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:
- Intel Delivers Mixed Q3 Results
- IBM Earnings
- Zoho Announces Updates to its One Platform
- SAP Announces Third Quarter 2021 Results
- Honeywell Earnings Report
- Micron to Invest $150B in Global Manufacturing and R&D
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.
Patrick Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy. And we are here for another Six Five Podcast. It is Friday morning, about one hour earlier than we normally do it. But Daniel and I are getting ready to hit F1 Austin in for the weekend. We’ve got to catch buses. We’ve got to have meetings. We’ve got to get ready for that paddock club. But anyways, Daniel, how are you?
Daniel Newman: Hey, Mr. Moorhead, I’m feeling good. I’m very excited about heading to F1. I’ve got a little bit of a car bug so this is going to hopefully fill that void. First time. I’m not going to lie. I don’t have a ton of F1 experience. I know I like watching cars go fast and I like driving them fast even more, but it should be a great day. But for everyone out there, before you feel like we have the too much of the good life, we do have to work. This is not all play. There’s going to be meetings, and we’re going to be running pretty fast between them. So a little bit of watching, a little bit of racing, a little bit of riding, a little bit of chatting, a little bit of podcasting, but Pat, it’s going to be a good day today.
Patrick Moorhead: No, I know. I mean, this is my favorite day of the week. I almost said favorite day of the day. Okay. It’s early folks. Just work with me here. But no, we’ve got a great show today. And for those of you who are joining for the first time, the Six Five Podcast, we cover six topics, five minutes each. Little light on the news to get context, but we really try to get underneath the meaning of the news. We’re going to talk about publicly traded companies today, and their earnings. Please don’t take anything we say as investment advice. Talk to an expert before you do anything. So with that, I mean, we have Intel, IBM, Zoho, SAP, Honeywell, and Micron. We have a full plate today.
Daniel let’s jump into Intel Q3 results. And by the way, judging by the pre-market the company did not fare well last night, but I have to tell you, I don’t fully understand this one, my friend. And maybe it’s because I’m looking at the long ball, but I think one of the biggest things that hit was the realization that making $20 billion in investments might actually cost the company. And CapEx was put in there and margins that were in the low 50s. Now, most people recognize Intel in being in the mid-60s,. But here’s the thing, folks. Over time, you invest your CapEx. It goes against cost of goods sold, and this stuff is expensive. And we also had the CFO who has decided to retire. I can never remember his last name, but his first name is George. And I recognize him as George because he used to be Qualcomm’s CFO. And it’s interesting.
Daniel Newman: George Davis, Pat.
Patrick Moorhead: George Davis. Thank you. But anyways, George had a reputation for being a cost cutter. It’s funny. I had some people say, “Hey, all CFOs are cost cutters,” out there on Twitter. Well they are, but CFOs need to be aligned with their CEOs. And I don’t believe the previous Intel CEO was going to be spending $20 billion on fabs. In fact, I believe he was likely leaning in the direction of getting out of fabs. And then Pat Gelsinger came in and it’s a whole different ball game. But net net forecast, plus gross margin pressure, plus probably a couple other things you’re going to talk about, Daniel, is weighing very heavily on the stock right now.
Daniel Newman: Yeah. The company had 10 straight quarters of beating revenue expectations. And this was the first time in those 10 quarters the company came up short. And I think, largely, the demise of Intel has been pretty overstated. But the standard that Intel is held to is a different standard than every other company in the chip space. Their results are scrutinized at a different level, and any result that’s not terrific seems to get met with a whole lot of negativity. So there’s a lot of bare sentiment, and you can probably attribute some of this to the rapid growth of Lisa Su and AMD, Jensen Wong and Nvidia. People seeing that this fabulous process, of course, Qualcomm has had good numbers, too. But this whole approach that all these fabulous chip makers the years have had has been exponential. The growth has been exponential and their stocks have been rewarded for it.
Intel is the incumbent. Intel is the company that held massive market share. Intel is the company that everybody was set out to beat. And for the longest time nobody could do it. And now you’re starting to see small bits of market erosion. In the client it’s been more substantial. On the data center side it’s been a little slower, but that started to happen, too. And even though Intel still has really great market share in all these areas, the fact that people are starting to eat off of their plate has not been well received by the market. Now, if you look at this quarter, CCG, now there’s a couple of factors at play. We’re starting to see PC demand numbers. There’s more question, for the first time since the pandemic, of whether growth and the TAM expansion will continue. Our friends at IDC have a very small upward adjustment over the next few quarters for the year. And Gartner is saying it’s going to start to contract.
Now again, I actually tend to believe these secular trends are going to be sustained. And that growth for PCs will continue. That there is more growth than is being explained, but then there’s other pressure. So CCG again was down after having a really great 30 plus percent quarter last quarter. But the other thing you’ve got happening is Apple numbers are rolling off. So Apple, if you actually take out year over year for Apple, which we’ve already baked into the company’s valuation, it would be up probably high single digits because Apple had a significant amount of revenue they just got pulled out of that number. So there’s a lot of factors there. And of course, supply constraints. All I’ll say is for both CCG and DCG, the data center and client group, is that going into the next quarter, when we hear the earnings next week is, if the other fabulous chip makers have great results, this is going to not bode well for Intel.
But if the supply constraints are held true and the other companies validate this by having slower growth, it doesn’t have to be no growth, it’s just slower than what they’ve had the last few quarters, I feel like this will be validated that Intel’s still on the right track. And remember, they still grew year over year. There’s a lot more I could talk about, Pat. I want to just make one point to one thing, because we could spend 20 minutes on this topic alone and we just don’t have that kind of time here on the Six Five.
There’s some really good adjacent businesses at Intel. The Mobileye business has had a multiple record quarters, which means they’ve got some really good play heading into the automotive ADAS, and they’ve added Robo Taxi technology, which is pretty exciting. And then the IOT business just hit a billion dollars. It had a 54% year over year growth, Pat. So not everything’s bad, not everything’s gloomy. You mentioned those big investments. That’s going to take some time. I’m confident in the long run that Intel’s got a lot of the right pieces in place. And, of course, the bet on Pat Gelsinger, I think the consensus is that was a good bet. It was about as good as they could have done with a CEO, but the next few quarters are going to be very telling.
Patrick Moorhead: Yeah, it’s hard to believe they beat on EPS by 54%. Now they missed revenue by 1%, but there’s even some debate about, where has that consensus come from? Did it include NAND or didn’t it? But anyways, we will see. Down 10%, that’s pretty rough. But let’s move to IBM earnings. IBM got hit pretty hard. There looks to be a little bit of a pause until the Kyndryl split, but Danny, why don’t you kick this one off?
Daniel Newman: That was a mixed result that kind of came in a little above on earnings, a little below on revenue. Listening to the commentary on the earnings call, seems that the GTS business has been an absolute boat anchor for this company over the last four years. But I mean, for a continued and sustained period of time. It’s time for that business to split off. It’s time for that company to focus on growing. You can absolutely [inaudible] a lot of things that would typically be moving or pausing. And they talked about this. Kavanaugh, the CFO, talked about kind of this Kyndryl pause. The sales slowing down, companies normally would be signing contracts or saying, let’s just wait until this deal is done. We’re a few weeks away. And this is really the start of the new era for IBM.
I don’t want to dismiss any quarter, but I think I tweeted something along the lines of, “I just don’t think this quarter matters.” I just don’t think it does. Of course, for short term traders, they’re going to be feeling the heat of a sell off, but for long term investors in a value company like IBM, this is all about getting the company to more significant growth. It’s been kind of vacillating between single digit losses and single digit growth now for, feels like a decade. It has not been able to sustain significant long term growth. It’s very driven by certain cycles like the Zed cycle or the Z15 cycle for the mainframe. Systems can’t make money late in the Z cycle. So when that starts to slow down, it’s systems just can’t perform. And so we’ve got to wait for the next generation. Ross Moore and his team, I’m sure, have something up their sleeve. But that’s going to be a requirement for systems to make money.
So even when Cloud is up, what it was, about 12%, I believe, was the number here. Red Hat was growing. It can’t offset huge under performances from the GTS business and it can’t offset the cyclicality of the systems business, especially related to the mainframe. So when I kind of look at this, Pat, I basically say, we need to give a two more quarters, I know this is a long time for most investors, to allow the spinoff to happen and to allow the company to really get focused on initiatives, which is all in, on Hybrid Cloud, and then of course, AI and software. Those are the areas where the company’s really going to put its focus. Then we need to start to hold it accountable to grow, Pat. It needs to grow faster. I mean, Red Hat was a great bet. It’s out with GTS, in with Red Hat. The future is Red Hat, the future is Hybrid.
The whole thing is being the Enterprise Hybrid Cloud company. It’s about connecting core to Edge, Hybrid Cloud, OpenShift, and doing it in a more meaningful way, but they have to catch up on growth with the public cloud players. I’m not talking about hyper growth, SaaS companies. I’m just talking about your AWS’s. I’m talking about, the cloud business needs to be growing 30%. That’s what the market’s going to want to see. When Microsoft in AWS, and Google, and Oracle are all growing that fast IBM’s not going to be held to a different standard. And so that faster growth is going to be required. And that faster growth, by the way, Pat, is how they get to an eight to 10% overall growth.
So I’m not saying the whole company needs to be growing 30%. I’m just saying you can’t have, say we’re all in on this business, it’s a hyper growth area with a rapidly expanding TAM, and then constantly have growth rates that are a third, or a fifth, or in the case of Oracle, a 10th, the rate of their competitors or complimentary companies in the industry’s growth. So that’s what I’m really looking for here. I give them a pass on this quarter, Pat. And actually give them a pass on the next two quarters. Hopefully they’ll show some promise, especially on the Hybrid Cloud business, but you’ve got to let them settle. These acquisitions in a merger, or a spinoff of this size, is going to take some time to settle in.
Patrick Moorhead: So Daniel, this one’s a toughie, because I think we need to, first of all, review the commitment the company has made. And that is single digit growth overall. That’s all they’re committing starting FY 2022. Now I would like, I mean, just like I would like a red wagon, a new red wagon every year, for their Cloud revenue to be 30% every year. So it’s around a $7 billion business that’s half of what AWS is today. But Daniel, I don’t think they’re committing to that. And I think, and correct me if I’m wrong, what you’re saying is to truly have the stock move as opposed to doing what it’s doing today, because I feel like single digit growth they’re positioning themselves as the safe bet. Right?
Daniel Newman: Just quickly I’ll say, Pat, I’m basically saying they were getting single digit growth more than not over the past year or so.
Patrick Moorhead: But Daniel, previous five years, they didn’t. I mean-
Daniel Newman: No, I get it.
Patrick Moorhead: …their CEO they barely grew.
Daniel Newman: I get it. What, I guess, I’m saying is, where does enough growth come from consistently to offset these cyclicalities and such of other businesses so that they’re sustainably delivering those single digit numbers. So as I said, Cloud has to grow fast enough, and significantly enough to allow them to get to those mid or high single digit growth quarter over quarter as a whole company. That was what I was saying. It has to come from the Cloud business.
Patrick Moorhead: Yeah. Now the best point I think you made was, if Oracle is growing, and maybe a Dell or an HPE is growing beyond kind of mid single digits, then it’s a challenge. Now HPE is committed to that single digit growth as well. So it’s likely not going to be them. But to your point, the stuff that should be growing, most of it is growing. Right? GBS related Cloud revenue up 38%. Cloud and cognitive, Cloud software 20%, Red Hat, 23%. But maybe something like Quantum will be one of these big breakouts. I mean, I think they prob… We just saw InQ go public. And my guess is, is that IBM likely has 25 times more revenue than InQ when it comes to Quantum. I hope they would drop that at some point, because that could be an instant injection.
I don’t think the market’s giving them… I think it’s giving them zero value for Quantum right now to take them into kind of a mega growth. But a great conversation. Yeah. Probably not an indicative quarter of the future. It’s absolutely not. We’ll have to see next quarter, excuse me, when we get to the full Kyndryl spin out. And maybe we can even do a separate video on that. A good debate, but hey, let’s go to SaaS. Zoho announced updates to its one platform. And if anything, I think my biggest takeaway from this, Daniel, I’m going to give you most of the mic here. They absolutely are having incredible growth in their platform. Very similar to what we’re seeing in Salesforce. SaaS is hot. And whether it’s SaaS from Microsoft, Google, or people like Salesforce, they’re in that 40% growth range.
And kind of the mystery of Zoho is that they’re a private company. You don’t typically get the type of information that we get from public companies, but I do appreciate, particularly under nondisclosure, they do give analysts growth numbers. And the numbers are really good. And outside of a public company it matters. It matters because it should give other potential customers a boost. It’s interesting. We always go crazy over the NetSuite numbers from Oracle, as we should. Just had a great Six Five insider with Evan, the co-founder NetSuite, and Zoho’s numbers and growth are very similar on a percentage basis to NetSuite.
Daniel Newman: Yeah, it was fun. I was actually going to frame that. It was good to talk to Evan Goldberg and Jason Maynard, the leaders of the NetSuite business. We at their event SuiteWorld. And just kind of to pivot to Zoho was, the focus on that small or midsize enterprise.
We’ve outgrown QuickBooks, now what? And that market’s been somewhat underserved. And I think that’s why companies like Zoho have been so successful. It’s not that companies haven’t tried, it’s that the needs are different. But the thing is, is a lot of fast growth these days means the needs are extensible. And you can’t just ask people to come over for a little bit. You need to build tools that can expand on and grow on. And when we talked to NetSuite, and with Zoho, we’ve also seen that while they are sort of maybe most well-known for serving that small and mid-size enterprise, they actually do grow up to be pretty extensive platforms that can be utilized by much larger companies.
And so with Zoho, the company is, they’re very poised, and they’re very kind of coy about their success most of the time, but at this at the same time, they’re just winning with numbers. They’re winning with customers, they’re winning with growth. And so, this is a four plus year old platform now, and this week the company just came out with a whole bunch of new updates. Now, the thing that I really like about it, Pat, and we run companies that probably would be well defined within their scope, is the platform is really designed to achieve and manage all the needs of a customer. As a small company, access to things like analytics, AI, project management tools, collaboration, all in one suite almost is nonexistent. You can get it from the big software vendors, but their tools are built for Enterprise.
So you’re kind of figuring out a way to make an enterprise tool fit into a smaller company. Zoho is kind of opposite. It’s built for small to scale. And like I said, that’s what I really like. Some of the stuff they’re doing with third party data prep, NLP powered searches, big lists. I think over 1,500 analytics reports and dashboards that come out of the tool. They’re adding mobile application management. They’re adding a learning platform. They’re adding an employee, like an augmented reality platform called Zoho Lens. So they’ve got all kinds of different applications. And I really like the fact that, like I said, that they’re addressing a market that needs to be addressed. As I see it going forward, this is the biggest opportunity for software for companies like Zoho, is to serve that middle of the market.
And so the enhancements, the platform, basically the unification of all these tools, get them all in one place, you add them as you need them. I think it’s over 50 tools. So it’s a huge subset of different software. But what I probably like the most in the end is access to analytics. Access to analytics is what a lot of these updates focus on, is that companies that use analytics win more than companies that don’t. Companies that can apply their data in a meaningful way. Smaller companies just struggle with this. They don’t have data scientists, they don’t have resources, they don’t have people that can really deal with these big complex data management tools, and that’s why they struggle to grow. The tools here to help companies start to embrace analytics, they’re significant, and they’re available, and they’re easy to use.
So good on Zoho. It’s a company that, again, I think we talk about, because frankly it needs to be talked about more. We, of course, cover the Oracles, and the Salesforces, and the Microsofts. And those companies do great things winning tons of business up at that enterprise level. But there are so many small businesses that just don’t get a lot of attention. So it’s good to see a company like Zoho stepping up here. Zoho One updates are solid, but moreover, it’s just about the platform itself, Pat.
Patrick Moorhead: Yeah. I love that they’re in a position where everybody wants to go, which is, they’ve got IS paths, and SaaS. Interchangeable services that if you want bring your best to breed software that you had, and it’s fully Cloud native. So it’s just kind of funny how they are right where everybody else wants to be, and then so few people are aware of the company. But hey, let’s move on. SAP had a really good quarter, and it was super encouraging. A huge surge with Rise, but let’s focus on Cloud. 24% Cloud backlog and even S/4HANA was up 60%. Now, I know I’m talking backlogs and not revenue, but with a company like SAP that matters. Now raw cloud revenue, real revenue is up 20%. And that’s super encouraging, Daniel, because SAP is not looked at as a cloud company, and it’s because they don’t have an IAS, but it is funny, when you look at… Well, and they don’t have a SaaS service, or SAP as a service, they work through partners.
And in the end, I think SAP realized what they could do best, which is what they’re doing. And then let’s leverage best in breed IAS companies to be able to deliver their services. And we can pick apart the strategy, what we think about that. I believe that they’ve been pretty beaten up over the past couple years, because, quite frankly, if you’re not laying down that big CapEx to build out your own huge cloud capabilities and you have to work through partners, it’s going to take some time for revenue to kick in. And the other thing is, most people with a major SAP installation aren’t quickly moving it. Moving their front end website or something, right? Most people don’t want to touch ERP and other elements of the stack because they’re an entire ordering system, their factory systems, are dependent on it. But net-net, I think it was an excellent quarter across all financial metrics.
Daniel Newman: Yeah. I think the company, early in 2021 they announced something called Rise with SAP, and it’s not so much a new product, but the company, I think, recognized the significant challenge it was having in moving its customers from prem to cloud. And so basically, Rise was all about the initiative to really help customers standardize their transition, simplify the bundles, create single contracts with SAP. So yes, there are partners, but as far as the consumer, or the user, or the business, the enterprise is concerned, they’re consuming it like the cloud. Managing SLA, operations, issue management, not having different contracts for everything. I think that’s where Rise is really starting to pay off for the company. And that’s what’s starting to show up in this quarter’s numbers. As you mentioned, we just came off talking about growth. We talked about IBM’s requirement for growth.
SAP, I think, was in a similar sort of holding pattern, where they were constantly being scrutinized. Are they getting people to cloud fast enough? And I think this is the number. I’d say this isn’t pure science, although it is data point, is that 20% number, because again, when we’ve listened to the growth numbers of Oracle’s Cloud, and NetSuite, with Dynamics 365, Salesforce as a mature product still tends to be in that high teens, low 20s in their core products every single quarter, and those are cloud native applications. SAP growth, of course, what I like about the company, and I think they put it in their number. It’s in a little asterisk, but it’s 77% is what they call more predictable revenue. That’s sexy. I mean, look, a company that’s 77% of the revenue that they’re booking quarterly basis they know that’s something that people are very encouraged by.
Oracle has a similar number. It creates a very stable environment for investors, it’s stable for the companies to know that the revenue is there. The other thing is, they’re raising their guidance, they think their profit outlook is good, and that backlog, as you mentioned, it really has a lot to do with the… It’s not backlog like hardware, it’s a little bit different than that. This is more about fulfillment of subscription. And some companies refer to it more as like ARR. And so what’s happening is, they’re growing the amount of annualized recurring revenue that’s going to come in. And as they pivot off of licensing and traditional software agreements to this cloud base, it tends to be a value creator for the company because the stability of cloud, and by the way, the profitability of cloud is higher.
Perpetual licensing is better up front, but I think every company on the planet has moved to consumption in cloud, because in the long run, as you grow, you do better. And just ask Andreessen Horowitz when he did the assessment of public cloud, how that actually works. It starts off, the pendulums on one side. As you grow the pendulums on the other side. But what you ideally create is a balance in the middle where you’re paying a little bit more for the reliability, stability, the flexibility and agility that you get from the cloud. So good quarter for SAP.
Patrick Moorhead: Yeah, it’s interesting. My biggest question long term is, can SAP reflect what Microsoft and Adobe did, which very, very good businesses. 10 years ago they were reviewed as the absolute leaders. And gosh, even back in 2000, my company, AMD, was using SAP. Can they make that turn? And I think, as a service, it’s all about cloud. They do have some SaaS services in there as well. And it’s all about software that is subscription versus straight licensing. A great analysis. Let’s move to Honeywell. Honeywell had their earnings this morning, and net-net they beat EPS by 1%. It was a revenue miss by about 2%. And in pre trading right now, it’s looking about even to about down 1%.
Daniel Newman: The headline that you get from Honeywell and the headline from the street are a little bit different here. I look at a company with the long, deep industrial roots growing, having 9% jump is a pretty healthy jump. I mean, you’ve got to weigh in for inflation right now, you’ve got to weigh in for the economic situation, but this is another example, a little bit Intel, where it’s like, you’re still growing and that’s good, but the street, we’ll see how they respond. I think it’s going to be less volatile for Honeywell. The reason I think we keep coming back to Honeywell, besides the fact that we’ve had the benefit of having a lot of access, being able to talk to their CEO, Darius Adamczyk, working with their quantum team, getting to know the forge businesses that it’s kind of a little bit of a broken record, but it hasn’t seemed to be fully appreciated by the market yet.
Honeywell is an industrial company that’s in a significant transformation to a technology company. And so every time I look at the quarterly numbers, what I’m kind of trying to do is get an indication of how well that transition is going. And so when I looked at this quarter, to me, this is still a company that’s very balanced. We’ve got the Quantum business being spun off with CQC, but across it you’ve got these SaaS applications for safety and productivity. You’ve got Forge for the edge, and IOT for manufacturing. You’ve got the technology business for the buildings. You look at something like return to work and where does a company like Honeywell fit in? And all I can say is we’re going to be absolutely hyper dependent.
And then you start to look at areas like ESG, Pat, which you and I love to talk about. And when you start to think about how a building provides cleanliness, meeting environmental standards, safety for people who enter and exit these buildings, and the footprint that companies leave, we’re going to be looking to companies like Honeywell to be building solutions that are going to integrate with, I talked about ServiceNow last week, or Salesforce, or Microsoft, or Amazon, or any of these companies, Google, who are building these ESG footprints, this data that’s going to come off of all of these edge, and geographical buildings, and locations, and jet engines, it’s going to be really, really interesting. So overall, I’ll be candid. Trying to find as much to talk about in the tech end of Honeywell as there is to with an Intel or IBM is a little bit hard. It’s a little bit nascent for me. But I think the real story here is, is the company making that leap? We keep talking about it.
And so as I look at this, you see 3% up on building solutions, but then you see productivity, Pat, jumping 21%, which is where a lot of the software lives for the company. Workflow solutions, productivity solutions. So you’re starting to see indicators that the investment in these technologies at the edge and within these buildings are growing. And that frankly, I think Honeywell’s in a really interesting position. But you’re right, they did miss what the street was looking for. So even though they grew 9%, not quite enough to make all happy. But in my opinion, those are the things we should be looking for. We should be looking for where’s the growth in software.
And I’ll be candid, Pat. I keep putting pressure on the team over there. Guys have to start breaking this tech out. We need to know more about Forge. We need to know more about the building tech, the actual application investment that’s going in, especially now with Quantum spinning, because that was one of those really strong, disruptive technologies they we’re investing in. And although they’ll still be invested in it structurally, it will no longer be under that broad Honeywell ticker. So, that’s kind of what I think. And I think I’m really hopeful that your eyeball there isn’t bugging you, too.
Patrick Moorhead: Yeah. Sorry about that. I was considering taking myself out of the stream, but we’re live. I’m drinking a monster. I’m drinking from my Starbucks here. By the way, no, we are not being compensated by any of those companies. Wish we were.
Daniel Newman: I’m just thirsty.
Patrick Moorhead: Exactly. Listen, Honeywell’s an industrial that is branching out into tech, and I’m amazed that they grew it all. They need real materials to grow. Right? And guess what? We’re in a massive supply chain challenge. So a lot of the things that Honeywell has to make relies on the supply chain that is currently completely messed up. And not just electronics, but steel, right? Things like plastic, and things like that. So I am amazed. And I’m looking forward to the CQC Honeywell merge and spin, and just to see kind of the value in. And I believe Honeywell’s going to have 51% still of that deal. So I guess it’s not necessarily a full spin, similar to something like a Kyndryl, but I think there’s a ton of value there. And I’ll get back to INQ that set the bar, and it is likely that Honeywell and CQC has at least as much revenue as InQ. And I think we could pretty much safely say that the street is giving Honeywell zero credit for Quantum right now.
Daniel Newman: I think you make a great point. Quantum’s going to be a bigger focus this year. And all the companies that are in it eventually it’s got to start being added to those numbers.
Patrick Moorhead: It is. And I’m pressing all companies now that there is a certain valuation tied to at least a revenue number with InQ, now is the time to bring it out. Right? And if you complain about not getting value for Quantum, show your numbers, right? Show your backlog. Let’s talk about deals. Let’s get it out there. And anyways, I know I’ve been on calls with you, or we have basically been saying the same thing. So I know you agree. So let’s move to Micron. Micron came out. We’re used to $20 billion commitments, $60 billion commitments over five years. Micron came out with a $150 billion commitment over 10 years for what they described to lean into memory. And it’ll be memory and storage, but it’s easier, I think, just to say memory. But let me just give a little backdrop of, aside from the number, why memory is going to be so important.
So first off. On the consumer side, if you want faster twitch of applications, you want to it in memory. You on more memory. We see it in PCs, we see it in Smartphones. Apple came out, albeit a different kind of memory, 64 gigs just on the MacBook Pro, the 16 and the 14 inch. And also what we see in semi conductors is that due to Moore’s law and the lack of ability to crank out these massive dye products, HBM becomes the interconnect between, let’s say, the CPU and the GPU, or the FPGA. We see it with Xilinx. I mean, we see it with high end data center graphics cards, the ability to connect those things together. But the opportunity’s even bigger, Daniel, in the data center. So today, we can offload networking. We can offload the CPU, and we can offload storage.
And what I mean by offload is, you dis aggregate it. It’s not all one thing. And you can leverage it as one fungible asset. But the one remaining thing that you can’t compose today in the data center is memory. If you want more memory for an application, you can do it the slow way over a technology called RDMA, which goes at the speed, basically, of a network card, which is to too slow. And that enables you to take what might be a scale up application and scale out. But if you need more memory, you need to buy a new CPU, because this CPU is linked with memory. I had great conversation with the gentleman at Micron, Raj Hazra, who runs memory over there. And I also had a great conversation with Jeremy, who runs storage, but this new technology called CXL is going to enable hyper scale data centers, AWS, Azure, GCP, IBM, Oracle to compose memory.
And I’ve talked to all of them, Daniel, and they are super excited about this technology, although none of them are publicly talking about it, although every one of them could do that. I believe that is going to enable just an absolute boom for Micron, which again, leads to the requirement to invest $150 billion into fabs. And I’ll end with, Micron wasn’t specific on where they’re going to get the money, but they were absolutely saying, like Intel, that they’re going to look to the governments to dig into that for the very important reason of supply chain and national security. And whether that’s national security in the United States, or over in Western Europe, or, for that matter, in Southeast Asia. Everybody wants their own fabs.
Daniel Newman: Yeah. You make a great series of points there, Pat. The 52 billion or so that was, I think, put in the Senate bill, that’s still sitting in the House, hasn’t passed certainly isn’t going to cover all this investment. I also believe the amount of investment that has been put forth in the various infrastructure bills for semiconductors simply isn’t enough. The consensus globally is that some, if not, much more semiconductor manufacturing, especially at the leading edge needs to be done here in the US, where effectively we’re doing zero right now, if you don’t count stuff that’s being built either for self purposes, because I know IBM builds some of their own for themselves, but they’re not actually building for anyone else anymore.
Patrick Moorhead: Technically 12% in the US, but that’s not leading edge.
Daniel Newman: That’s what I meant. Zero leading edge, sorry, 12% total semiconductor manufacturing. Now we do have Samsung, and TSM, and Intel broke ground on their additional fabs. There are things happening. This is multiple year process. And to your point, Pat, 30% of the semiconductor market is memory and storage. And these are different. It’s a different process than CPUs. And so, I always like to say, memories and storage don’t get a lot of affection the way GPUs and high powered CPUs often are fun to talk about, Pat, but try running an application without memory and storage and see how that works for you.
It’s kind of like when I told you about being challenged that semiconductors are not eating the world. And then you said to me, “What are you going to run your apps on, air?” I mean, look, this is the world that we live in is, this is an opportunity. Going back full circle to the Intel conversation. Look, Gelsinger gets the one thing is that we need to able to make more semiconductors. Even if Intel can’t grow it’s TAM on all of its different products, they can make money manufacturing chips for these other companies that are growing.
Patrick Moorhead: That’s right. They’ve already showed they won the ramp business with the federal government. Guess what? AWS and a lot of vendors who have not spoken up will have to fab their stuff at Intel.
Daniel Newman: It’s going to be a public opinion thing, Pat. How do you not work with a US based company that’s creating US based jobs? And by the way, that’s part of the story here with Micron is, not only is it about manufacturing more and being opportunistic to make money, it’s about doing good for this supply chain issue. You’re going to do more R&D, you’re going to create more jobs. By the way, this company’s based in Boise. It’s not a San Jose. They’re actually distributing the tech around the world. And part of the reason I think sometimes they don’t get as much coverage is because they’re in Boise. By the way, beautiful part of the world. You should visit it if you haven’t been there. I’d go there over San Francisco anytime. No offense, San Francisco. Actually, take it for what you will.
But truth be told, good stuff for Micron. The company is on the rise. It’s got some serious competition, but it’s actually not as competitive as, I would say, some of this stuff in CPU, GPU is right now, and Microns doing very well. And it’s good to see this, Pat. It’s good to see the company stepping up. I am going to be interested to watch where $150 billion comes from, but the long tail gives the company time to create that cash flow, create that growth. And we all know one thing. Computing isn’t slowing, and therefore memory and storage won’t slow either.
Patrick Moorhead: Absolutely. What a great topic to end on. We kind of wrapped everything from regulation to Moore’s law, to national security, to supply chain all into one Micron conversation. Here’s the thing, Daniel. When you go 10 years out and you put a big number out you can be off by a factor of a lot, and you’re not going to be scrutinized. I think net-net, we can all agree that memory is more important than it’s ever been out there. And I would say, it should be on the same pedestal as a CPU and a GPU right now. I just think that the investment that the CPU and GPU companies have put into the awareness compared to the memory companies is probably a factor difference of a thousand. So it’s going to take a while for that to sink in, but we can’t say it’s not a reality, because it is.
Daniel Newman: Hey Pat, I just want to say one thing unrelated to our six topics, but I want to let you know that the Digital World Acquisition Corp is up 189% today. Now this is a SPAC that’s run by Trump that’s going to be the next truth social network. This thing was 10 bucks yesterday morning. It is now breaking the entire market because literally everyone is chasing. This is the new GameStop. This is the stupidest thing I’ve ever seen. This network is going to crash and burn, mark my words. Nothing, it’s not an anti-Trump thing. It’s just literally, it’s not built on anything. Talk about building something on nothing. We need fabs not Truth Social Network. Good Lord. Okay. Sorry about that. It’s Friday, though. You know how I am? I’m sensitive about the markets and it’s broken right now.
Patrick Moorhead: No, it’s great. And the market’s always broken, and to be honest with you-
Daniel Newman: It’s more broken.
Patrick Moorhead: Yeah. Well what a great show. I just want to thank all of our listeners for hanging in there. We are one episode away from 100. I know you can count, but Daniel, we still have to come up with some… I don’t know. Episode 100. Something huge.
Daniel Newman: Hey, let’s do earnings palooza.
Patrick Moorhead: Oh my gosh. Yeah. Everybody would be so excited about that. You know? No, I’m talking about, I don’t know. Should we do giveaway? Should we bare something about our souls? Should we giveaway a Toyota Camry?
Daniel Newman: Pat’s going to give away his chopper. You’re going to give them your helicopter that you fly around Austin.
Patrick Moorhead: Oh, maybe my Ninja. I don’t know. I don’t know. We’ll see. But anyways, we really appreciate you hanging in with us for 99 episodes. But even if you haven’t and would like to give us some feedback, @DanielNewmanUV for all the negative stuff, and @PatrickMoorhead for all the positive stuff on Twitter. But we really do appreciate you. And coming in an hour early, hopefully you’re not setting your watch on Friday based on when we do our pod. But the great part is you can listen to it pretty much anywhere where podcasts and video casts are broadcast. And with that, have a great weekend, and thank you so much.