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 six handpicked topics for this week are:
- Qualcomm Snapdragon Summit
- AWS re:Invent AI
- AWS re:Invent Compute
- Quantinuum Company Announcement
- HPE Earnings Report
- Salesforce Earnings
For a deeper diver 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 do not ask that you treat us as such.
Daniel Newman: Hey everybody, welcome to another edition of The Six Five Podcast. Pat Moorhead joined me here, Daniel Newman, principal analyst, founding partner, Futurum Research in Kona, Hawaii. So if you noticed the wacky hats and the sunglasses, this is an on the road theme from The Six Five. So it’s a little bit later there because it’s afternoon here, and it means that you’re probably done working, but hopefully you are tuning in here with us. We are out here in Hawaii for the Snapdragon Tech Summit, not a bad place to have to go as an analyst to hear all about the advancements that are coming from Qualcomm. We’re going to talk about that here today.
We’re also going to be talking about AWS reinvent, where we both jaunted off to for about a day and a half before we ended up here in Hawaii before we head home tonight, and then we’ve got some big news coming out of Honeywell and CQC with the launch of their new firm Continuum, and we had earnings from HPE and Salesforce and we’re going to talk about all that today, Mr. Patrick Moorhead, before we dive into the show, before I give the old disclaimer, how you doing man, and can we lose these sunglasses?
Patrick Moorhead: Let me talk. My gosh, you’ve gone like a minute and no, it’s great to be here so I can take this hat and the sunglasses off. I’d much rather be on the beach doing this, but connectivity hasn’t been the greatest around here, so we’re going to have to do this here. No, actually, it’s the lighting and the ability to sit down, it’d be hard to do this on the beach, but maybe next time. No, it’s great to be here and let me see, it’s Thursday and I guess four hours, we can technically say three red eyes in four days.
Daniel Newman: Yeah, it’s a long road home, but I got to say there’s something about the air here, I do love it, and sorry, I didn’t let you talk I’ll dry up those tears later, buddy, but hey for everyone out there to listening to the show, we do appreciate our audience very much as you know, and maybe you haven’t, if you haven’t listened to us before Six Five podcast is all about six handpicked topics each week. Try to talk to each one about five minutes each we are terrible at keeping ourselves accountable to that, so sometimes it’s the six five, the six six, the six eight, usually not less than five, sometimes more than five, but either way, always packed with analysis, light on news.
Now, quick disclaimer, this show is for information and entertainment purposes only, and while we will be talking with and about publicly traded companies here on The Six Five, please not take anything that I say as investment nor anything that Mr. Patrick Moorhead says. With that in mind, great show, I already broke in the topics. Pat, we are here for the Qualcomm Tech Summit, Snapdragon Tech Summit. So it would only be fair if we kicked off the show with that being our first topic. So I’ve been talking a lot, your turn.
Patrick Moorhead: No, I appreciate that. This is the first time in I think two years that the company has had their summit live, and two years before that it was in Maui, and we’re here on the big island at Kona. So it’s a really nice, beautiful place, but very educational. So Qualcomm really had to do two things. I think on day one, they had to establish their play in premium Android smartphones, and then day two, the story was about how Qualcomm is leveraging all of their IP building blocks into growth areas like automobiles, XR, things like that.
I would say on day one, Daniel, I feel like I don’t see any reason why Qualcomm won’t dominate in premium Android smartphones in 2022, and I think if people are focusing on one CPU benchmark they’re missing the point completely, because what Qualcomm’s doing, I think I wouldn’t call it new, but there’s an invigoration here to really lean into the experiences, whether that’s camera, whether that’s gaming, whether that’s productivity, whether that’s connectivity and the applied use of AI. I think when it comes to the, there’s no doubt in my mind that it will be the highest featured, highest quality, if the OEMs fully take advantage of it. When it comes to AI, I believe that on a performance per watt and in even overall performance, it’ll be using all three of their AI accelerators, then Qualcomm will have the best performance. So think in connectivity with them raising the game with that monster upload speed. I think it was a 320 megabits per second upload speed.
Daniel Newman: Three and a half gigs, Pat.
Patrick Moorhead: Oh, sorry, sorry, three and a half gig really up leveled it. So I feel like they’re going to do really well, they’re going to continue to do well, and I think they made their case. I think for the PC market, I feel like this is an interim step in terms of what they’re doing. They brought out the G3x Gen1, and they also G3x Gen1 for handheld gaming, and then on the PC side they upped the performance of pretty much everything. The connectivity, the CPU, the GPU up to 60%, and I think that is a major move. Do I think that Qualcomm this year is going to go in and commander 10% of the notebook market? I don’t think so, and I don’t think that Qualcomm expects do this. I feel like this is the final preview before we get to the Nuvia based Silicon era.
Now, like the smartphone, I feel like, like the PC group, if they can fully leverage and partner with Microsoft to enable AI and Windows, it will have a much better showing out there. Daniel, I think I left you automotive gaming and XR and a lot of other stuff here.
Daniel Newman: Yeah. There’s a lot of header topics and segment topics that I could go into. To me, I wanted to go a little bit more philosophical. You and I like to operate at that altitude, and I really was coming away from this in the heels of investor day, on the heels of listening to now Cristiano and the leadership talk multiple times that it feels like the story and that narrative is becoming a bit more cemented as to how this company becomes a growth trajectory company here, and Snapchating is going to be key. First of all, brand is a very interesting bifurcation that’s going on at this current juncture. Snapdragon for a long time has sort of operated as a brand, but not really, and now the company has come out and very clearly crystallized the fact that Snapdragon will be the consumer brand.
So Qualcomm is a known entity in the enterprise, and it’s got a remarkable amount of business support licenses relationships, but when it comes to brand identity over the past half decade and beyond, the company has found itself in some hot water in numerous different stages, litigation with Apple, it’s had strong regulatory rulings that have plagued it, and one of the reasons I always thought the company was a little bit vulnerable even when Broadcom attempted a sneaky takeover of the company was that the brand identity was always a little bit light in terms of with consumers, with companies like Apple and AMD, and NVIDIA, have these really strong retail back support, and Snapdragon is in my eyes one of the most likely vehicles to creating a strong sentiment between the community of Android and premium tier mobile device users, and now XR users, automobile users, handheld gaming users, where they’re going to start to see that Snapdragon brand and that identity come up as something that they can fall in love with.
I know that sounds maybe a little bit idealistic, but I’m okay with that. I look at the way, and you know I always like you to jump little bit into equities, but I look at the way AMD and NVIDIA have been able to run up, and I put so much weight behind it to the fact that they have an investment community of passionate users of their technology that literally buy every dip, they are so supportive of the company and Qualcomm has a technology. These devices are so closely glued to our identities this day, that I really do believe that getting that brand right is a huge story that’s kind of being under told because so many people here are sort of your geeky testing numbers people.
By the way, that’s also not going to be driven entirely by that device, mobile device in your hand. I actually think automotive is an extremely interesting part of the company. You saw a long segment from GM CMO talking about their vehicle of the future, built on the digital chassis provided by Qualcomm. They recently made an announcement with BMW, which was a huge announcement for the company and basically having the components to do ADAS, infotainment, telematics at scale and give the building blocks, like you said, Pat to these OEMs to be able to compete in the future with the Teslas, Lucids, Rivians and these companies that are breaking through based upon building a car from the ground up as a network connected, intelligent edge device, which I hope Cristiano hears me say, because that is kind of the way he described it.
So, that for me, Snapdragon, it’s all about really breaking out the brand here, I think the company did a good job. The eight series, the consistency across the different products and segments is good. Alex Katouzia, as usual did a good job of kind of getting out there and working with his team, because he really leads this whole space. Of course, Cristiano visible and vibrant, which for a CEO now that he’s in that role, it’s good to see that he’s continuing to shake hands with everything from the insiders to the analyst, and he’s really making sure to listen to our feedback.
Patrick Moorhead: Yeah. That was pretty impressive that Cristiano participated in pretty much every event, and I really appreciate that for sure. Hey, the one thing I forgot to bring up that I want to bring up here is that it was a real epiphany for me, which was that Qualcomm has created strategically around them. If I look at the IP blocks that they have and the ancillary markets that they’re going after, like XR and like this new gaming vertical that they’ve gotten into with, with their new processor, Qualcomm’s the only company other than Apple, who is able to do this on the mobile side, on the auto side and pull this together right now.
By the moat, I mean that they’re leveraging core IP across all of their product segments and it makes it ultimately cheaper for them, and that’s why financially your net profit margins are in the 10s, Qualcomm talked in New York about being in the 20s, and there’s potential I think for these guys get in the 30s, but thanks for letting me the boomerang there, but I wanted to get that across.
Daniel Newman: Absolutely. No problem. Love it. All right. Let’s keep going. We’ve got a couple segments here. AWS reinvent warrants, more than one segment, so much going on Pat, and of course even doing two segments, we’re fairly going to scratch the surface. You and I did an awesome pod with Dave Brown, the VP over at AWS and I’ll let you kind of handle that one, but I’m going to start off here also talking about a IML because while we weren’t there for the keynote, there was a ton of announcements made and I’ll put a link in the show notes.
But I wrote a research note looking at what I call the six new reasons to adopt and use SageMaker. So one of the big things that I thought came out of this event was the company being much more compelling in terms of its SageMaker offering that they have. What’s called the studio notebook for greater collaboration across design, new machine learning compiler, making training more efficient, automatic compute, instant selection.
But just kind of a quick rundown, because I, I don’t want to do the news necessarily, but I just kind of want to talk about what’s going on. First of all, thematically, I think AWS recognizes the importance to make AWS much more available, democratizing it so that more people beyond your higher profile data scientists are able to benefit from AI and ML. For instance, one of the first big announcements was what they call Amazon SageMaker Canvas no code ML predictions. Basically again, democratizing, expanding access, giving business analysts, people in finance or marketing, operations, human resources, a visual interface that allows them to develop accurate ML predictions.
You’ve got what it’s called, SageMaker Ground Truth, it’s a managed data labeling service. They have their new studio, Universal Notebooks. This was a big one, and that’s basically a complete integrated development environment for ML, it’s a single environment. You can do data engineering, analytics, machine learning. So this will be very helpful for enabling, built in development environments for things like writing, monitoring, debugging.
So that’s another one. Then of course there was a handful of others. They had a SageMaker Training Compiler, SageMaker Inference Recommender, and then a serverless inference for ML models. There’s a lot, and I’m not going to run down all the news, like I said, you can read the piece. But the theme for me was all about the fact that Amazon and AWS understands the need to be able to bring a larger swath of its user base, especially that business community, those people in those roles, into its ML services with SageMaker, and that was really a big part of what was being delivered here. Thematically, with these capabilities, I think they’re going to create more inroads, and like I said, I think AWS has always had a very compelling offer, but they’re going to continue to push.
Pat, we always talk about that here in the show, innovation pushes competition, competition pushes innovation. It’s a big circle, but what they’re doing here is going to push Azure, it’s going to push Google Cloud, Oracle, Red Hat, IBM, HPE, even Alibaba, all of them are going to have to keep going and keep developing because essentially, SageMaker now continues to grow and with everything AWS is doing, over $16 billion in revenue a quarter, still keeping 30 plus percent growth, and some of their IL numbers are very impressive, 100 billion predictions a month, a million labeling tasks per day, and the company of course, as you’ve seen or heard has got a really significant customer list with everyone from, we talked about the BMW to the NFL using a SageMaker service to train ML models.
So a good set of announcements, very encouraging for the company. Again, AWS Reinvent was a really strong event. Pat, the only thing I wish was that you and I could have maybe spent a little more time there because, God one day just was not enough.
Patrick Moorhead: No, it really wasn’t, and I’m hoping that between Qualcomm and AWS next year they want to have overlapping conferences, because if I look back, I mean, this is Qualcomm’s most important conference and this is AWS’s most important conference, and it’d be great to holistically jump in to both. But let’s move on, if we can, to AWS Compute. As Daniel said, we had a chance to actually sit down with Dave Brown and have a great conversation with him. He runs all of EC2 for AWS, and as most analyst do, we also got pre-briefed well in advance of what it was coming down the pike, so we could answer the questions and have some intelligent conversation in forums like these, and I wrote an article on Forbes which hopefully you can check out.
But net-net, what Amazon did is they raised the game on Compute again, and plenty of harken back 10 years ago, where there were companies, Andrew Horowitz saying software is eating the world, and my stacking response was always, “Well, software has to run on something.” The reason why people thought that Silicon was getting commoditized was because the industry was allowing it to happen, and now you have companies like AWS and you have Apple who are strategically using Silicon and to their competitive advantage.
So AWS made a few announcements. First of all, they’re expanding Graviton2 workloads with better networking, better storage, took a really good evolution on that. Also, AWS announced it’s Graviton ready program, which is, enables software partners to offer certified solutions. Those solutions from ISVs, as opposed to being those applications that enterprises are building itself. They also announce Graviton3, which is a brand new SOC, and while Amazon didn’t say it’s using, I believe it’s using the new arm, Neoverse V1, and Graviton2 is positioned in having a 40% price performance improvement versus what was available from Intel. Graviton3, AWS’s promising that it goes even 25% higher compute performance compare the Graviton2, and that’s just for general compute. They’re doubling the size of the SIMV unit, which drives machine learning and things like cryptography and they’re adding bfloat16 which you might remember that Intel added that to the last generation of Xeon’s scalable processors.
It just doesn’t stop there, I mean, 50% increased memory bandwidth that helps all applications like databases that are very IO dependent and put a lot of information in memory. The other thing that the company announced, they gave a little bit more depth on Inferentia. Inferentia just keeps moving along like a train, they doubled the networking throughput to 800 gigabits per second, which is pretty incredible. So that gets you to petabyte scale type of clusters, which I thought was pretty cool.
On the training side, the company brought out Trinium based instances, which was you got sneak peek up last year, and right now NVIDIA dominates in all train. What AWS is saying is they have the fastest and the lowest cost of machine learning training in the cloud providing 40% lower price to train deep learning on the A100, which is the P4D on instances. I mean, if that isn’t huge, I don’t know what is. Now, there have been a lot of companies that have made claims that they do stuff better than NVIDIA when it comes to training and it didn’t necessarily make a dent in the market, will this? I mean, if it does it’s going to be absolutely unprecedented.
I think we’ve seen a few you chinks in the armor with [Abana] in certain training workloads, outperforming Intel. But if this happens, I think it could be a first. The final thing, we just don’t have enough time to talk through this stuff dude, is AWS introduced custom SSDs where they’re modifying the firmware to pretty much go a hell of a lot higher performance than standard off the shelf SSDs, and they added multiple instances to support that.
Daniel Newman: No, that’s a lot to cover there, and obviously we went from AI to ML, now across to the instances. Pat, you covered it really well. I will just add a little bit of sparkle and color here. AWS is doing some strategic things on many fronts very well. They’re building in-house silicon that continues to push the boundaries, and again, going back to my comments where I talked about competition, I feel the same way here. It’s very democratized. AWS has teams that are focused on working with Intel, focused on working with NVIDIA and AMD, and there’s certainly a ton of users on X86, but they’ve also made some tremendous investments in their arm team to build out custom capabilities, whether that’s Inferentia, Trinium, now Graviton3, they’re making it very digestible. Of course, at The Six Five Summit, we launched the Graviton challenge. I hope that we will have another Silicon based launch that we can do together at the next Six Five Summit, that’ll be in June. By the way, we have a date for that, but we’ll have to wait and hold out, we’ll share that with you a little bit later.
But Pat, I have to say we had some really great time with some of their key players on Dave Brown’s team. We talked to things, of course, we can’t talk about a lot of the specifics, but what I can walk away saying is the company is very steadfast on making sure they’re meeting the customer where the customer is. A diverse set of needs, a diverse set of giving flexibility. Of course, like any company that’s building something in house and then selling something that’s not built in house, they’re pushing the boundaries and creating a product that’s as competitive as possible, higher performance, lower power. That’s a big part of the Amazon narrative with carbon neutrality, so that’s going to be a sub theme of what’s going on here.
But Pat, overall, like I said, what a great set of announcements from the EC2 side, from Dave Brown, and of course I’ve got to recommend again, watch our pod, read Pat’s article, and of course I had an article, two talking a little bit about all these announcements. So I promise you if you read the two and watch that one you’ll understand entirely, because Dave brown did a great job breaking it down for us.
Pat, we got to keep moving here. Let’s talk about Quantinuum. Honeywell and CQC came together and essentially, Pat, they launched, and this wasn’t brand new, this was something we’d heard about a while ago, but the two companies came together and created basically a new entity. This entity is going to be backed by Honeywell, significant nine figure investment. Chairman of the board, Darius Adamczyk, but Elis Khan and Tony Uttley, the leaders of the two businesses are going to be leading this new company, Pat.
So this is the first announcement and you and I as advisors to Honeywell Quantum have been briefed on several things, but this is the first announcement in what I believe are going to be several announcements. So I had the chance to cover this, write about it. Paul Smith Goodson on your team wrote a really nice piece about this as well, Pat, and we’ll put the links there in the show notes, but really what this is, is a moment as I see it where Quantum is once again, waving its hand and saying, “Hey, we are viable to the market and this isn’t something that’s a 10 and 20 and 30 years out, but this is something that the market and users are going to start to benefit from today.”
Now this announcement of Quantinuum is really more about creating the structure of this new entity, it’s introducing this full stack platform, somewhat agnostic, Pat, platform. First of all, what was announced was that the company is going to open source development. So they’re going to go to a software development stack that enables not only for software to be built to be used on Honeywell, but to be used on IBM quantum machines and other machines. So that’s super interesting, and there’s a little leak out there that the Quantinuum is going to be offering one of the first softwares that can be subscription, like as a service delivered for security.
So they’re actually coming out to market and kind of saying, “Hey, this is going to be a monetizable quantum company that can drive real revenue, real service that could be utilized today and deliver something that traditional classical computing cannot do on its own.” Pat, I’m going to make one prognostication, this company I believe will go public. It will happen fairly quickly, I could see a spec possibly direct listing, more likely a spec, and it’s going to create another vehicle of investment for people who want to get in on quantum.
Now, there are a few out there, I’ve seen some of the stuff you’ve covered on like INQ who’s been investible went public recently. But what I kind of like here is that the big companies like Honeywell, Google, IBM, you couldn’t invest in quantum. You had to invest in this whole conglomerate, and quantum was just a small, tiny fraction of revenue for them. This is going to give people who are bullish on quantum something, an avenue to look at with some real hopeful for revenue projections and business, and of course, Pat we’ve been close to them for a while. So that’s kind of was my take on the Quantinuum news.
Patrick Moorhead: Great analysis, Daniel, and the big things that came to mind for me were first off, I like the full stack play. I like the software and the hardware, and as we can see, there are certain companies that sometimes having the piece parts is good for focus and other times having a full stack, having all the parts come together is better for others, and this is the first full stack quantum company and I’m pretty excited about it. What is a full stack company? Well, it’s Apple, right? AWS is a full stack company when you look at their own silicon. They do it all, all the way from the application to the hardware, and I think that’s pretty unique.
The other thing is this security capability to me and I got to watch what I say, I believe it’s the first true instantiation of a security service that uses quantum and is better on quantum than using a classical computer. I’ve got Paul Smith Goodson, our quantum guru doing the double and triple click on that, but I hope to have a lot more of that later. The other thing is don’t look at this as a winner take all market. There are some things that are really positive that IBM is doing, that INQ is doing that Quantinuum, and even Adam Computing, they all have a slightly different way of addressing this market. But I think that first of all, we’re early, we’re not as early as the pioneers who have been working on this for the pre 10 years, like Honeywell and IBM, but there’s still a lot of room for a lot of people who are jocking for position right now.
Again, I’ll get back to what I like about this, I really appreciate the full stackness of this.
Daniel Newman: Everybody loves some full stackness. So with that, this has been another week that was chuck full of earnings, and of course, Pat, when you’re on the road, you’re in Hawaii, we’re basically waking up at 6:00 AM and the market’s been open half a day. By the time you’re eating breakfast, the market is closing. I mean, it’s such a mess when you’re trying to cover this stuff, but we just had a ton of companies. I had a ton of advisory clients for Salesforce, C3, HPE, Marvell, all reported this week, several others and the market was also crazy because Omicron, which we didn’t really talk about. We don’t try to break the science down, we’ll get back to you on what that’s going to mean for tech at some point, but we need a little more time on that one.
Of course inflation’s crazy, joblessness went up this week. So a lot of market data stuff happening, but earnings have remained pretty good. So I was thinking maybe we could wrap up the show, Pat, by talking about a couple of these earnings reports. You and I like to do the dive there, and as we always remind people, we are not equities analysts, we’re not giving financial advice. What we do like to do is look at this as sort of a moment of truth for these companies where these CEOs are held to a very high standard to reveal the performance and how their strategies are working.
So when we’re here at like a tech summit for Snapdragon, we hear a lot of great architecture, but when the earnings come out and we see the numbers for mobile, or you see the numbers for automotive, that’s when you see a Snapdragon Ride really selling. So I’d just like to make that reminder because we do spend a decent amount of time. Now, Pat, I’m going to give you the right of first refusal.
Patrick Moorhead: Sure. No, I appreciate that. So I guess really what I want to really take the macro level here and I think HPE is delivering on per promises. You might not like their strategy. You might not like their promises, but they’re absolutely delivering on that single digit revenue growth and their strategy of segmenting growth businesses, core businesses as a service makes sense to me. Because when you look at the growth in obviously what they consider their growth business, which is intelligent edge, you’ve got double digit growth, and that’s incredible. When you look at as a service, I mean, as a service orders up 61% in 2021, as a service ARR up 36%. Cash management, just core promises that they make, they are delivering on the promise, and I think what has to be frustrating for the folks at HPE is the fact that okay, they make promises and there’s a certain price target, they hit those promises and then they get beaten up out there in the marketplace.
Now, I totally understand this quarter when you don’t give a very good outlook, regardless of the reason, even if it’s supply chain, you’re going to get taken to task. I think the order growth rate, I think it was around 16%, I think that was a plus for the quarter. But again, the stock price is based on the feature cash flows item and this little blip in the next quarter and they got hammered on, which is too bad because strategically they’re doing exactly what they promised, and I don’t like to see that, I’ll be honest.
Daniel Newman: Yeah. It’s a difficult situation for the company, they’ve been hard in a pivot now for multiple years and that pivot is going to take a few more years. But I think at the same time, it was a necessary change and at some point the market will appreciate the efforts of the company. I largely turned my attention to the recurring revenue numbers in GreenLake for the business. It’s not because the other parts of the business aren’t important, it’s because long and short the market doesn’t value capital equipment in technology very highly, but they value recurring revenue extremely highly. The multiples are two, five, 10, and sometimes more times both trailing and forward guidance, depending on the exact company that you’re looking at.
The company made this commitment by the end of next year, to be everything as a service. It’s trending towards 800 million a year in recurring revenue, it grew with 36%. They’re targeting on a category basis to, to hit 35 to 45. So they’re meeting their targets, Pat, as you said, they’re hitting those kind of baseline numbers. I think it could benefit by of course, growing faster. I think they’re going to have to continue to expand their services, but at the same time, I look at the offering, I look at GreenLake Central, I look at the fact that when you compare and contrast, because I will not count out Dell, I will not count out Cisco. Lenovo has been extraordinarily successful in there, but in terms of having a very complete well thought out offering, that’s been built from the ground up to truly kind of support the enterprise and the complexities of hybrid and multi-cloud, GreenLake Central and a number of the different offerings that have come from the company have been really well designed.
They’ve made some good wins. They’ve got some good partnerships with companies like SAP and Splunk and overall Pat, I feel like it doesn’t really what the company has come forward with, the market’s just a little bit bearish on this capital equipment group. I think you look at Cisco and Dell, just as a quick contrast, their growth was only slightly better and it was better, and you got to call out what is, is what is. But in a lot of cases like Dell has had an extraordinary result in PCs that has really has backed it’s bigger growth number, its last quarter was amazing, but I mean they have like 30 plus percent growth in PC. HPE doesn’t have that luxury. Even Cisco has that massive service on that’s attached to all their hardware, that’s always been huge, and then they got WebEx too, which is another big subscription revenue that hit that secular trend of collaboration.
HPE was one of those businesses that it’s most of its subset, besides maybe Aruba was really hurt during the pandemic by the lack of on-prem infrastructure deployments. So building out this hybrid plan, building out a consumption model, getting it to market and scaling it is not an easy task. But I do feel like you said, the company has been meeting its promises, it’s been meeting its growth rates, guidance, unfortunately right now is a trigger, and when your guidance isn’t good, it can lead to a massive sell off. Even when your guidance is okay, it can lead to a pretty big sell off too which by the way is exactly what happened to Salesforce which, Pat, what a segue, right? It was almost like I did that on purpose.
Patrick Moorhead: That was good, I thought it was good.
Daniel Newman: Yeah. Thanks man. I practiced that one. I was in the room for about an hour before we started recording and I was like, “Oh, I’m going to practice some transitions.” I’m going to do this. No, I’m just kidding. Guys, whatever you’re seeing out here, this is all natural talent, there is no prep here on this podcast, or is there? I don’t know, I’m not going to tell.
Patrick Moorhead: Is it Friday already?
Daniel Newman: It’s got to be somewhere. I think it is in Asia. Maybe not though because in Hawaii here it may still be close to the end of the day. So listen, Salesforce had reported its fiscal third quarter and it was kind of an interesting one, Pat. The company had a strong performance, it was up 27% year on year and beat its earnings, it beat revenue, although slightly, and in terms of guidance, it came right in on par. Then what I saw was something like a 10% sell off. It was absolutely crazy because I couldn’t figure out why. Now, here’s one reason it could possibly be why, the company did once again, announce a co CEO arrangement.
So Brett Taylor who had been president of the company for a number of years, came in from Quip, very, very capable guy, and in many ways has been kind of doing the CEO gig in a lot of parts of it, much to the way that Keith Block did that role when there was an original co CEO arrangement. He’s been given the designation now as O CEO. I don’t want to spend the whole time on that, but I just want to make a couple of comments on it. I do believe this was long time coming. I prognosticate this in articles, in Business Insider and different market watch pieces that he would soon be a CEO because Mark Minoff has not been necessarily secretive about the fact that his ambitions are beyond just running and acting as CEO, chairman of Salesforce.
Also, I believe that they were much more meticulous and thoughtful this time about the appointment. They had him really work in that role as president doing a lot of those co CEO, CEO day to day activities because they knew that this day was coming. I have more optimism about this particular appointment than I did about Keith Block, and I have made that on the record, we’ll see if I get that one right. Now, going back to earnings, Pat, this quarter was better growth than the last two, 27% year on year across the portfolio. That’s better than the 23 that it’s had. An interesting development in the company, they broke out and they further disaggregated their revenue. They used to be sales service platform and marketing, they actually out data now. So data includes MuleSoft and Tableau, which is about a 20% growth, just short of a billion dollars this quarter in revenue.
But the platform continues to be the story, Hyperforce and the idea of Salesforce in giving autonomy to enterprises to put Salesforce into the hybrid cloud with their Hyperforce platform and platform is the name of the game. Now growth across the board, sales 17%, service 20%, marketing 25%, but platform was 51%. Now, it’s not only about hybrid cloud, it’s also about Slack and they did give a Slack number. This particular quarter, I think it was in the 200s of millions. I don’t have the number right in front of me, if I can pull that up momentarily, I will share it.
But it was a very strong overall number for the quarter for Slack. But Slack, Pat, and I’m going to end here because there’s a lot of different things I could talk about, but the thing about slack that I want to talk about is what Benioff has been referring to, and he did this at Dreamforce and that is the digital headquarters, digital HQ. Look, this is a bit of a two you and a half horse race. It’s Microsoft Teams. It’s Salesforce, that’s the two, and then you’ve got WebEx and Zoom coming in behind with platforms that certainly are extensible, but don’t necessarily hit on the application, the business application side, which I think is so important for what’s becoming this digital headquarters. What’s the digital headquarters? Some people we might call it the digital operating system for work, but it’s when you take your applications, your platforms, you take your collaboration, asynchronous and synchronous and you basically make it the epicenter email, the epicenter of the way people work.
So in the past, a lot of us would come into work, we open our email or you come into work and you open your CRM, in the future, we’re going to open Teams, we’re going to open Slack and we are going to function and operate. Whether that’s updating a CRM record, talking to a customer, delivering customer service, updating a chart or a graph, it’s going to be happening inside of these digital operating systems. Now, Benioff calls it the digital headquarters. Now the battle, Pat, is going to be won on basically a building block approach versus a fully vertically integrated approach. Salesforce is going in with Slack and its applications for business productivity, but it doesn’t have a very big presence in things like office productivity word. It doesn’t have a big presence in a synchronous video like a Teams or a Zoom does, whereas obviously Microsoft has it all.
But in the future, I do believe this is one of the biggest bets for the company, it’s going to be platform and Slack wasn’t paid 27 billion for, for a company that doesn’t even do a billion in revenue, it was paid that much for, because that was going to be the underpinnings of building what Benioff is calling the digital headquarters. It’s going to be tough to win, it’s going to be competitive. Microsoft Teams is absolute a monster. I don’t even know what else to call it, 250 million monthly users now of Teams, but I do believe Slack is beloved, a lot like Zoom within the users that do use it, and I do believe if Salesforce can get it right, they do offer the opportunity to be the most prolific competitor to Teams in this space for the future digital operating system in a world of hybrid work.
Patrick Moorhead: Man, did we look at the same earnings report from them? I’m reading a headline from CNBC that says Salesforce stock has worse days since beginning of pandemic after disappointing earnings forecast. But it sounds like you got like a rosy picture of these guys. Am I not looking at the right thing? Now, on the other side, I look at BBB, in the last previous four quarters they beat like massive on EPS and they beat really well-
Daniel Newman: They beat EPS by 35 cents a share, Pat. It was 92 cents forecast, a dollar 27 delivered. I don’t know that that’s bad, I’ve said that some of these companies, I’ve even said Salesforce, but they maybe don’t guide high enough, and they’ve set up a world where anything less than a monumental beat is a loss, but at the same time, that’s a 30 plus cent per share beat. I don’t know. It’s not bad.
Patrick Moorhead: Yeah, and there’s stocks down 12% the past month and 9% the past five days. I know this isn’t the pick on Daniel, but I think you research them a lot more than I do. My final question for you is, is it safe to say that the integration of things like MuleSoft and Slack, is it safe to say, I had a lot of doubts about their potential non-internal innovation and acquisition innovation, but I’m curious if this is the point where we can say that these integrations have been successful?
Daniel Newman: I think that’s a great question, and first of all as someone who doesn’t invest in any company that he advises, but does invest widely in the market and invest significantly and looks at a lot of earnings reports. It’s problematic in the fact that we’ve hit a point where beating and raising no longer actually satisfies the street. Now having said that, look, they only beat by a little bit and this company has been a company that’s gotten the market very used to and acquainted to beating by a lot. So if you want to look at a negative, that’s a negative, we’ve got a lot of interesting macroeconomic factors.
Now, fortunately, a lot of them don’t actually plague a company like Salesforce that’s all SaaS, but they’re heading to a point where they’ve grown a lot and they’re growing at a rate that I think Benioff is trying to do something like 35 billion in revenue by 2025, and he’s going to have to keep growing at least this fast to get there. Pat, you and I both challenge the inorganic innovation and I’m not going to step back and say that inorganic innovation is always the right answer. Tableau, you look at growth, I think the growth has been steady and solid. Is it easy to say that it’s grown faster because of an acquisition? That’s what you would want to be able to say. It’s not entirely clear. It’s still a very good platform, that’s heavily used by enterprises that are trying to get business visualization, and I don’t think the growth has slowed, it hasn’t harmed its growth, notably.
Now Slack, Pat, I believe absolutely had to be acquired. I think that company was in a lot of trouble. You and I were both outspoken about it, it had very little growth. I mean, in the beginning of the pandemic, when they were an independent company and Teams and WebEx and Zoom were growing 300%, 400%, they were growing like 30. So they had been saturated and they needed to be integrated into a platform that was more extensible like a Teams. Salesforce was probably, it could be maybe SAP or Oracle could have maybe looked at them, but Salesforce, because it’s kind of pure SaaS, built that way probably made the most sense from the ground up, and they paid a lot for that acquisition.
Patrick Moorhead: I am shocked, and I always like to say, okay, is something a business or is something a feature? Right. Look at the storage companies. They all got pretty much blown away unless they had something to tie it to like a OneDrive. I know Box is very differentiated. They’re intelligent and secure storage and document management, but yeah, I think Slack got a great deal. I like to look at acquisitions that you can either prove that it grew faster than it would’ve been as a standalone business or there would’ve been some additive nature to other businesses and other sales that you can get. Great analysis, buddy.
Daniel Newman: Yeah. Well, no, and you know what, by the way it’s a little bit of a Six Five first, it’s okay for us to challenge each other. We do tend to share a lot of a opinion and sentiment and sort of like and dislike similar things, but I like actually having these debates, I think it may even make the show more watchable.
Patrick Moorhead: Yeah. Listen, I just don’t cover them as closely as you do, and I genuinely have questions.
Daniel Newman: No, it’s great. We can keep talking about it everybody, but you know what? From Hawaii, Pat, you know what? Good news, we actually got the network to hang on.
Patrick Moorhead: I’m still surprised. By the way, for the record, just to let everybody know, we’re both tethering to our hotspots. I’m tethering off of AT&T right now. What about you, Daniel?
Daniel Newman: I’m on 5G T-Mobile and better than the Wi-Fi in terms of dependability and drop, we were able to do this whole show on 5G connections, getting well over 100 down and 30 up, which was really more important. I think you were getting like 40 on AT&T and it held on, all but one quick glitch and hopefully everybody enjoyed that. But you know what everybody out there, I just want to thank you for tuning in, it is Thursday, Pat and I are red eyeing it back. We thought about doing our normal Friday thing, and then we thought, God, we’re going to just be a mess. We’re going to be tired and we’re going to be blurry eyed, and we wanted to make sure we always bring our best to you.
So great show Qualcomm, AWS, Quantinuum, HPE, Salesforce, we covered it all. Hit that subscribe button, send that good feedback to me, bad feedback to Pat Moorhead, always tune in, subscribe to us. We appreciate you our audience, but we got to go, we’ll see you later. Bye.
Patrick Moorhead: Talk to you next week.