about its innovation, and about how it intends to be successful. It came out with what’s called its IDM 2.0 strategy. And this strategy was really how the company intends to both, A, innovate its process, change its packaging, diversify its markets, and then grow its fabrication and foundry business. And during this chip shortage, a lot of people have heard about Intel’s plans to build fabs here in the US and to fabricate chips for many companies, including the likes of Qualcomm and others that are fabulous, that are highly dependent on Taiwan. And I think that’s been an opportunity and going to be a good opportunity for Intel. But Mobileye, in what could be a deal around 50 billion is the speculation, to spin off a $15 billion asset bought five years ago, but to still maintain controlling interest in the company.

Why is this so interesting and important? Well, we’ve seen the likes of Lucid and the likes of Rivian shoot up to incredible heights. These companies have seen valuations north of $70 billion. We’ve seen the stock price just absolutely sore, and these companies don’t even sell anything. Well, Intel is sitting on this asset and we’ve seen this for some time now where some of these really innovative assets that are locked inside of bigger technology companies just simply do not get the value when they are inside the walls of the larger organization. And we saw a few months ago when Michael Dell and the team at Dell Technologies spun off VMware. Got a really good return, improved their debt structure, and of course changed their dynamic going forward in the cloud. But it was a great financial engineering to unlock more value for Dell, it’s shareholders and growth for VMware and its shareholders.

Similarly, just a few weeks back, Honeywell spun off its quantum business in a new partnership with CQC. Now that hasn’t gone public yet, but my speculation is that it will. And that spinoff again, took a business like Honeywell’s quantum that was locked inside a massive industrial company and probably was providing almost no real market value in the stock price because it was so hard to discern where they’re at in their revenue, when Honeywell quantum would’ve been viable. But now as a new standalone company, they’re going to be forced to show market value right away. So I’m encouraged here with Intel and Mobileye, especially with their new structure, holding the vast majority of the shares that they can unlock more value. They can drive cashflow. That cashflow can be used to support Pat Gelsinger’s vision to expand more rapidly, hire the right engineering talent. Because the company is in a race with the likes of Nvidia, AMD, Qualcomm, and others to overcome some of the challenges it’s had in its process innovation to get new products into market.

And of course, to raise capital and show that it has, well, its balance sheet is very healthy, what’s wrong with making it healthier? Especially when that Mobileye, that majority share has a likelihood of running well beyond 50 billion if the company continues to deliver. And by the way, Mobileye is delivering 100 million of its IQ units. It’s building policy, safety, mapping, robotaxis. This company’s going to be interesting for people that want to invest in autonomous vehicles.

All right, I’ve gone 12 minutes. I am going to do a rapid fire round here on three earnings that took place over the last week. And that’s going to be Salesforce, HPE, and Splunk. So let’s start with Salesforce. Salesforce had a big week. Probably the biggest news was that it’s CEO announced that it has another co-CEO. And Salesforce has done this before. They did it with Keith block. But this time it is going to be what was president and CEO, Bret Taylor, stepping up alongside of Marc Benioff to take the role that didn’t quite work out with Keith. But I do believe it’s going to work out much better with Brett Taylor.

Bret’s been doing a lot of these parts and pieces. We all know Marc Benioff has bigger ambitions. Not bigger than Salesforce per se, but just bigger overall ambitions, and has wanted to have someone in this role alongside him. I think Bret’s the right guy. Bret’s proven that. Strong personality, strong leadership, and the company’s done very well under his tutelage. Now the earning this period were once again good. You had 27% year over year growth, you had revenue come in just above what was expected. You had earnings, then of course come in like I said, at 27% as well. So like I said, revenue, growth, earnings growth on a similar trajectory.

The company also split out some of its numbers in a new way. They added a new category. So they used to be sales, service, platform, and marketing. Now they are sales, service, platform, marketing, and data. And that’s how they’ve broken out the MuleSoft and Tableau businesses, which are now tracking towards about a billion dollars and growing at 20%. But the biggest growth area for Salesforce and something I’ve been talking about continues to be its platform business. You’ve heard about Hyperforce perhaps, but you also have definitely heard about Slack. And slack, at a $27 billion purchase was one of those things that you said it has to work out. So far it is working in the right direction. It’s going to have to be the centerpiece of the future of what Marc Benioff calls the digital HQ.

And at 51% growth, it is looking good. Now the stock got sold off a little bit after earnings, and that was mostly because people thought the guidance was a little bit soft. This is a company that has typically given guidance and blown it out of the water. During the pandemic, it’s grown very fast. It continues to grow well. I’m not worried about Salesforce. I feel like the company’s doing very well. The new co-CEO relationship will be something to watch. Of course, seeing the Slack business grow is going to be very important, but it’s got stable growth across the organization. Sales, service, platform, marketing, data, all growing. All growing double digits. Salesforce, nothing to worry about there, nothing to see, looking good.

All right, let’s bounce over to HPE. Now we’ve all seen the big IT OEMs struggle to really show growth. That they all had probably some of the hardest headwinds in the pandemic. Because not only did they deal with chip shortages, but they also dealt with offices being closed. And when a big part of your numbers are infrastructure on prem, that has definitely been a bit of a pullback for the company. Now, the company did grow. It grew at a small percent, it was 1% growth, but it did grow. And at this point, that is what I am looking for. But the real story, if I have to get this into my two minute blitzes for these companies is all about the business’s subscription. That’s what I’ve been watching. So a couple years back, CEO Antonio Neri, who’s been on the show by the way, I recommend you check it out. He said, “We’re going to switch everything in the business to, as a service.”

And so he made this big as a service pivot. And so I’ve been watching that closely because the company’s ability to succeed with their GreenLake or software subscription as a service is going to be the difference between whether HPE emerges stronger or continues to have to fight a strong fight against the infrastructure providers. HPE was first into this space. It’s been very transparent and open and we’re starting to see good results. So they’ve now generated almost 800 million at a 36% growth rate of annualized revenue. They’re as a service orders on a year over year basis are up over 100%. And they’re targeting a multi-year between FY 21 and FY 24 of 35 to 45% for their recurring revenue category. This is going to be really important. The company’s going to have to execute this, have to move into the multi-billions because we are seeing more competition rising up from the likes of Lenovo with TruScale, Dell Tech and their APEX service, Cisco Plus.

And then of course, all the cloud providers, AWS, Azure, Google, Oracle are all offering on-prem services. However, having said that, I do believe HPE is doing well. They’re finding really specific workloads with companies like SAP and Splunk that they’ve been able to tap into to gain differentiation, continue to strong growth for their markets, and serving their customers. So solid quarter for HPE. But of course, everyone would like to see it grow faster. Let’s move over now to the third and that’s going to be Splunk. Now Splunk is a company that I track pretty closely and Splunk’s had a really interesting couple of months. Kind of on an abrupt basis, Splunk CEO, Doug Merritt stepped down. That was after a long run. Doug is someone that I’ve spoken to many times, he’s been on my show. He’s been on Six Five, our event and in our summit he’s been a keynote.

And he is been a good leader. Someone that I really admire and he’s a fellow Austinite here, but you know what? Change happens, and so now Graham Smith, he’s taken the interim CEO and chair role at Splunk. And this all happened during this quarter. So let’s talk a little bit about what happened. Over the last couple years, Splunk is not a company that’s making profits yet. It’s growing fast. It’s been focused on fast growth and that’s been what I think the market wants to see. In this quarter it saw it’s cloud recurring revenue, which again, this is a company that pivoted from a license and prem model to a fully cloud and ARR model over the last year. It saw it’s cloud ARR jump 75% to over a billion dollars.

It’s net new cloud ARR grew 107% in the third quarter. It’s thinking that it’s going to be at about a 70% cloud mix in its Q4, which is coming up. And it believes that it’s cloud business is going to hit $2 billion in the next fiscal year. So while it’s definitely getting to that time where people are going, “Hey, when is Splunk going to start making money? What’s going on? It’s had a lot of changes at the leadership ranks. Doug had left, their CTO Tim Tully had left.” But in terms of its numbers, the company seems to be doing well. ARR growth across the board, cloud growth. Total revenue growth in this quarter was up about 20% to 665 million. And another area that I’ve been really watching is customer with large spend growth. And that means customers spending over a million dollars. The company has seen 270 customers in the cloud now that are spending more than a million.

That’s a 96% growth and 635 over all customers with ARR above a million that represented 43% growth. So Splunk doing pretty well, but the share price is not. And so that means the market’s still looking for something else. I think the changes in leader have probably been a big driver. Of course, like I said, the market volatility and some of the negative sentiments towards growth that has happened over the last month have all been factors in what’s driving Splunk down. But if you believe in the whole data to everything and the importance of data in enabling an enterprise to run and to be successful and to be secure and to manage operations on a global scale, Splunk is in a great spot when it comes to observability and that company has continued to perform, continued to grow. But it’s one of those ones I believe you’re going to have to be a little bit more patient with.

So let’s wrap this show up and let’s talk about Marvell. I wrote an op-ed piece on Market Watch, in my opinion column that said, “Marvell Technology breaks away from the pack, joining the list of quote unquote must own semiconductor stocks.” Earlier in the year, I looked at four semiconductor companies outside of the known entities that people should be looking at. I had picked Lattice Semiconductor. I picked Applied Materials. I had picked Micron and I had picked Marvell. Now I feel like I got it pretty good in my initial picks. Of course, Micron at about a 15% or so return has been my weak sauce in that group. And all the others have come in at over 70% at the time of this recording. And Marvell, after its earnings, after it blew the numbers out of the water, saw its stock absolutely jolt to in the 80% plus growth for the year.

This stock has been on an unbelievable run. It’s just doesn’t matter about supply constraints. Their demand is high. This is a company that’s in all of the right secular trends. While enterprise tech is not always sexy and does not always drive as much excitement and as much media coverage, what it does is it drives a huge channel of partners that can buy this stuff at scale. And you’ve got a company, Marvell, that’s in 5G, they’re in data center, they’re in enterprise and they’re in automotive. And all of those businesses are growing really well. And let me just give you a couple of numbers here. The company came out at $1.21 billion record revenue, and at 61% growth on a year over year basis, but it grew in all its categories. In the data center, which is 40% of the company’s revenue, it grew 109%.

Enterprise, 20% of the company’s revenue, grew 56%. Carrier, 18% of the company’s revenue, grew 28%. And in automotive, the company, it’s only 6% right now, but the ethernet connected vehicle is going to be a huge part of the autonomous opportunity. The one I talked about with Mobileye and Intel, and that grew by 114% on a year over year basis. So while I still believe some of those staple names, Nvidia, AMD, Intel, Qualcomm are very, very respectable. And of course, as I mentioned with Intel, that’s a company that’s fighting the good fight, but Marvell is now clearly on the same level in terms of requirement for both investors. And of course, companies that are building next generation technologies and collaborations to be paying attention to. They’re doing innovative stuff. They’ve made some great acquisitions. The Inphi acquisition brought its optical networking to the next level.

Innovium was a purchase that maybe wasn’t a everyone known name, but in terms of the company’s ability to deliver in cloud and hyperscale cloud, that has been a big acquisition that will continue to enable its long term growth. So my thesis, the company’s made the right bet. Matt Murphy, CEO, he’s been on this show as well. He was actually my first guest, which was pretty awesome. He took over a company in a delicate state and he absolutely has done all the right things. He moved them out of consumer. He moved them into enterprise. That pivot has paid off and the company is in the right spaces, on the right bets with the right total addressable markets. And I tend to believe that we are only actually in the beginning of a nice, long healthy run for Marvell.

And that’s a wrap for this week’s Making Markets.

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media 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. Read Full Bio