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:
- Microsoft Acquiring Activision
- Dell Tech Updates APEX
- Intel Announces Plan to Build Chip Manufacturing Complex in Ohio
- Luminar and Mercedes-Benz Team Up
- The 5G C Band Debacle
- SAP Pre-reports with Big Cloud Gains
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.
Transcript:
Daniel Newman: Hey everybody. Welcome back to another episode of the Six Five Podcast. I’m your host today, Daniel Newman, playing the host role, joined by my always esteemed, super smart, well-dressed co-host, Mr. Patrick Moorhead. We’re back. We’re back in the swing of things. Last week, we both looked a little tired, but we weren’t that tired. We just got a little out of practice. Now we’re back and we’re back in practice, a few weeks back from the holiday. Multiple shows. CES just got back from NRF and another big week in tech. Patrick?
Patrick Moorhead: Great to see you. I’m all dressed up. It’s Friday, 27 degrees here in Austin. But it’s going to get back to 55. Yeah, I’m an old guy. I talk about the weather. But I walk to work in it.
Daniel Newman: Don’t talk about the weather.
Patrick Moorhead: You’re right. We were a little bit off last week. I am so caffeinated right now and energetic, watching equities implode, crypto implode, value of homes still rising. Austin saw a 30 to 40% appreciation, and I’ll just grasp onto that. No, really the great part is, is that being an industry analyst, you’re not tied to the stock market. You’re looking at the long-term view of it. In this show, it’s really about what happened during the week, why it matters, and what’s going to happen in the future.
Daniel Newman: Oh, absolutely.
Patrick Moorhead: If you haven’t tuned in before, we cover six topics, five minutes each. We talk a little bit around that. We go around 40 minutes, so I hope you like the show. We’re also going to be talking about publicly traded companies. Stocks are declining rapidly as we speak. But don’t take any of this as investment advice because this show is for informational and mostly entertainment purposes.
Daniel Newman: Hey, who’s driving? You driving? I’m driving.
Patrick Moorhead: We go back and forth. No hard lines.
Daniel Newman: You know the show. All right. Yeah. Thanks for throwing out that good old disclaimer, Mr. Moorhead. We’ve got a nice slate of topics this week. In fact, we’ve had an evolutionary slate. We’re going to talk about a few things that we ended up wiping off the slate because a few things popped up. Big acquisition this week, one of the more bullish sentiment feelings that I’ve had at least around, Microsoft and Activision.
But we also have Dell. We have Intel. We have Luminar. We have a little bit of an update on this whole FAA 5G craze. And then, of course, SAP. Let’s get through these. Let’s hit them all right now, Mr. Moorhead, and I’ll start off here talking a little bit about probably you could say the biggest story of the week. That would be that Microsoft announced that it was going to spend 68.7 billion to acquire Activision Blizzard.
This is a mega huge gaming franchise… I’m not a super gamer, by any means, but just looking at what’s going on here, you’re talking about an acquisition of a company that’s going to give Microsoft more than 400 million monthly active users that play their games. What would you say their biggest title is, Pat?
Patrick Moorhead: If I judge it based on my son, Pico, economically, it’s Call of Duty, head and shoulders above on the revenue side. I mean, who doesn’t appreciate the God of War, and that’s exactly what it is. Whether it’s World War II, they do futuristic war and war everywhere all day long. My son is not a huge Call of Duty player. Gosh, he was ranked top 500 in Overwatch when it came out. We’ve attended multiple Activision Blizzard events the two of us. World of Warcraft, huge, iconic. StarCraft. I mean, listen, it’s a super interesting acquisition for sure.
Daniel Newman: Yeah. It’s definitely a big one. But it’s also interesting on a few other fronts, Pat. You and I can’t help but talk about the market and getting our faces ripped off. It doesn’t really matter anymore whether you’re a 401k holder, a crypto holder. Hopefully, if you’re well diversified in something pretty long term, you’re not getting too hammered. But if you’re in anything risky right now, you’ve probably seen anywhere from a 40 to 70% pullback.
Microsoft largely has been able to be steady. I mean, it’s fallen maybe about 10%, which is nothing compared to most of the names right now. But making a 68.7 billion all-cash deal right now when the market’s pretty turbulent, not to mention buying a company that’s under, I would say, a little bit of scrutiny based upon on a few recent culture issues that have gone within Activision Blizzard, in my opinion, showed an extraordinarily bullish move by Microsoft, which, if this deal gets done…
Antitrust is another area to speak about, but if this deal gets done, Microsoft will become, I believe, the largest gaming company in the United States, and I think the third largest in the world. But could obviously very quickly grow and surpass the others. I think it’s Tencent and Sony are one and two right now today. But they would quickly become competitive to surpass that.
The cultural thing is going to be interesting. They’ve made a big commitment to do better. I think of Microsoft, Pat, as a company that does extraordinary diligence in any acquisition they’re going to make. I just do not see them having made this if they felt that the cultural issues would not be repairable. I made those comments to a number of media sources. I stand by that.
I actually think, Pat, here’s the thing on the antitrust, I just put this out there, it’s not that this doesn’t require some scrutiny. It does. It’s too big of a deal not to look at. But it’s so not the biggest fish to fry right now. The competitors in gaming, whether that be NVIDIA and GeForce, whether that be Google and Stadia, whether that… They have big competition, Amazon. You’ve still got the whole Twitch world.
Of course, just like I said, you have Sony. You have Tencent. You have a lot of big companies that can compete in gaming. There’s still Electronic Arts and all these other companies that are out there. I just don’t see it as being anti-competitive off the bat, especially if you compare it to things like the App Store, which still hasn’t been dealt with. And even after the most recent ruling, got an injunction and therefore it’s business as usual for Apple. So it will get scrutinized.
I see it going through because also, Pat, I think it’s fair to say Microsoft has largely gone under the radar on all the antitrust stuff. I don’t see that changing here. [inaudible] has bigger, bigger fish to fry. Said it in writing, saying it again. Don’t know what you think on that.
Patrick Moorhead: Could take. As usual, you’re on top of all of the antitrust stuff because it’s just-
Daniel Newman: I like that stuff. Interesting.
Patrick Moorhead: You know what? I like it too, if it weren’t for that it has to do with government.
Daniel Newman: Yeah, yeah, yeah. Well, I mean, the whole point is I tend to like that… Try to think about what our government can try to not screw up, and hopefully they don’t screw this up. If the big companies are no longer allowed to buy the littler companies, you’ve created a big rift in a massive ecosystem. That’s what they’re built to do. And so, yes, we need to keep it competitive. Yes, we need to regulate, but not in a lot of the ways that we’re trying.
Not very effective. Shows a lot of disconnect. Don’t want to go down that path right now because I’m going to sound bitter and I don’t mean to sound bitter. Let’s talk about Dell, Pat. Let’s talk about Dell Technologies.
Patrick Moorhead: All right. If you don’t want to give me a chance to talk-
Daniel Newman: Oh, you want a chance? No, no. Let’s go. Rock and roll.
Patrick Moorhead: All right, man. All right.
Daniel Newman: Floor is yours.
Patrick Moorhead: Yeah. I wanted to shed a little bit of history on this because I think it’s interesting. When they came in, the odds on discussion was that he was going to ax all gaming. If you remember, Apple came in not only dominating smartphones, but app stores and content distribution through their app store. Then there’s the iPad. If you remember, Microsoft had a bunch of missteps in smartphones. They had two big missteps there.
Windows 8 was essentially a disaster, and Windows 8 was supposed to be the operating system that gave iOS a run for its money. Short, it didn’t. It couldn’t get application developers to come in and make tablet applications for Windows. It was all focused on enterprise. Anything that had a consumer hint to it. Office 365 just came on here, so the going big on gaming is a big deal.
There haven’t been rumors. I think once Microsoft found a way to make money off PaaS, gaming services, because they are the platform for multiple games out there. They convinced themselves that this was a… It was an enterprise play. But they also then realized, hey, we might not be good at community, like a Facebook and a Twitter, but we’re really good at gaining community. So I think it was an interesting move. This is an exclamation point that gaming is big and big for Microsoft.
If I look at, I hate to use this term, the metaverse, I could have seen potentially a play where Apple might have wanted to buy Activision Blizzard because Apple is incredibly weak in gaming market. Their max don’t even play the catalog of the top games out there. And Apple has an aspiration to own the metaverse. I could have potentially seen this as a defensive move, but what that said, if the deal goes through, absolutely you’re going to see these Activision titles all over the metaverse everywhere out there.
My final commentary is around the strategy and the timing of Microsoft. I mean, not that I’ve been binge watching Succession, Daniel, but I have been binge watching Succession. And if you recall, they got a hostile takeover based on what Waystar was doing in their cruise line division. A lot of it had to do with the sexual issues. Activision, what’s going on there? The executives are under fire for sexual harassment. So I think Microsoft saw that, probably talked to some of the boards of directors, in Succession style, and here we are.
Daniel Newman: Yeah. Absolutely. Real world is the big difference, but of course that was based loosely on some things that I think some people thought might have happened. But we sure do become committed to our shows, don’t we? It’s unbelievable how that happens. All right. Big topic. Probably the big story of the week. But, Pat, let’s keep moving because that’s what we do here. We do the 620 and we only have 35 minutes to get through the rest of our topics. Dell Tech made some updates to APEX and making a big announcement of some multi-cloud related services.
Patrick Moorhead: Yeah. X as a service is huge. We’re not in a world in public cloud only. We’re in a world of hybrid and more than likely multi-cloud. HPE got the jump on getting out there, and Dell has a much larger property X and service called APEX. What I mean by larger is that it not only includes enterprise and data center, but it also includes PCs. So the estate is larger.
This week, again, we don’t cover the news. You can read the news, but have to talk through what they did to give you context, they made four major announcements. Actually six. First of all, new multi-cloud data services, new backup services, updated data storage services, and updated VMware cloud services. They also put out two new DevOps platforms with Amazon and also with SUSE Rancher, and finally project Alpine.
Whenever you hear a project from either Dell or from VMware, it’s still in the ovens being worked on. They’re bringing essentially their own IP on project Alpine for block and file storage. They’re bringing that IP to AWS, Azure, and GCP. You can read the details. I’m going to do a writeup. Daniel, you did a writeup. But net net, for me, this is the next step. Dell Tech is playing a little bit of perceptual catch-up in relation to HPE right now.
They’re prioritizing areas in their core strengths and defensive moves in storage, backup, and data protection. Compute’s moving along, as I would expect. DevOps, to me, looked better than expected. The long-term game, hybrid, multi-cloud. HPE might have gotten the first jump, but this is a decade long transition.
Daniel Newman: Yeah. We expected Dell to step up and be a significant player here. You are right. The GreenLake move definitely was a first mover. But we’ve seen all the players, Cisco+, Lenovo TruScale, and Dell, many of the bigger on-prem IT OEMs, all considerably participating and understanding the importance, able to offer on-prem subscription cloud type services. It’s ironical, Pat, on-prem cloud.
Look, they’ve got the right partnerships. They’re partnering with SUSE, VxRail. They’re partnering with Microsoft, AKS, Google GKE, Amazon EKS. I love all the letters. But the point is, is that they are tied to all the letters and are basically building something that’s going to take all these prem workloads, 70 to 80% of what’s out there today, and allow companies to connect them.
The services are still somewhat sparse. We’ve got a lot of other types of services, data services, compute services, networking services, edge services, that some of the others are already putting into market. But I think Dell is comfortable. They’re comfortable that they’re making strides, making steps. They’re focusing on their giant customer base. They’re focusing on a small number of regions where they have a lot of density and they feel they can immediately make impact. I think we’ll be getting an update in the next six to 12 months on how this is really going.
I don’t think it’s going to happen immediately because this is long term. But overall, Pat, I think it’s encouraging motion for the company and they keep pressing on. So let’s get on. We made a little time up there. All right. You want to wing back here?
Patrick Moorhead: No, no, no, no, no. We’re all good. I just wanted to show this holistically, what APEX is all about, and some of the updates. It’s very hard for me to say, in reality, one vendor is ahead of the other. Therefore, I default, Daniel. I mean, I can go through and say, hey, which data storage services is more competitive across the vendors, but it’s really hard holistically, and until I start seeing some monster numbers, growth numbers. Let’s not forget AWS is growing, what, 40, 50%. So is Azure. Sorry, AWS is 30%. Azure and GCP are 40, 50. Until we start seeing big numbers and growth numbers like that, it’s hard for me to even say that this thing is a freight train. Sorry for the double back there.
Daniel Newman: No, it’s okay. It’s okay. I mean, we’re seeing big growth, but it’s still growth on small numbers. And so, we need those numbers to get a little bit bigger, density and more customer cases. But I think these things are going to play out, but the competition’s coming from all sides. It’s coming from the public clouds and it’s going to come from them.
Hey, Pat, so this morning, Mr. Pat Gelsinger jumped onto CNBC. There were some rumblings of this throughout the week, but that at Intel had made the commitment to build its next super leading edge fab in Ohio. That was some really big news. I believe it’s a hundred billion mega fab, is what they’re saying. It’d be the world’s largest chip plant is what Gelsinger said.
I mean, obviously, Pat, let’s just talk about this in the big picture. Over the last two years, we’ve heard endlessly about the supply chain shortage. Now this was not strictly a shortage based upon failed supply chain efforts and endeavors and management and offshoring. It also had to do with unprecedented demand that was brought on by a combination of COVID and web evolution, cloud computing, futuristic vehicles that are all using more and more semiconductors. And so, we say semiconductors elite the world.
This is a true story. We did not make it up. The growth is real. The PCs are still humming. Mobile phones are humming, automobiles, but everything that needs chips. We saw issues on the leading and the lagging edge. So that was one storyline. We also saw this shortage could arguably be caused by the fact that we had moved from about 37% of chip production here in the United States to around 12%. As that number came to fruition, we realized that maybe we had a little bit of problem that we moved too much offshore too fast.
As everyone from the Biden administration, to leaders in the semiconductor space around the world were evaluating the circumstances and the situation, everyone said repatriation is going to be the key. TSM’s building fabs in Arizona, as is Intel. You’ve got Samsung building fabs, Pat, right outside our beautiful hometown here in Austin. Now Intel’s going to continue to up the ante. It’s going to spend more money and build more fabs in Ohio, which is very interesting. A job creator, a hopeful improvement of resiliency in the supply chain. A big investment and expense desire to compete.
Intel’s been a bit under fire. It’s done a little bit more work with fabless, but also people questioning its next technology, will it be able to catch up on process, with TSM and all the fabless, Qualcomm, AMD? Even Tesla and Apple, all of which building on fabless. And so, there’s a lot of statistics and numbers coming together here. But I think Intel has been very committed, it’s IDF strategy, it’s founder strategy, it’s IDM strategy, being a company that’s not only designing, but also manufacturing.
Full stack has been very important to Intel and has been very important to Pat’s narrative coming into market. I will say, my immediate take is interesting destination. Want to see all the details from a standpoint of what tax breaks, benefits? What was the final selection? It seems interesting that Ohio was the final selection, but it’s also good to see it distributed across the US because much of it has been here in this South and the Southwest, Pat. But it’s good news for America.
Patrick Moorhead: Wow.
Daniel Newman: That was only like two minutes.
Patrick Moorhead: No, solid ending. Good for America. No, that’s exciting. Listen, two fabs, both in Ohio. $20 billion, big investment. I grew up in Ohio, Daniel, and the region was decimated by a loss of jobs in the ’70s and ’80s, automotive, steel, overall manufacturing, heck, tires. Believe it or not, a little bit over a hundred years ago, Ohio used to be the tech epicenter of the United States. Sorry, not a hundred years ago. Yeah, yeah. A hundred years ago, when Wright brothers, Thomas Edison, heart transplants, believe it or not, ball bearings was a huge mechanical… NCR.
NCR, my first employer in Ohio, spawned Thomas Watson. In fact, the word firing comes from when Thomas Watson left NCR. They had pushed his desk out the window and set it on fire for all the employees to see what happens to employees that leave NCR. But that’s a long time ago. Now it is one of the fentanyl capitals of the world. Heroin addiction is high. But back to the show. I left there in 1995 and never looked back. Why? No tech jobs. I mean, the weather sucked, but no tech jobs.
My biggest question here, Daniel, is you don’t just go and build a factory, okay? This is not building a factory for the pillow guy, okay? This requires a very high propensity of PhDs. It takes about 500 very unique suppliers that are going to have to set up shop there. The reason that people re-up in fabs in Arizona, and New York, and Austin is because all that stuff is set up. The ecosystem is there. There is not an ecosystem in Ohio for this. So maybe, just maybe.
But the last time I did a one-on-one with Pat Gelsinger, he was in Washington DC, and I’m hearing Pat is spending a lot of time there. It would be interesting if you look at Ohio is typically a pivot state for the presidency, and it goes back and forth between red and blue, and the fact that Pat Gelsinger is going to go up to Washington DC and do a victory lap, probably with the commerce secretary, and maybe even Biden shows up.
It’s probably going to look good for the presidency as well. So maybe choosing Ohio had something to do with the politics and getting money from the US government. I don’t know. Is that just too conspiracy theory, Daniel?
Daniel Newman: No. I mean, I think the fact of the matter is you can’t simply tell everybody it’s a conspiracy theory when it’s not what you want to hear. I think people tend to be pretty thoughtful about politics and where they’re placing and creating jobs and where get the most political support. Arizona is a swing state. Ohio’s a swing state. You see states like that oftentimes being looked at for large investments because there’s a little bit of a gain. Let’s face it, we’re always trying to make gains, whatever that is.
Right now there’s dollars to be had as part of that semiconductor plan. I think it was like $52 billion, the grand scheme of things. That’s large and yet amazingly small for the trillions of dollars we’re spending and the fact that we’re so dependent on this technology. But it’s good to see investment being made. It’s to see Intel continuing to make investments. Right now, like I said, as the economy is in a bit of a swirl with interest rates, inflation… Pat, not to go on a little bit of a diatribe, but I’ll just go down this path a little bit.
Patrick Moorhead: Yeah. And I want to rebound on just one thing I want to add at the end.
Daniel Newman: Yeah. That’s great. I’ll just say this. No, this isn’t a politics and economic show, but I do love this stuff. And obviously, I write and talk on a lot of channels that do talk about that. But interest rate hikes are terrible for most Americans. I think while a lot of people are celebrating, trying to bring inflation down, bringing down prices of houses and cars and groceries, yes, need that, the benefit of raising rates, compressing values of companies and increasing people’s mortgage payments…
Because trust me, if you raise a mortgage payment by one or 2%, even if the house went down five or 10% in value to do that, the payments are going to be bigger. And so, same thing on car loans going up, credit card loans going up. Student loans are going up. These are not things that wealthy people worry about. These are things that middle class and average earners are going to be to be struck by and the prices aren’t going to come down that much. And wages won’t go up that much, especially if the businesses and their stock prices and their values are getting crushed by these hawkish actions by the fed.
So this isn’t a magic bullet. And not getting Build Back Better passed, no more stimulus, no more free checks, I mean, we are in a bit… These are things like this fab though, Pat, coming full circle are the real shovel ready kind of things that are going to create jobs and are going to keep the economy moving. Well, it’s not like ready to… I mean maybe some shoveling.
Patrick Moorhead: No, no, no. I was laughing, when, yeah, Obama did his big shovel ready and like 20% of those projects actually happen in real life.
Daniel Newman: Yeah. It’s never good.
Patrick Moorhead: I talked about the lack of experience in Ohio and chip making. Let me read Ohio governor, Mike DeWine’s quote. “Intel’s new facilities will be transformative for our state, creating thousands of good paying jobs in Ohio manufacturing strategically vital semiconductors often called chips.” I love it. I love it. It’s like, “We in Ohio don’t have any idea what semiconductors are, so I have to call them chips anyways.”
I was noticing that and it’s an exclamation point on just how disconnected Ohio is from semiconductors and puts an exclamation point on how much work Intel’s going to have to do to make it a leading edge facility.
Daniel Newman: Yeah. Well, there’s a lot to be done, eating those chips and dip, Pat. All right. We’ve got to keep moving because we’ve got three more topics. We’ve got about 15, 20 minutes to get through them. Miraculously, we should be able to do that. We just can’t because this stuff’s just so darn interesting. Pat, our friend, Austin Russell and Luminar made another big announcement this week. You and I have been super on top of automotive. Cool announcement, one that we probably can get through pretty quickly though.
Patrick Moorhead: Yeah, it is. If you don’t know who Luminar is, they are the leading provider of LIDAR solutions. LIDAR is essentially laser beams that work alongside of radar, which is shorter range, and visual systems or cameras for safety systems, and in the future, self-driving cars. There was a lot of debate about LIDAR, Elon Musk essentially saying it’s a folly and he’s not going to be using LIDAR.
Well, when Elon said that, LIDAR was 10X more expensive than it was today, and had that big giant… Looked like an old cop siren on the top of an old Chevy cop car. And you still see the big spinning globe on top today, particularly in robotaxis. But Luminar has enabled not only to reduce the cost on that by by 10X, but you barely even notice that it’s there. The Volvo design was the best, but I digress.
Volvo did a big deal with them. They did an amazing demo at CES, which my son took a video on. You and I were both there, went viral. Millions of views of the Tesla running over the fake child running across the street, occluded by a car. Now here we are with Mercedes, and you can see a very smiling Austin in this picture, next to the chief supply chain guy from Mercedes. They have done a deal together and Mercedes even made an investment in the company.
No details about cars. You can see between the two gentlemen, there is a car with a sheet on it, which obviously is one of the cars that has it. One thing that I noticed, and this is a subtle thing, Daniel, I don’t know if you saw this, there’s no bulging sensor that you would expect to come out of the roof with LIDAR. I don’t know exactly what that means. Has Luminar and Mercedes found a way to shrink the sensor even more, or am I just way looking too into what could be a fake development car behind them?
Daniel Newman: Yeah. As you’ve seen, I believe in the Volvo XC90, the LIDAR technology from Luminar, they showed it, It’s front facing, forward facing, and it’s on the windshield. It sits just below, where the mirror is. It’s about the size of maybe a small Wheat Thins box or something. It goes up there. It’s actually no longer on the roof. That’s been a big part of the whole story from Luminar, is making these things less ugly.
I did see there was a humongous stock deal within this for Mercedes. By this time this morning, they’re probably down on it. But these companies don’t make these kinds of deals for the long term. There it is, Pat. You see? It’s just a tiny little… On the windshield. It’s gotten much better, much prettier, and it’s getting much smaller. Intel is using this with Mobileye right now, as they’re in the process of using and developing their own LIDAR. But Volvo’s doing it. Mercedes’s doing it.
Look, I’ve got a research note I’m publishing this morning on it, and long and short here is that Luminar continues to be disruptive. We’ve seen it, Pat. We’ve witnessed it. We’ve actually been in the car and experienced it. Technology is good. It’s interesting. It’s disruptive. I think they’re either going to be, A, they’re going to be a much, much bigger and larger player participating in many, many more of these large companies, future safety, and L4 plus, L4 Technologies, or they’re going to end up getting acquired by a mega chip company that’s going to need this technology.
And if the market stays compressed, that could be an opportunity. Although knowing Austin, I think he’s got a vision to build this thing. So I don’t necessarily see that happening. All right, Pat. We’ve got to keep moving. Speaking of big, crazy connectivity news, 5G C-band debacle. What a freaking disaster. Okay. I’m sorry. I’m going to just review what I’ve tweeted about this thing.
A, did we not know the C-band was coming for how long? Okay, was this a first we heard of it? Second of all, did we not do any research during the process of deploying these antennas in this infrastructure for this C-band deployment? Did we not consider the possible interference because of near band overlap or crossover interference that could mess with instruments in various different things like, I don’t know, jumbo jets at massive air fields all over the United States?
Pat, honestly, I am freaking puzzle as to how we could be so uncoordinated here between, say, the FAA, between the FCC, between the airlines, the service providers and carriers that are deploying this thing, that it’s like, “Oh my God. We’re going to turn them on this week. We might want to think about whether there’s an interference issue.” I mean, couldn’t they set some of this stuff up around some of this equipment and say, “Hey, what happened? Let’s test out what potential risks are. We’ll have someone standing by. If there’s any interference, we could shut it down instantly to make sure that everybody’s safe. We will not expose passengers and the public to this thing.”
And then, it brings me back to… You remember all these days of having to turn off our phones and then having to put a… And then eventually got to the point where it’s like… I don’t even know why they make the announcement anymore. Nobody puts their phones in airplane mode. They don’t check it. And if it was really a risk of causing some sort of instrumentation issue, it wouldn’t just be like, “Please turn them off.” It would be a like, “Put your phones in this steel bucket until we’ve taken off and then you can come reclaim them.” It’s insane. It’s actually insane.
And so, here’s a couple other things that are on my mind. One is, it’s amazing how nobody’s willing to say anything. You pointed out that Neville Ray, one of the leaders at T-Mobile, talked about their specific tech, and I’ll leave that for you to talk about here. But I watched Hans go on CNBC. Wouldn’t talk about it. FCC wouldn’t talk about it. The FAA… Nobody has clarity. I said, “Where is the data on this thing? How in the world did we get this far and not have published data on the quality, the risks, the interference of this band?”
And then, of course you sold this band. SCC sold this band for billions of dollars. And now they’re going to tell these companies that maybe they can’t use it in 50 major markets pending an investigation that you’re waiting till now to do. All right. My head’s going to freaking explode. The word I want to use with the F, Pat, by the way, I can’t use because we’d get one of those censorships on our show. I don’t want to have a censorship. But I’m F-ing mind blown by the fact that we seem so disorganized here. By the way, we’re like a weekend and it seems like everyone’s flying again.
Patrick Moorhead: Gosh, Daniel, why are you so upset? The FAA budget’s only $17.5 billion. I mean, you’d expect them to squeak by with that amount of money and figure this out. I mean, I don’t know what you would expect. No, no, I am completely disgusted with the FAA for letting this… I’m less disgusted with the FCC, but hey, we’re one big happy family. We get taxed more than we should and we should demand that things like this get addressed.
I’ve got to tell you, I don’t know what Buttigieg is doing, or where he was spending his time, or what he was thinking. This is in his camp. The one thing I will point out is… And I think that T-Mobile deserves a victory lap. They deserve a victory lap because their mid band doesn’t conflict with any of this. I give them credit for having the foresight for acquiring Sprint that had that spectrum. Neville Ray came out, and I was glad he did.
Essentially, he said, “Hey, we use 600 megahertz, 2.5 gigahertz, not the 3.7 to 4.2 that the FAA is concerned about. He also threw AT&T and Verizon under the bus, saying that that this is their issue. So I’ll give them a little bit of a victory lap on the foresight here. Maybe it was luck. Maybe it was sheer brilliance. It doesn’t matter. But mid band, T-Mobile, put it all around the airports. Not an issue.
Daniel Newman: Seems like a good idea, although I sometimes do wish my T-Mobile was a little faster. I am a T-Mobile user, full disclosure, and T-Mobile’s a customer, full disclosure. So I just want to say all that. But I am a pretty big time user. I do want to see everything get faster because, well, I like it fast. Pat, last topic. Exciting, by the way. Sorry, if I sounded pouty about all that 5G stuff. I just can’t believe we can’t find anyone to give us any good insights on this. You had to come to the Six Five to get the good insights. The good-
Patrick Moorhead: Listen, I think Will, if I can pat them on the back, I think they’ve done the best coverage data of anybody maybe. Sascha Segan from PCMag has done a pretty good job. But I’m outraged, especially with the tax. I think I spent most of my Christmas holiday working on tax stuff. This is our tax dollars at work. I want a rational explanation, other than dereliction of duty. I mean, Buttigieg needs to explain himself.
Daniel Newman: All right. Got it. Yeah. Right. All right. Let’s move on and talk about something that’s a little less tepid and a little bit more, hey, more good news that no one’s going to care about while the market’s trying to implode. But SAP, they’ve been really focused. They haven’t actually come out with earnings yet, but since we’re going to have so many earnings, the Germans love a good pre earnings and some companies do that. They come out early. They get their stuff organized.
Of course, when you run a massive ERP system, a little bit like Oracle, they can get their earnings, I think, it’s like 12 days, 10 days, where most companies take at least 30. SAP gets theirs out early too. So Pat…
Patrick Moorhead: Yeah. Let’s dive into that. There are a few countries that require interim reports. Korea and Taiwan are two countries. EU and Germany, they don’t require interim reports, but they’re a little bit more open and they’re regulated to where if they’ve had a really good quarter, they want you to come out and say it. Very infrequently in the US do I see any more, aside from a warning, very rarely do we see an upside. But we did here.
In fact, I think the most exciting part of it was cloud. Cloud revenue up 28%. Obviously, SAP doesn’t necessarily stand up the biggest public cloud. In fact, it’s mostly hybrid cloud with the exception of some enterprise SaaS apps that they have, but up 28%. I mean, for a company that got zero and continues to get very little respect in the cloud, that is a big deal. SAP S/4HANA, up 84%, which they’re giving credit for their rise with SAP, essentially an easier way for customers to move over from standard HANA to S/4HANA.
We’ll get more detail, I’m hopeful, in the earnings call. But yeah. A company I haven’t given a whole lot of respect to driving increased cloud numbers.
Daniel Newman: Yeah. Well, I mean, I think maybe I can take this, just briefly touch on SAP, and then maybe close up here. Just talking about what to expect in the week ahead as earnings start to fall. But you saw a company grow about 6%, okay, year on, year overall. Total revenue, close to $8 billion. You’re seeing significant growth in cloud. This has been a target area for the company. And cloud is still a little bit nascent as to exactly what is cloud, but that’s actually becoming more the normal than… So you’d say more the rule than the exception.
The market wants to see SAP’s cloud business grow. Being a legacy license-based software provider and ERP is a critical thing that runs hundreds of thousands of company, but it’s not necessarily considered sexy, cool, or fast paced for growth. So people want to say, “Where’s the growth going to come from?” Well, for SAP, the growth is going to come from the migration to cloud, and that’s encouraging to see that number continuing to go up.
It should also help, in time, push the company’s margins up. So it means not only more dollars, but more profit per dollar. And if there’s any leading indicator for that, look at some of the pivots from the likes of Microsoft and what they were able to do when they moved the vast majority of their licensing business to subscription and cloud business. It’s just better.
Most companies were willing to pay for it because they’re willing to sacrifice the short-term benefit, or the long… You could say it’s the short-term benefit of these monthly subscription payments, as opposed to these massive one time annual or multi-annual licensing fees.
With just a minute left, Pat, just ahead, we’re going to probably end up having a couple earnings paloozas over the next few weeks. Definitely next week, because we’re going to start to see the whole rundown, Microsoft, Apple, AMD, Google, Alphabet, and so many more are going to start their reporting cycles in the next week.
Here’s an interesting thing. The economy and the stock market definitely has a little bit of that feeling like it’s going to capitulate. Truth is, about 50% of the NASDAQ right now is down by 50% from their highs. So although the fact that the indices have only fallen about 12% right now, the overall, a lot of correction has been made for a lot of tech companies. Having said that, depending on the actions of the fed, inflation, interest rates, and now earnings, it’s going to be interesting to see if there’s going to be more value compression.
When I talk about this, what I basically want to say is this, Pat. I think tech is robust. This is not investment advice, we made that clear from the beginning, but I actually think the numbers from tech are going to be good. First of all, it’s because we’re only reporting in on that first part since the Omicron downfall. I don’t think the demand for cloud or semiconductors or PCs or software has gone down in any meaningful way.
I don’t think a small increase in interest rates is going to change that. I don’t think inflation is really impacting companies’ needs, which are the primary buyer. By the way, all the people staying at home are still subscribing to all their streaming services. They’re still playing games. They’re watching TVs. They’re playing on their mobile devices. I think tech is going to be more resilient. While everybody wants to pivot to value, I think we’re going to have good results.
But the thing to watch, the thing to watch, is going to be guidance, is going to say, “Are any of these CEOs in these boards getting spooked by everything that’s going on, and are they going to pull back on what they see happening over the next quarter or year?” I think that could be somewhat of a shocker to the system and could actually cause more selling if investors feel that these tech CEOs and leaders are not willing to bang their fist on the table and say, “The future is bright.”
Having said that, even if they do come out, soft earnings tech will prevail. I’m not saying that just because I love tech. I’m saying that because even if companies are going to look to cut costs and become more efficient, Pat, they are going to have to do it with automation, with AI, with data and analytics and services and software. That’s what’s going to allow them to be more efficient in running their businesses. So one way or another, tech will prevail. Put that on the bottom, ending the show here, hot and heavy.
Patrick Moorhead: Wow. Daniel, it’s a very good ending here.
Daniel Newman: I needed that. That was therapy, buddy. That was therapy.
Patrick Moorhead: No, I know. I know. I let you roll. I didn’t take the mic away. But the other thing I’ll add is that not only tech is taking over more industries. I look at Dotcom 1.0. It was primarily things like magazine subscriptions, classified ads, bookstores. Now we’re in this Web 2.0, going into Web 3.0. It’s other industries. It’s transportation. With machine learning, it’s white collar information worker jobs that, if you’re an analyst, I mean, one of the best analysis tools is machine learning with an amazing algorithm. Does it in real time as well.
I mean, look at manufacturing. I mean, it’s being replaced with robotics, and robotics and analytics is all about tech. I’m bullish very long term about tech. Do I think a a 90 PE makes sense? Probably not. Sorry, Nvidia. But I think it still has a lot of growth. I mean, if you look at the PEs of some of the major tech companies out there, they’re not 90. Some of them are [crosstalk]-
Daniel Newman: 30, 25.
Patrick Moorhead: Intel’s a 10. I mean, it’s not like these wackadoodle pricing out there. I mean, heck even plays like SoFi, which I’m an investor in SoFi. The numbers and the pricing just absolutely make zero sense. Good place to stop up here, my friend. You want to take us out?
Daniel Newman: Absolutely. Hey everyone, if you like what you heard, hit that subscribe button. Join us again. Good feedback comes to me, negatives at Patrick Moorhead. He loves to hear your complaint, so bring them. Bring them hot. Bring them often. But in all seriousness, really appreciate you all. More coming. Our Six Five Summit, June 7th to 9th. We’re going to get more information out on that, including some of the key speakers and CEOs that will be joining us at the summit.
We will be at Mobile World Congress, live and in the booth, assuming that this goes on and the show goes on, and that COVID permits us to. It’s been crazy. We don’t know. But Pat, we are going to get on the road. But for this episode of the Six Five, thanks everybody for tuning in. We’ll see you again really soon. Bye-bye.
Patrick Moorhead: Thanks everybody.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
