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Earnings Palooza! Talking Tech Earnings for Microsoft, Google, AWS, Qualcomm, Intel and Honeywell- The Six Five Webcast
by Daniel Newman | August 1, 2022

On this episode of The Six Five, leading global tech analysts Daniel Newman and Patrick Moorhead jump head first into the tech industry’s latest earnings reports to see who made a big splash and who belly-flopped.

On deck this week is:

  1. Microsoft 
  2. Google
  3. Amazon & AWS
  4. Honeywell
  5. Intel
  6. Qualcomm

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.

Watch the episode here:

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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. It’s Friday. Welcome back to another episode of the Six Five Podcast. I’m your host today. Well, I’m your first host today, Daniel Newman, principle analyst, founding partner Futurum Research joined by my always esteemed super handsome partner in crime, Mr. Patrick Moorhead. I know how to make you blush. Happy Friday, Patrick.

Patrick Moorhead: Pleasure to be here, Daniel. I am so caff’d up and it’s 100 out so it was a nice walk to work. It was a mere 79 degrees, but hey, I’m sporting the flannel shirt and it definitely does move the air around in it. But no, I am super excited to be here. And you know what it means? It’s this time of the quarter. What is it? What are we talking about today Daniel?

Daniel Newman: It is our Earnings Palooza. This is what happens once every quarter, we have a week like this where not only do we cover all earnings exclusively, the moment of truth, as we like to say through the lens of industry analysts. But we have so many in the same week that we don’t even get to cover all of the earnings that we would like to cover.

But we have handpicked, based upon what floats our boat, what interests us and what we hope interests you, to talk about Microsoft, Google, Amazon AWS, Honeywell, Intel, and Qualcomm. And yes, we left out Apple because plenty of other people talk about Apple so you don’t need to hear it from us. They did fine, they will be fine, it will be fine, but we’ll get on Apple for other things later, Pat.

But, this is a great week. It’s always a super duper fun show, because like you said, this is the moment where everybody has to open the kimono and show us what’s going on and so we’re going to talk about it. So quick disclaimer, this show is for information and entertainment purposes only. This is the most important show that we do the disclaimer for. And while we will be talking about publicly traded companies, please do not take anything that we say as investment advice. Patrick, you stoked? You ready, light this candle?

Patrick Moorhead: I am ready. Great disclaimer. It is important. We are industry analysts, not equity analysts. So we have not passed the Series 7. We do not give investment advice. Thank you. Let’s do this. Go.

Daniel Newman: So we’re going to start it off. I’m going to go first. Sometimes I do it this way, sometimes I don’t do it this way, but let’s start off with Microsoft. So kicking off the week the big tech earnings this week on Tuesday, Microsoft and Alphabet had the chance to go on Bloomberg Tech and talk about this. So, I’m fully versed. Pat, it was funny.

The first day was like such a signal throw. So both Alphabet, we’ll get to them in a little bit at Microsoft, they both missed on the top and the bottom line. However, they both came really, really close on the top and the bottom line. I thought it was kind of interesting as we looked at their numbers because in both instances it wasn’t like, oh my gosh, they got crushed, this is terrible. It was like, wow, they grew YOY.

I believe Microsoft grew 12% on a YOY basis, but obviously a pretty significant deceleration against how good the growth has been. Now having said that, the growth has been really, really good. So you’re getting into this window now where you’re comparing if you go back a year in Microsoft time, these were record quarters. So they’re still growing over record quarters and their misses were very close.

They missed on the earning side, Pat by about 6 cents. And I want to be very clear. I can give them 6 cents back. If you take FX, if you take the Ukraine, Russia, and you take the lost revenues tied to the shutdowns in China, it equated to almost exactly 6 cents in earnings. So the company would’ve been right at its expected $2.29 a share had you taken out those things.

But you can’t take out those things because those are real issues. But those are things that I think if you’re an investor, you can look past and say, “We probably won’t have these shutdowns forever,” although it’s starting to feel like it. We probably at some point might resolve the conflict in Russia and Ukraine although it’s starting to feel like that may last forever too. And this strengthening dollar probably will tame at some point. We’ve never seen the dollar quite this strong before, at least not in my lifetime, Pat, I can’t speak for yours because you’re a lot older than me.

Patrick Moorhead: Thanks buddy.

Daniel Newman: So the big number that everybody is going to ask about every time is going to be the cloud business, Azure. 40% growth. So that was a bit of a pullback from the past. But over the last few weeks rather than kind of getting too granular about Microsoft, there’s been a lot of debate in the marketplace in the media with business press kind of saying that this cloud bubble was about to burst.

And so after IBM came out pretty strong, the first public cloud provider of the group, Microsoft came in at 40%, a little pullback. But remember these are large number growth issues too. The number keeps getting bigger, which means that percentage starts to become harder to continue to meet time and time and time again. So people have said for quarter after quarter after quarter this is bound to get lower.

And basically there’s been a little bit of volatility, but Microsoft’s keeping that number at 40 plus percent is a pretty strong result as a whole. Intelligent cloud showed strong growth and across the portfolio, Dynamics 365, another area that I focus quite a bit on showed growth above 30%, which means enterprise app investments are still growing as well.

I’m going to leave windows and some of that stuff to you because I know you spend a lot of time on that stuff and surface as well. But what I will say is I think Microsoft is probably one of the most interesting bellwethers as we try to figure out what’s going to happen in tech because they have exposure to both consumer and enterprise. They have small business and big enterprise clients. They have both cloud and prem. And of course the company is so diverse that it really can show you where you might see acceleration and deceleration.

I’ve been saying for a while that I think deflationary tech and things like enterprise and automation and AI will remain strong. Largely the numbers that you saw indicate that that’s the case. But they actually did fairly well in the other categories too. So I’ll leave it there. Pat, I’ll pass it over. But it was a miss, but it wasn’t a bad miss. And I don’t think it was a really bad quarter. They seemed to be pretty on top of what their earnings are and I’d like to see them beat, but I’m not upset about this result.

Patrick Moorhead: Listen, I’m going to take a victory lap because in the end I nailed it on my analysis. I think everybody was wrong because they leaned way too much into the spreadsheets and they didn’t fully understand the impact of foreign exchange. You can’t hold a company accountable when foreign exchange within three to six months vacillates so quickly. That’s not like a treasury mistake. And if you look at revenue was hit 4%, gross margin, 5%, EPS, 5%. That was my lead in to my analysis. They had a freaking great quarter.

And I think if I look at all of the earnings that went out this week, Microsoft won. And I know we don’t talk about that in equity land, but they did. I mean, look at the numbers on AWS and Google Cloud and then look at Azure. I mean, 46% constant currency. It’s obscene. Now AWS has a larger revenue base, but I got to tell you, you just cannot deny that they are on the move.

Microsoft has a very large consumer business, right? Gaming was down 6%, Windows was down considerably. And a lot of that is tied to consumer. But when I look at Office 365 was a little light at 15%, right? I’d like to see a SaaS business in the 20% range, but Dynamics 365, 30%. LinkedIn was crazy, right? Record engagement up 29%. And I think they’re benefiting a lot from the great resignation, right? Like where do you go to post your resume and where do recruiters come in to siphon it off?

One of the biggest places is LinkedIn. So they had an absolutely great quarter. Heck even surface was up 10%. Now, YOY, if you look at the previous quarter a year ago, it was a tough quarter for the surface team. They were not getting supply when a lot of the rest in the industry were. But as we’ve seen, the overall market was down 15%, 20% depending on whose numbers you trust.

Intel laid a giant egg on the PC market, is you saw they were saying that the market was down 10%. So Microsoft even did well in PCs. And we also saw that the Mac was down 10%. So again, sorry I usually don’t call my own number, but when I nail it, I nail it and everybody talk even hemming and hawing… Wait a second. Isn’t that what Biden uses? No. Talking about, oh, they missed their numbers. Yeah, they did but they didn’t.

Daniel Newman: Well, I think you’ve hit that one pretty well, Pat and I think we both can cheers our ability to read the market. I think a lot of people are missing those seculars too that a lot of components of Microsoft’s business are just simply not going to get whacked. I’ve got this kind of concept and I’m going to roll into the next one because I don’t want to spend too much more time here.

But I got this kind of concept that there are just certain companies that are above the fold right now, that are just… Remember the banks too big to fail? Well, they were probably deserved to fail, but these companies are actually too important to see macroeconomic issues smash them. And so we’ll talk about that when we get to well actually in the next one right here, right? Let’s get into Google, Pat.

Patrick Moorhead: Yeah, Google. Well, first of all, just to set the narrative and I’ll spend more time on Google Cloud than I will on overall Google. But I think people were really fearful of the big ad collapse after seeing how Snap did, right? And people were super worried. Now Meta came out after Google and they laid a giant egg, but Google’s really the bellwether for this.

And they’re not just ads, they’re a ton of content too. Because when you look at their ads are about 7 billion, Google search is 35 billion business. So overall ads, but they have a lot of properties that make them a little bit richer than just being an ad play. They certainly aren’t a social play, right? In fact, they get harangued for not being very good at that, but I want to focus on Google Cloud a little bit.

So their sales rep, 35%, not great I guess when you look at them as a leader, but a distant third place, right? You would want to see 40, 50% growth. But big growth is big growth. I think it’s good business. I think Google Cloud’s biggest challenge in translating the big deals and the big back leg they have into revenue is customer success, customer success group. And I just don’t think they have enough people to be able to fill those gaps.

There’s a lot of stories of Google signing billion dollar deals and then they’re $50 million in on the revenue. But I have been super impressed with how good they’ve become on the analytics data, AI and ML. And in many ways, and I have talked to a bunch of CIOs across the world, I’m not saying that sarcastically, it’s the truth, who are looking at Google as a potential number one or number two cloud provider for them.

And it takes time, right? Thomas Kurian hasn’t been in the helm long enough, cloud is over 10 years old. And T.K’s the right guy for the job, but he’s only been in for what? Three years. So it is going to take some time, but they are growing. Their loss increased to 267 million, but they increased sales by 1.6 billion. So I don’t think that’s a bad thing. And in the end investors were relieved at the advertising, they were up 3% after hours.

Daniel Newman: Yeah. The media spends a lot of time talking about the advertising business. And so I want to just touch on that really quickly. The numbers were really solid on the advertising side and that’s why the street responded positively. Again, another miss on top and bottom so it still didn’t hit what people expected.

But after some of the early earnings indications that we got from say Snap and how badly, I think there was a worry that there was an overall pullback on advertising. And as you’ve seen with whether it was LinkedIn on the specifically advertising tied to jobs or Google and Google Ads and YouTube, these are above the fold relationships that these companies have, is when a company says we’re going to pull back on advertising, what they mean by that is we’re going to do less Snap, we’re going to probably do less Pinterest, we’re going to do less Facebook, but we’re not going to do less Google.

And therefore Google still saw some really strong numbers, again, some deceleration. So maybe that is an indicator that the companies downstream aren’t doing as well in a tougher economy, but I call it the above the fold when it comes to spend, those companies are still putting a disproportionate amount of their dollars to Google when it comes to advertising. By the way, another company’s getting a lot of advertising nowadays is Amazon, interesting enough and we’ll talk about that later. Unsurprisingly should be to many of you.

The cloud numbers, Pat, you really hit on the head. I like what Google Cloud is doing. And by the way, you’ll probably hear from us quite a bit at Google Cloud next this year, the Six Five. Looks like we’ll be there, but they’re doing some things that are really smart. They’re zeroing in on some things, they’ve moved to a homegrown chip architecture where they’re going to work.

They made the partnership and they announced that. That should help them push margin up in the long term, give more optionality to their customers that are looking to lower costs or build more customization or whatever there. We’ve seen that work extremely well for AWS and it’s probably going to work very well for Google in the long run. I also like how they verticalized their cloud business quite a bit. They put a lot of effort into focusing on vertical clouds and they’ve really only just begun to do that.

So my feeling is in the long run, it’s a really, probably difficult move to bet against Google’s future growth. A couple things I think I would’ve liked to see them continue to narrow losses, but when you have the sort of piggy bank in your business that is the advertising business, I think Google can be pretty strategic. They know that the cloud business is still pretty small proportionately and they can spend money.

They’re spending on infrastructure, they’re spending on marketing, they’re spending on expansion because they know from a law of large number standpoint, they have to grow a lot more and a lot faster to start getting the critical mass. So while they didn’t narrow losses this quarter, they did still see 30 plus percent growth and I think that was a good result. So overall a really strong quarter for Alphabet and another company that landed above the fold.

Patrick Moorhead: Let me do a quick boomerang here. I wish they had an earning slide deck. I mean, could their earnings be any more boring and uninformative?

Daniel Newman: Yeah, they’re released. It’s terrible.

Patrick Moorhead: No, no. Yeah, it’s like a 1960s earnings press release, right? And I was thinking, well, maybe it’s because I don’t watch their call on YouTube, but there’s no visuals on YouTube when they do the video. It’s basically a picture of who’s talking and then that’s about it. And I think it’s important as Google diversifies and wants to get, Google needs to be talking more about Google Cloud in their earnings. And I really wish that they would pay more attention to it.

I mean, to me it’s very noticeable of what the company’s priorities are, is where they spend their time. And I get that okay, a big percentage of their revenue and profit are advertising and media properties like YouTube. But if they’re trying to change the narrative, which is, hey, I’m a company that’s more about that and earnings events have really turned into a more than an investor showing up, I think they need to talk more about it. So a little bit of a rant over. I am super excited for Google Cloud next.

Daniel Newman: Yeah, absolutely. Well, let’s move on to another fairly sizable company, Amazon. What do you think about that?

Patrick Moorhead: I think that’s great.

Daniel Newman: So Amazon, and I’m going to talk just really quickly about big Amazon and then I think we spend most of our time on AWS here. But big Amazon saw a very positive reaction, very positive reaction in the street because after Walmart’s results, I think everybody thought the business for Amazon might be in trouble. And I think what happened was is everybody stopped going to Walmart and they just started buying stuff at Amazon.

Now, again, remember, this is not even inclusive of the recent Prime Days which were huge record numbers, which should make the next quarter particularly interesting. But Amazon beat on revenue and then showed a loss. But I got to be very clear, the loss is 100% related to its investment in Rivian. That has proven so far to be an important partnership for the company’s sustainability ambitions, but a pretty unhelpful one in terms of the company’s recent earnings as they’ve had to write billions down over the last few quarters as Rivian lost so much value from the time in which Amazon invested.

The only other thing I’m going to talk about with Amazon, big A Amazon is- we just talked about advertising. So I did want to point out that while Meta and Snap and some of those others did have bad quarters, Amazon’s revenue beat on the advertising. And they’re not breaking it out, it’s an 8.76 billion-with a B -business for Amazon. I don’t think most people even think about the fact that Amazon has an ad business.

I mean, it’s not only become a business, it’s become a big one and it’s near 20% growth this quarter. So the company is seeing some really strong acceleration there. So I’ll quickly lean into the AWS number and then I’ll let you kind of take it because there’s not a massive amount to talk about here. But AWS grew 33%. It beat the expectations, albeit it was a slower growth.

And again, it kind of in the trend line of what I said about Azure and what we said about Google, is yes, there maybe is a little bit of slowing in terms of spend on cloud but the law of large number here, Pat, Amazon Web Services is a 19.7 billion a quarter business. It is almost an $80 billion run rate at this point. This company has done nothing but grow.

The products, the services, the platform, everything is expanding and it’s still early day for cloud, especially at the enterprise level, we think maybe about 10% of enterprise workloads and maybe about 25 to 30% of all workloads. So yes, it’s becoming I’d say a four plus horse race on public cloud right now. And hybrid has certainly been a winner.

And I think to some extent, AWS has had to acquiesce a little bit to the fact that multi-cloud is a real thing, but it still has such a strong position. It has such a large, would that be something like 39% of that IAS or something right now? Don’t quote me on that but I think I read that. That’s what the estimated AWS market share is what I think I read this week.

Huge market share there, continued product and service distribution, and really, really strong growth amidst the period of time when a lot of kind of the fear mongering cohort was trying to say that cloud was about to get squashed. If it is, it wasn’t this quarter.

Patrick Moorhead: Well said, Daniel very well said. No, I’m thinking about which nooks and crannies I can dive into. No, I feel like this is just a rinse and repeat for AWS. I’m a lot less focused on the rest of the company on earnings than you are, but AWS is a profit master. I mean, they delivered $5.7 billion in OP Bank. And by the way, the rest of the company lost 2.3 billion in OP Inc.

So literally there’s a… doing my math, an 8 billion difference there. And it’s funny I can’t help, but the thing is, I wonder if that’s going to be more fodder to have the company broken up. I mean can’t all the retailers out there basically now show the last two years of earnings that are clear that Amazon retail and media loses money and AWS enables it to profit up and maybe price below cost or something like that. I wonder how long this can go on.

And the AWS at an $80 billion annual run rate is just staggering. I mean, AWS on its own is one of the largest tech companies in existence in terms of revenue. And I wonder what the value of an AWS would be and a separated retail and media arm would be. I mean, I don’t do a lot of speculation, but it still just blows my mind. AWS had a tremendous amount of product introductions.

In fact, they introduced 200 products and services over the last 90 days. That is absolutely mind boggling to me. They also closed a bunch of big deals. I mean, they closed a deal with Delta Air Lines, with Riot Games, BT, AKA, British Telecommunications, investment banking firm Jefferies. So they’re just on the move. I think from a horizontal and vertical cloud point of view, it is slowly becoming a two horse race between AWS and Azure.

I mean, if you look at just the sheer size of these two companies, it is becoming that. I think there does need to be a strong third player. Strong and healthy markets have three people in a market. So I’d like to see Oracle, Google, right? Maybe even Alibaba. Actually, I don’t see them getting enough traction in Western Europe and North America. I doubt that they could be number three. But anyways, great stuff. I’m kind of rattling off and going off in different directions, but love it or hate it.

Daniel Newman: Speculation’s fun. And you did bring up some really good points. I actually kind of think the reason you can’t break Amazon up is because the company wouldn’t actually be able to function without AWS. It’s almost been well set up that way.

Patrick Moorhead: How do you feel if you’re one of the AWS folks and it’s like you got to lower your costs? It’s like I brought 5 billion to the table and you lost 2 billion. Why would I do that again?

Daniel Newman: Because revenue growth. Because people need their food and stuff delivered to their houses in one day because we can’t wait. We can’t wait eight hours Pat. I need it in four, I need it in four. All right so let’s move on. Let’s talk about the industrial operational technology, the edge, let’s talk about what’s going on in part of the world, by the way, that’s pretty robust, but sometimes we just drive by it and don’t pay any attention. But Honeywell jet planes, engines, buildings, edge, all kinds of environments that their technology sits in. And I think they did well.

Patrick Moorhead: Yeah, they did. In fact, they’re an industrial tech giant here and they’re in aerospace, building technologies, material technologies and safety and productivity services and products. And they have what’s called organic revenue that they break out, which is a little bit more like non-GAAP than anything else. But net net, I mean, Honeywell crushed it. I mean, they beat on the top, they beat on the bottom and they raised their guidance.

Aerospace kicked in increasing revenue, 5%, increased the gross margin by 80 basis points. Building technologies increased revenue, 14% increased profitability, 1.1%. Materials technology, organic revenue growth of 10%, increased gross margin by 1.5% and in all this crazy recession, oh my gosh. The sky’s falling. They raised their 2022 sales numbers, EPS and segment margins. I mean, and all of this makes sense, right? I mean, look at aerospace where one of their big markets is jets, avionic systems, right?

More people are flying up there in the airs. We’ve seen with airport profitability, heck even private jets are impacted I hear Daniel with avionic systems and things like that. But the longer you fly a plane, your engines wear out and you need to buy new Honeywell engines. It’s as simple as that. Material technologies, which is all about oil and gas and petrochemicals and even specialty chemicals.

Now that we’re getting back to supply chain, more normalcy, we’re not at normal yet. People need more of these chemicals and materials to make the products that they sell to other people. So all of this makes sense, and it’s great to see Honeywell, industrial tech giant that they are do well.

Daniel Newman: Yeah. And I think the couple of other things that you could dig into here, and I was actually at their headquarters yesterday, it was a live-

Patrick Moorhead: Yeah, so what were you doing there?

Daniel Newman: A lot of smiles and such going on, had a couple of things recording talking a little bit about industrial edge. But the company’s got a couple really interesting things going on. You mentioned a lot of what’s going on with aerospace. If you haven’t been paying attention, airlines are having record quarters right now. People are shrugging off any economic data that’s suggesting a pullback and they’re just spending relentlessly to travel, which by the way, is a great way to get rid of any extra income or savings that you have.

But it’s also important, I think sometimes in life that you smile. And travel makes people smile, which means it’s a good business to be in. This is a company that’s breaking through on things like urban air mobility and drones. I mean, they’re going to be one of the leaders for sure as we start to… Basically as we stop getting in Ubers and we start getting in flying Ubers, whatever those become, you can count that Honeywell’s going to be there.

Probably the one other thing that’s worth mentioning is the company’s been very, very proactive in the sustainability in terms of when you have the type of data at the industrial edge in manufacturing and in buildings and in schools and in life safety, that data is being turned into something that can be managed. If you haven’t heard about it, Honeywell’s got a data platform called the Honeywell Forge Platform, as data is being used for helping carbon capture partnerships, helping companies do energy management as a service, helping companies to be able to basically govern all of the greenwashing that is going on right now.

Pat we’ve shared some interesting things. ESG funds may be chock full of ExxonMobil and Conoco, but there are companies that are in the industrial business that are trying to take all the data and provide their customers real world, real time information that can be utilized to meet meaningful investments in climate action and carbon neutrality. So it was a good result, good quarter.

It does show that there is some robustness in industrial markets. And of course, like I said, the strength of air travel and that particular space, aerospace and aviation certainly is a nice tailwind for Honeywell. So moving on, topic number five, Pat. And I’m going to be candid when I say this might be the hardest one we have to do today, Intel.

So first of all, let me just say this. I don’t think Intel’s results surprised very many people. I think there was a pretty good sense in the market. Intel has benefited from some of the circular tailwinds over the last several quarters, but even when those circular tailwinds have been in place, hasn’t necessarily seen the same growth. Pat Gelsinger has been a bold, charismatic outspoken leader.

He’s pushing on the CHIPS Act, which that was a silver lining in its passage yesterday. But I mean, Intel missed with a significant amount, 29 cents versus 70, which was what was expected on their earnings. And they came in light by almost over 2.5 billion, 17.9 was the estimate in 15.3. The company basically came out and said there was some significant economic headwinds that were sudden and meaningful and had a big contribution.

The company saw its margin shrink considerably quarter over quarter, I think 50% a quarter ago to 36, which is a huge decline. In any one quarter period you had a 22% revenue decline in the quarter. And they said the sudden and rapid decline in economic activity was the largest driver. But I give credit because they didn’t just put all the blame on the external.

And I think it would’ve been really hard to put all the blame on the external when you saw Apple beat and you saw Qualcomm beat and you saw what we talked about with Alphabet, Microsoft, Amazon all having good quarters, different businesses, different businesses, but they all had good results. So it’s not like the whole economy declined. Effectively and like I said, I’ll let you do more of this Pat, the PC declined in a big way.

And the companies continued delays in their DCAI business, that business keeps changing names, but the DCAI business which their newest generation chips have been slow to get out the door. And so that has been a consistent issue over several quarters for the company. And now you’re hearing, you’re hearing Microsoft going in with ARM, hearing Google going in and the alarm bells are sounding a little bit. That doesn’t mean that Intel can’t recapture.

Intel is an absolute treasure in terms of technology innovation, R&D and leadership here in the United States. But we are seeing times change. And so the company’s got to put more pressure on, they’ve got to get more aggressive to hire and find the right people. And by the way, I’ll let you go through your tweet because your tweet was killer Pat. And I’ll just end here. There were some silver linings, it was not… Like I mentioned the CHIPS Act.

They’re seeing the network and edge business perform particularly well. You’re seeing the companies Mobileye business, which again, they are planning to spin off, but they’re holding tight to that. And I could see that holding on for another year right now because they’re not going to IPO it in this current economic climate. So that business is growing substantially for the company.

And I guess I’ll say some of the commentary from their CFO and from Pat Gelsinger was that they think this is sort of more or less the bottom. So big decline. If you believe in what they’re saying, if you believe in the vision of Pat and his leadership team, this could be sort of that inflection point for the company, but they have a lot of work to do. They’re going to have to prove a lot of people who are using this particular moment as a I told you so. But with the products on the horizon in areas of investment with the focus on the CHIPS Act, the company does have some tailwinds but execution still Pat is going to remain key.

Patrick Moorhead: Where do I start?

Daniel Newman: I left the whole PC thing for you because I figured you’d want to…

Patrick Moorhead: No, listen, there’s a ton to talk about. I think those with experience in the industry understand exactly what’s happening here. And I think there are a lot of people who are completely missing what’s happening. You can’t do anything with a broad brush here. First off, Intel has two core businesses, PCs and the data center. And that is where most of their revenue and most of their operating income comes from. And so you have to separate the two.

I was only surprised by one. I was completely unsurprised by the PC market. Why? Both IDC and Canalys were very clear. There was a 15% decline. So at a minimum, you would expect there to be a 15% decline on the PC group, but there was 25% decline in that revenue. Well, here’s the thing. Remember when all the OEMs, all the PCOEMs were bellyaching about inventory? Guess what?

Intel delivered, Intel spent extra money to fire up their fabs to supply their customers, the PC makers who wanted more chips. Demand went down and what did those OEMs do? They burned down that revenue. So you have a 15% reduction, you have your customers burning, 25%, that is not an execution issue in CCG. So that’s what’s happening. Should Intel have stiffed its customers and not given them the chips when they asked for it? I don’t know, maybe, but then they would’ve been persecuted for not taking care of their customers.

So we’re going to see with Lenovo, with HP and gosh Apple down 10% on MacBooks, but we’ll see how everybody… I have a seeking suspicion that the HP numbers won’t be great because they’re very closely correlated to the consumer market where there is waning demand. Now let’s talk about the other giant business. I was very surprised with DCAI. There was a little inventory burn, they’re getting trucked by AMD.

And I’m expecting AMD numbers to be phenomenal when it comes to the data center. Not too sure on AMD’s PC numbers yet. They’re very highly indexed to the consumer market as well. But there was also Sapphire Rapids, they had to do a full metal spin to take care of some security issues. These were the execution issues that Pat Gelsinger was talking about, which was that chip never should have made it this far in for those issues.

You have one set of customers who don’t run the… I don’t know exactly which software set it is where there’s security issues, but it is shipping Sapphire Rapids to customers that don’t run in a specific environment. That’s it. And then the other businesses, network and edge, Mobileye like you said, record revenue in both, graphics was up 5%. That is really surprising to me. But I think that has a lot to do with inventory channel fill.

And quite frankly, I don’t think they sold a lot of discrete mobile parts. There’s not a whole lot that are out there right now. And if they did, they’re the lower end, right? They’re three series. So where does this leave investors? And again, I’m an industry analyst, not an equities analyst. I don’t have a Series 7. I’m not allowed to give investment advice, but here’s what I think everybody needs to look at.

First of all, does Intel have the right strategy? Do they have the right people and culture? Are they targeting the right markets? Do they have the right roadmap? Do they have the right technology? Do they have stickiness outside of all those related to customers and channels? Will they make enough profit at it? Can they execute? I feel very confident about one through seven, the right strategy all the way, can they make money at it?

I think IFS is a winning strategy. I think they’re in the right markets. I mean, I will debate anybody anytime and maybe I’ll learn something and change my mind, but not so. I do think we will have some people that will be replaced at Intel based on the execution issues. Pat Gelsinger when he came in was very clear. We’re going to be a culture of execution. We will find the right people.

And by the way, that’s Fortune 500 cloak-and-dagger speak for I’m going to get rid of people who aren’t executing. By the way, very Lisa Su-ish by the way and very old Intel-ish. Gosh, remember the time at AMD quite frankly, a lot of the Net-Verse team after AMD came in and took 30 points of market share, they were all gone, right? Replaced by the Israeli team. But the only thing I’m not sure of is execute. I don’t know where… I would need inside information to be able to provide you my… I would have to see Gantt charts. So I don’t know, but it will be very evident very soon their degree of execution. And in DCAI with Sapphire Rapids, they kind of blew it.

Daniel Newman: That one was hard. I’m telling you, we got a lot of ground to cover, you did a great job.

Patrick Moorhead: One more thing. I think this MediaTek win for IFS is big. Now it’s more of lagging edge, right? Intel 16, which means it’s probably TVs and maybe some lower end tablet parts. But MediaTek is the fourth largest semiconductor company in the world and this is a big volume customer.

Daniel Newman: Well, there we go. Well, we got one last one. We got a big one. And by the way, this one will be, I won’t say it’s easier, there’s a lot of ground to cover here, Pat, but it is a happier story for sure, and that’s Qualcomm. I mean just crushed.

Patrick Moorhead: It just absolutely crushed it. Man, I got a big smile on my face just because I love to see it. I mean, if you remember a few years ago, Qualcomm being on the ropes, right? They’re going to be… Apple’s not paying their bills, they’re being sued by six of the largest antitrust groups on the planet, a hostile takeover from Broadcom. Did I miss something? I mean, it’s just nuts.

So here we are. Qualcomm knocked the fricking cover off the ball, beat on the top plus 37%, beat on the bottom, 54%, insane, record auto and record IoT. Increased the auto pipeline by $3 billion to 19 billion that is larger than most technology companies out there. Revised guidance down, but 24% improvement in EPS with all that macro uncertainty put in there and the market pays all that success back by dropping their stock, which is just really, really sad.

Net net, premium Android strategy is winning, right? Even handsets were up what? 59%. Diversification play with two record revenue quarters inside of auto and IoT. And let me finalize with Samsung, right? The Samsung deal should have been an absolute Keystone for them. But I do understand that the institutional investors don’t know how to change or revise their spreadsheet for a lot of the lack of information that publicly came out of that.

But the great part is as industry analysts, Daniel, we can take the shot. And so here’s my interpretation of the deals. First of all, deal with two deals. First one was an IP deal, seven year IP 3G to 6G. Okay. So ending in 2030, 6G hasn’t even been ratified yet, vote of confidence. And the second one, Snapdragon, Snapdragon premium everywhere at Samsung in products that have never seen it before like PC, like tablet, XR, wearables, and hearables.

So that plus 100% of galaxy S phones if they execute, which is up from 75%. Little bit of unknown about galaxy A. Is galaxy A premium? So Qualcomm has been in the galaxy A but they’re not in it right now. It’s Exynos and for a while, MediaTek was in there. So we don’t know. We’re going to have to see. Net net, institutional investors didn’t know how to fill in their spreadsheets on the deal.

Daniel Newman: Well, so you hit a lot of it and I’m just going to reiterate it. I mean, look just a very, very good result. Even the revision down resetting still shows strong growth. You saw the automotive pipeline bump to $19 billion. This company’s just on wind streak after wind streak and its whole modular approach to building the automobile. The future is definitely paying dividends. You’re seeing the IoT business remain strong.

There’s a company now that has all four of its businesses are over a billion a year, three of its four businesses now, not including licensing by the way are over and this is just in the QCT side, are well over a billion a year. And the handset business, which I know Cristiano wants to prove diversification and he has, but at the same time, it’s been so successful that it keeps running away. This was a 59% growth quarter and where Qualcomm is really crushing it is at the top end.

At the premium tier, there’s just no question. And that also has a lot to do with why the margin and it keeps growing too is when you can sell at the high end, that tends to always be a really, really great way to press your margins. That lower end stuff is great for volume and revenue, but not necessarily great for the bottom line.

The Samsung partnership was great. I see a great opportunity for it to push its ambitions. And you said hearables, wearables and then of course the connected PC business, which is something that we know is an opportunity right now for Qualcomm in particular, especially with all the things we just talked about on our last topic.

I guess probably not a great thing for Intel to have another strong competitor entering the fray, but with mobile devices becoming more ubiquitous from PC to handset, Qualcomm knows something about the handset and that part of our lives and maybe has something good to offer there. And we’ll see if that becomes a bigger, more robust part of the business.

So basically the long and short Pat is the diversification strategy’s working. The fact that Qualcomm basically taps into revenue on every single mobile handset on the planet that gets sold is not a bad deal for the company. That licensing business didn’t grow a lot, but it’s just steady Eddie.

And the fact that all the regulators for the moment are off the back has been a really good thing for the company to focus on growth, diversification, margin expansion, revenue expansion, and of course execution, which there’s really very little to complain about here. Pat, I think that’s it, I think that’s our show.

Patrick Moorhead: Look at that, look at those effects, huh?

Daniel Newman: Flashing the ticker. Another great week Earnings Palooza. There will be a splash of earnings that will come across the rest of the week. There was more this week we didn’t even get to. Five9 reported, big beat by the way, congrats to Rowan Trollope, Bill McDermott, ServiceNow, compressed to them on a beat. I mean a lot of wins Pat, considering we were supposed to have economic armageddon and the fact that we’ve changed, maybe the fact that we’ve changed the definition of recession this week also means that we can change the fact that not all companies are getting smashed in this current economy.

Patrick Moorhead: Yeah. How about that? How about that Daniel?

Daniel Newman: So, all right. Well, let’s wrap this baby up. Let’s say thank you everybody out there. Hit that subscribe button. Be part of our community. We love having you here at the Six Five. Send all your positive feedbacks to me @DanielNewmanUV. And anything that you didn’t like about the show, send to Pat. He loves to argue on Twitter. All right, so that’s it for now. We appreciate you all. Good job co-host and bestie, I’ll see you later. Bye-bye now.

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio