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GlobalFoundries Earnings, Luminar, Lenovo, Micron, NVIDIA & Apple’s Supply Chain Risk – The Six Five Webcast
by Daniel Newman | August 16, 2022

Leading global tech analysts Patrick Moorhead of Moor Insights & Strategy and Daniel Newman of Futurum Research are front and center on The Six Five analyzing the tech industry’s biggest news each and every week and also conducting interviews with tech industry “insiders” on a regular basis.

On this week’s show we will be talking:

  1. GlobalFoundries Earnings, Qualcomm Collab
  2. Luminar Earnings, Chips Act
  3. Lenovo Earnings
  4. Micron $40 Billion Memory Fab
  5. NVIDIA, Micron Warnings
  6. Apple’s Colossal Taiwan and China Supply Chain Risk

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. Welcome back to another episode of the Six Five Podcast. I’m Daniel Newman hosting today with my always esteemed and super handsome co-host in crime. I didn’t know what to say, because I actually knew I was lying. Anyways, but a very, very good afternoon, morning, night, wherever you are in the world. Another week. The Six Five, lots going on. Mr. Moorhead, let’s cook it.

Patrick Moorhead: How are you? It’s Friday. Doing what I love to do on a Friday. I’m glad I’m in Austin. I love being in Austin on a Friday. I looked at my watch this morning. I thought there’s something wrong. It said it was 77 degrees out. What’s going on? Is this global cooling? I mean, I don’t know what’s going on, but I was pretty happy about that.

Daniel Newman: Let me tell you this. I was up at five. I have a little bit of a ritual now that we’re so chaotic, so many trips and so many events and I try to get up early and get to the gym. It’s hot here. I don’t care if it’s 77 or 107, you walk outside and it’s like, you just, it just hits you. But you know what? After 40 years in Chicago, I’ll take it every single day, eating outside on Christmas Eve on the lake, on Easter, Austin, Texas is the best. I love it here. I’ve been here a year and I no longer tell people I’m from Chicago unless they pry. Nothing against you all Chicagoans. We appreciate you too.

Patrick Moorhead: Well, in fact, you never say you’re from Chicago. You say you’re from the suburbs of Chicago.

Daniel Newman: Yeah. So how that works is if I’m talking to someone I’ve never met, I’ll say Chicago or Chicago area.

Patrick Moorhead: Yeah.

Daniel Newman: But then if they prod me, like what part of Chicago, then I have to confess that I’m really actually from the suburbs. And I’m not sure what’s worse is to be from Chicago or to be from the suburb. It’s something I got to think a little bit more about actually, but anyways, we got a great show ahead today everybody. We’re going to be talking some earnings. We’re going to be talking about some big news in the chip space. We’re going to be talking a little bit about some warnings and we’re going to be talking a little bit about Apple and just another, oh my God moment. I’m not going to spoil it, but oh my God, Apple, what are you doing? Pat’s going to lean into this one and he’s going to tee it up for me and I’m going to swing the bat and I’m going to knock this out of the park. For everybody out there that hasn’t listened to Six Five before, first of all, what is wrong with you? We’re on episode 134. So-

Patrick Moorhead: That’s perfect.

Daniel Newman: We welcome you back and we hope you’ll stick with us. And we hope to be providing you the analysis of the biggest events in tech, the biggest launches, the news, the policy. We really cover a bit of everything, but it’s not about news. It’s about the analysis. It’s getting between the lines. That’s what we do here on the Six Five.

Now I do have to say little financial disclaimer. This show is for information and entertainment purposes only. And while we do talk about publicly trade companies on the Six Five, please do not take anything we say as investment advice. All right. So we got topics. We’re going to be talking GlobalFoundries, Luminar, Lenovo, Micron, NVIDIA and Snapple. I mean apple. Remember Snapple? I used to love, they had that one flavor. I can’t remember what it was, but it was so good. I don’t know how I ended up there, but maybe their bottles will say made in China as well. So anyways, Pat rock and roll, let’s dive in. GlobalFoundries, big week, some earnings, pretty good results. And also a new collaboration announced, which is like the second in two weeks if I’m not mistaken.

Patrick Moorhead: Man, GlobalFoundries is definitely on the rise. And it’s hard for me to turn on a CNBC or a Bloomberg without seeing CEO, Tom Caulfield, talking up the CHIPS Act and between him and Pat Gelsinger, I think the two of them, and I’ll put Arvind Krishna from IBM in there, probably did more to get the CHIPS Act moving and across the line. But if you’re not familiar with GlobalFoundries, they are a large specialty fab. They have operations that a Foundry, they have operations globally, hence the word GlobalFoundries. And they do incredible amount of analog technology. They’re using special types of materials and methods for things like photonics and networking.

They were in this bundle of companies that along with folks like even TI, when it came down to the supply chain crunch and the challenges of delivering as many, let’s say cars as people wanted. And then we’ve seen a lot of people have direct relationships with GlobalFoundries all the way to car makers and they just inked a big deal with Qualcomm that’s up the food chain, at least one notch. They added $4 billion to their wafer agreement. And that brings the total deal with Qualcomm for $7 billion. They didn’t talk exactly what it was about, but I think it’s RF quite frankly.

Daniel Newman: Good guess. Good guess.

Patrick Moorhead: Yeah. Yeah. And it’s not that in fact GlobalFoundries does actually do SOCs, but I am just, I think this is more than likely RF and they’re growing RF business, but Hey, let’s jump into earnings. How did they do? I mean, they pretty much broke records everywhere. They had record revenue, they had record gross margin, record operating income, record net income. They had a big beat on the bottom, 28% growth and a small 1% revenue beat. The biggest drivers were coms in infrastructure. And that was a 50% growth, IOT at 72% growth, automotive at 34%. And coming in the rear smartphone, which by the way, is very typical this quarter of growth of 14%. It’s funny, no need to cry about a double digit growth. But if the previous year and a half we had more like 20X percent growth in there.

And one blip on the radar was PC. As you may be aware, GlobalFoundries used to do the interconnect of AMD’s distributed architecture processors, the two and a half D technology. That was off 34%. And that’s really an unwinding of AMD, but really net net, exactly as you would expect a stellar result. And by the way, doing this at the same time that they’re putting all this effort into CHIPS Act, dealing with all of this supply chain challenges where quite frankly, they’re the solution.

Daniel Newman: Yeah. And the timing is great. With the company newly IPO, starting to show some record results is never a bad thing. We of course have hit this sort of demarcation in the chip market, where there are certain companies that are really robust, that will probably persevere through some of the slowing in parts of the market. And then there’s going to be other chip makers that are going to have some challenges ahead, especially those with a lot of exposure to sort of low end consumer, PC. You saw that in these numbers, but we’ve really seen that. I published a piece on MarketWatch yesterday that was kind of what did we learn from this quarter semiconductor results, Pat? And I mean, the long and short is we learned A, companies with more exposure to enterprise cloud and data center and those types of applications are showing a lot more resiliency. Companies that have more exposure to the consumer are showing weakness. Companies that have exposure to both are seemingly doing well on the first and poorly or less well on the latter.

And of course, there’s a, I’ve said this a few times over the last few weeks, there’s the components of beta and alpha. Some companies that are executing very well are doing better across the board. AMD did pretty well across the board, but you still saw a slowing in PC. Lattice Semiconductor did well across the board, but their consumer parts still struggled more than others. For GlobalFoundries, this was a really good result. It was a slow growth on overall revenue in terms of expectation 1%, but a beat is a beat right now. And when the market is tepid, beats are good in any capacity, record revenues, record opting, record net income, growth. And by the way, smartphone growth has been interesting as we’ve seen PC fall, because it appears that the demand for smartphones is much more resilient than the demand for PC. I think people cycle through them more rapidly. I think, there’s probably a lot of cases, but if you just look at Qualcomm’s earnings and TSMs earnings versus Intel, there was a pretty clear demarcation that not all consumer is created equal.

Patrick Moorhead: Exactly. Exactly.

Daniel Newman: And we’ll talk a little bit later on about some of the warnings that are coming out of this quarter, because we’re also seeing the impact of crypto on certain types. Everybody thinks about GPUs and gaming. I know I’m not just talking about GFS, but you really hit the macros. But on the macro and secular level, enterprises are still spending, inflationary tech in the data center. Companies are deploying applications and looking for getting more value out of their tech investments. It might slow a little bit. I like to use Pat the cloud numbers that we saw, all of which Google, Azure, and AWS all grew very healthily, but slower than their previous quarters. And I said, this is a quarter of normalization. Meaning for enterprise I see that as normalization, which might be 10 or 20% down from the peak growth rates, which means if you’re growing 40, maybe you’re growing 35 or 30, but for PC, it’s almost like it fell off a cliff.

It went from like double digit growth to double digit contraction. The only other thing to watch is going to be backlogs from all these companies. Backlogs, are they starting to wind down? Are they starting to grow? But if you look at GlobalFoundries, it appears the execution is in place. I’m going to say one other thing. Importance of these older processes are massively understated. We’ve spent so much time on the CHIPS Act talking all about 10 nanometer, seven nanometer, five nanometer. And of course we want to build resilience here in the US. GlobalFoundries is the penultimate example of a company that’s not focused on that particular process, but incredibly necessary, whether it’s in your smartphone or your automobile, those 18 and 30 and larger processes are going to be critical for a long time. We need to build resiliency across the board. That’s what they’re doing. So good job GlobalFoundries.

Patrick Moorhead: Well, and one thing I’ll add in there is they might be using larger geometries, but they’re using very leading edge materials or methods. So a good example is to get the highest performance Silicon photonics you need to use what’s called Silicon germanium, right? And that’s not used in standard CMOS, CPUs and GPU. And they optimize a substrate that has been around for a while, SOI. I was using this at AMD 20 years ago, but what they do is they apply certain methods to it, that other fabs just, that just can’t. So for instance, Intel doesn’t have that capability. They just flat out don’t have it. They don’t have the machine. doesn’t have that capability. They just flat out don’t have it. They don’t have the machines, which is the reason that they bought Tower Semi, who is very much in this space.

Daniel Newman: You nailed it. All right. Let’s move, heading on another semi-conductor company. Luminar Technology is one that we talk on this pod a lot about. And I think, Pat, what got us talking a lot about it was the opportunities that we’ve had in the past to actually experience what Luminar is doing. So we all know the autonomous vehicle of the future, electric vehicles they’re in vogue, the new deflation act, the Inflation Reduction Act-

Patrick Moorhead: Can you even say that with a straight face?

Daniel Newman: Can’t. I can’t. And by the way, it’s not partisan for me. It’s just stupidity. It’s purely stupidity. You can’t spend a trillion dollars or even close to that. Give a bunch of incentives to make people buy stuff, and then say, it’s going to reduce inflation. Disingenuous is a good word.

But anyways, it’s going to push forward EVs and it will be good, I think, for the EV industry. So who’s going to win there? Well, Tesla is going to win of course. Although we don’t recognize them as an EV maker here in the US apparently. But Luminar is a really interesting company in this particular space because they build a LIDAR based technology that can be added to the other traditional radar and vision, to be able to provide a safety profile in the next generation of autonomous driving that is incredibly impressive. We’ve done the side by side. We’ve experienced what it looks like in a swerve, in a straight on, in a child running out from behind a car situation. And Pat, we were always impressed.

So we’ve been following this company closely. Let’s just say this, it’s early day. So we just got done talking about a company doing billions in revenue. Luminar is still very small in terms of its revenue. This is a company publicly traded has over $600 million in cash on the balance sheet, but is doing about 10 million during Q2. Growing at 57% on a year over year basis, losing money at this point. But it’s investing massively in future growth, company has some really great OEM partnerships companies like Nissan companies like Mercedes-Benz, Volvo are looking at using the technology that have provided. This is building up one of these multi hundreds of million/billion dollar pipelines for Luminar.

So the longer term, the company’s expanding, it’s investing, it’s adding factory and fabrication in Mexico. And really this is a company that’s building for the future. We all know the process of moving from here to full autonomy is going to take multiple years. We all know that safety sometimes takes a backseat, that’s a great metaphor, to price and efficiency. LIDAR has historically been more expensive. Although this company is building economies of scale to take the cost of LIDAR, putting it into vehicles and making it affordable for everyone. And by the way, if you value your life you might want to think about using the best technology, not the one that doesn’t just crash into buildings.

Patrick Moorhead: Oh, but it’s so fun.

Daniel Newman: I’m just saying that are certain companies that are using purely computer vision that have a little bit of a track record of running into things.

Patrick Moorhead: Oh, come on. Certain companies. You mean Tesla, come on. Let it rip, let it rip.

Daniel Newman: I let you let it rip. I’m here to be diplomatic.

Patrick Moorhead: All right. Okay. All right.

Daniel Newman: I’m diplomatic. You’re the let it ripper of the show. But anyways, so I guess long and short the company put on it basically is presentation. Listen through it. Again, this is a long term company that you have to think is in a great position. They’re seeing big growth in commercial wins, 60%. They’re seeing big growth in order books, 60% forward looking order. They’re calling for something like 40, 45 million in revenue. So again, it’s not today wildly massive production thing, but you look at the partners they have you look at the technology, the importance of combining all the different sensors in a vehicle, and then you build it forward in some of the world’s most prolific companies, F1 almost champions, Mercedes Benz. Nissan. I didn’t know if you drop it in there. I know you’re a Red Bull guy. But long and short is I think they’re on the right path. You and I’ve talked many times as CEO, Austin Russell. I like where it’s heading, I like the fact that the technology is being built with the long term in mind, good future, decent result and I think it’s just a company to watch. If you believe ADAS is the future, you can’t rule out Luminar.

Patrick Moorhead: Yeah. I wanted to hit on a few things. So one of the things that I really appreciated was them giving finer granularity on where they were to hit their, as they call it, exponential scale. And that’s the ability to deliver 230, 250,000 units a year. And if you look at some of the other LIDAR folks out there, they look the other way when you ask them about high volume manufacturing and the details about that. As you can see in the lower right hand corner, they provided a lot of information out there. A dedicated facility which would be online in the second half of next year. I thought that was a super interesting piece and that kind of got me thinking, which was, hey, it seems like Luminar should be able to get access to the CHIPS Act money because they do have many patents and they do research on packaging for LIDAR that other people simply don’t do.

Again, I never thought of Luminar and a potential CHIPS Act recipient, but if they’re doing research, which they are, they are working with partners. I don’t think CHIPS Act to open up stuff in Mexico is going to fly, it won’t. But the core research on manufacturing, LIDAR and LIDAR SOCs, I think they should have a pretty good shot.

The other thing that I thought was interesting this week, and Daniel, you intimated it a little bit here. Let me pull this up. Austin was actually on Fox Business News, and they wanted his response to Nader calling Tesla’s manslaughter machines. It was funny, you and I at CES, we saw up front and personal the Tesla hitting the kid because it didn’t have the ability to swerve out of the way. And Daniel, you might not even have the, I don’t know, the history of who Ralph Nader even is. But yeah, he was the big death at any speed really got seat belts as a standard operating unit. But the macro point here is can Tesla make a safe car without LIDAR?

Anyways, good stuff. I didn’t talk at all about Luminar earnings. I talked about a couple other things, but they’re in the news doing some really interesting stuff, Daniel.

Daniel Newman: Well when we do our best work here we leave each other something to talk about. But when we do our best self aggrandizing we cover everything and then we leave the other and see what we’re capable of here. But I do like that you called out the things, folks at Lumina are going to love you for calling those things out because I didn’t mention it but I did think about it. Some of the R and D stuff, this has to be part of this CHIPS and science Act. We have to be looking at innovators and disruptors. So really good call out there Pat, I’m glad you caught that.

All right, let’s move on another big quarter for Lenovo. And this is one that could have gone either way coming with a lot of exposure to PC, but did they grow?

Patrick Moorhead: Yeah, so you and I both had the chance to catch up with both Kirk and Ken last night. So Kirk runs the data center and edge business, and Ken runs the services business, to really get underneath the numbers. And Daniel, we’ve talked about this a lot, you and I, we’re not equities analysts we’re industry analysts but we love the source of truth that we get from these earnings. When you’re trying to analyze Lenovo they’ve documents for the US and they have documents for Hong Kong and they’re a little bit different, which makes it a little bit challenging to get underneath. They do have the element of non GAAP and it’s NHK FRS. And if you want me to tell you what that is, I’m going to have to look it up, but it’s basically non GAAP numbers.

So how did they do? In a really turbulent time for PCs, the revenue was flat, but record at 16.96 billion. By the way, that was a squeaker, right? Because year over year was very close to that. Revenue was up 0.2%, gross profit dollars were up 2%. Net income was up 11%, but record at half a billion dollars non GAAP or non Hong Kong FRS. So ninth straight quarters of earnings and profitability growth. The company really wanted to point out the newish businesses are growing double digit. I wish they hadn’t done this because they put ISG and MBG in there that have been out there for eight years. I don’t consider those new businesses. Headcount was up 29%. R and D was up 10%. And Lenovo quarter on quarter really goes out of their way to talk about how they’re increasing R and D, which not a whole lot of people can.

So SSG, they lead with services, which in itself is a statement of their services led and software led transformation. Revenue was up 23%. We got the ability to talk to Ken last night, there’s not a whole lot. I feel like I can say about the call because it was NDA. But on the managed services point of view, X is a service, everything is a service is growing big time, whether that’s true scale or Daaz. The interesting part is they bought a consultant PWWC, I think that’s the name of the company. They’re actually building scale in countries where they don’t necessarily have integrators and partners. So, that’s going to be part of this solutions part. ISG, record revenue, two billion, I love the flag plant. For the first time, I actually started comparing them revenue wise to HPE and Dell. I mean, my gosh, CSP, record revenue. Server, record revenue. Storage, record revenue. Edge, record revenue. Still number one in top 500 super computing. I want to call out their movements next year to 100% PCA manufacturing. And Kirk did share a few things that I absolutely can’t talk about on what he has up his sleeve next year, but these guys are nailing it.

Daniel Newman: Wait, you didn’t tweet it?

Patrick Moorhead: Definitely not, because he said, “Don’t tweet it.”

Daniel Newman: Don’t tweet it?

Patrick Moorhead: Yeah. Yeah.

Daniel Newman: We know something you don’t know.

Patrick Moorhead: Exactly. And I’m not going to tell you ever.

Daniel Newman: Part of what makes us good though.

Patrick Moorhead: Maybe, maybe.

Daniel Newman: I mean, it’s having that information.

Patrick Moorhead: Yeah. So listen, the PC, tough quarter. I mean, PCs are down big time as a market. They do have phone; I mean, their smartphone revenue is up 21% as the entire business was down. I wish they would’ve broken out the PC business, but I’m sure I can back into it financially. But I think a pretty big statement that 22% of IDG was non PC. So that’s tablets, phones, collaboration equipment, accessories, stuff like that. So I’ll wait to comment on the PC business, wait for Dell and HP; but all in all, diversified company, software and services led is the name of the game. And they’re not just talking about it, they’re doing it.

Daniel Newman: Yeah. Lenovo, I actually mentioned this in the piece, I said it’s going to be really interesting; in my MarketWatch piece; the next quarter, because HP I think is the most vulnerable to this PC pullback, because obviously PC print and peripherals, it’s their whole world over there at HP Inc. It’s going to be something to watch. Is it a situation where they unload a lot of backlog and have another decent quarter and then hopefully it can pick up steam in this future quarter? Or if the numbers from Intel and AMD are indicative, there’s going to have to be fallout somewhere. You mentioned here, PC was more or less flat, right? If I’m looking at this right, the PC was down just a little bit for Lenovo, but their growth came from everything else. But since PC is a large percentage of the overall business, it ended up being a fairly small amount of growth. It’s one of those things where a lot of nets and puts and takes put it all together.

But in this quarter, like I said, Beats are good, growth is good. We’re in this inflection point, multiple years of pull forward revenue, multiple years of rapid investment, money being dumped out of planes and helicopters on companies and people, and they’ve been spending it on their businesses. Normalization is the key right now. Good growth coming in the multiple towers, SSG likes to call it the three towers. Growth across the board. Impressive. Very watchful eye on TruScale. That’s a really interesting business for me, the whole on-prem cloud concept; very efficient, economical approach to being a hybrid cloud partner to the hyper scalers. Not trying to boil the world with software, like some of its competitors are. And I’m not saying that’s good or bad, they’re just pretty committed to what their approach is over in SSG.

The infrastructure group, like Pat, you said, can’t say a lot of details. But man, when we get under the hood of some of the wins that this company has in the infrastructure part of the business, incredibly impressive. Don’t for a minute think that Lenovo isn’t finding ways into some of the world’s most prolific companies in almost every industry. It’s a very impressive revenue growth in this business unit against formidable competition. And the company has done it through great execution, really nailing it on the supply chain, focusing on ESG. And again, it is a Chinese based company. And so that is something that they, I feel have managed incredibly well given all the geopolitical tension, versus some of the other companies out there. The only other thing I think I would add, Pat, is on the device side it looks like Motorola’s having a bit of a revival.

Patrick Moorhead: Yeah, it’s kind of crazy how they’re doing.

Daniel Newman: I grew up with the Razr. I mean Motorola, again, just goes back, maybe we’re just tying threads together, it goes back to my upbringing in Chicago, but it was a humongous presence in Chicago. It was probably one of the largest employers for a long time. Of course the company went through some iterations and acquisitions and got moved around in the brand and never really found its footing after the Razr, you could argue that.

But suddenly on a worldwide scale, they’re starting to get real market share in markets like South America, huge market share. But also with some of the changes that have taken place with Huawei finding its way out, with LG leaving the US, suddenly Motorola’s finding a bit of a footing here and it’s becoming impressive that it might actually become one of the top… Samsung would be tough, but after Samsung, I mean there’s every opportunity for Motorola to be next here on the Android side, and that’s great for Lenovo. So a good quarter, good result, good growth, and it’s always great to get those executive views and hear what’s going on over there.

Patrick Moorhead: Yeah. Maybe we’ll hear the view from the PC group.

Daniel Newman: This was also a really interesting week because, Pat, you had a great post on LinkedIn about all the flag planting by every CEO in the semiconductor space, whereas there was three or four that were actually really visible throughout the whole process, and then there were 100 that were taking pictures on the front lawn of the White House.

Patrick Moorhead: I’ve got to tell you, man, I got 20,000 views of that tweet. There were no graphics. And guess who the demographic who looked at it the most?

Daniel Newman: CEOs.

Patrick Moorhead: CEOs.

Daniel Newman: Yeah. Well, we know you’re watching.

Patrick Moorhead: We know who you are.

Daniel Newman: We know who you are. But yeah, I mean, your post was effectively just talking about the fact that there was a small subset of CEOs that took big interest in the CHIPS and Science Act, and then there were a number that were signing on and tagging along for the ride, but weren’t very active. And again, there’s different reasons and there’s certainly a disproportionate amount of dollars that could be attributed to certain companies. Those that are planning to build fabs and manufacture chips here in the US got more money. Now, there is another 200 billion that will be appropriated for various R&D and innovation that now maybe we’ll hear everybody come out and talk about, but that’s a little bit less the news, but I just couldn’t resist tying this in.

Patrick Moorhead: And by the way, the White House invites you, you’re going to go, but I had to bring it up.

Daniel Newman: Why didn’t we get invited?

Patrick Moorhead: I don’t know.

Daniel Newman: I did like 50 television appearances talking about how this needed to be done.

Patrick Moorhead: Brother, I know. In the Six Five Summit, I would say at least three quarters of the folks mentioned in one way or another the CHIPS Act. So I don’t know, maybe it’s my Twitter feed. I’m sorry, Daniel, if I blew your-

Daniel Newman: I think you got me banned.

Patrick Moorhead: I don’t know. Maybe they did a security check on you and they’re like, “Nope.”

Daniel Newman: Yeah. They were like, “Too much hair, too much hair.” All right. So like GlobalFoundries, Micron’s another big manufacturer, obviously in the memory space is the focus for Micron. And we’re going to talk quite a bit about Micron actually for the next 10 minutes. But the company announced now the plan to invest another $40 billion between now and 2030 to make chips in the US. Of course, this is going to be supported by the CHIPS and Science Act that got signed into law this week.

And in really good news, Micron has said; now, this is a big part of why we did it; this is going to create upwards of 40,000 jobs, including 5,000 highly paid technical and operational roles. This capacity would basically take the US market share of memory chip production from 2% to 10%. Huge deal. Now again, this is sort of an early flag plant, early into the post CHIPS and Science Act. I’m guessing that we’re going to hear more of these kinds of announcements from manufacturers, foundries, fabricators here in the US, but it was a big moment for the company. We’ve talked, Pat, probably, it feels like after last week, what do we do? The 232 NAND.

Patrick Moorhead: Yeah, 232-Layer NAND. Yeah.

Daniel Newman: This is less technical, but Micron’s come up more and more. And the long and short of it is the critical nature of memory as compute and performance continues to be enhanced is that memory has to come along for the ride. And Micron becomes a really awesome bellwether to how the monolithic and new packaging technologies are going to perform, because you know the memory has to come along for the ride. All these new technologies, all these new processes are going to require more memory. So effectively we’ve now had GlobalFoundries make the announcement, we’ve had Intel make their 100 billion announcement, and now Micron’s stepping up and making a 40 billion announcement.

Now just for reference, China has 40 projects right now if I understand it correctly, building more manufacturing capacity. Taiwan has 20 projects. So we’re still early days here. We might have put up 52 billion, and we may have heard from Micron, GlobalFoundries, and Intel, all expanding capacity, but we still got a lot of work left to do. But it’s good for Micron to continue investing here. It’s been a company that’s been investing here, planning to invest more here in the US, Pat. And it was just something worth calling out this week.

Patrick Moorhead: Yeah, I mean Chinese government invested $200 billion to build semiconductor plants. And what do we do here in the US is we put that $200 billion into woke programs who don’t actually move industry or science or national security forward. So yeah, I mean I do the golf clap on that 50 billion, but compared to what China is investing, it’s not a whole lot. And Daniel, I’m going to hit on I think just the strategic nature of memory and storage. So for years, 40, 50 years, it was really processors that were on top of the food chain that dictated the architecture, let’s say of a data center, or the architecture of a PC or a smartphone. And I could argue that you can affiliate that and I could argue that you can affiliate that or compare that, memory is so tightly coupled with compute that it’s as strategic. Now, with CXL, which is high speed interface and the ability to have memory as a composable piece of the architecture, it completely is going to change the architecture of the data centers. All the big data center folks are going to have to rearchitect it over the next five years. So, I can say with confidence that in the data center, memory has equal footing with processing and storage now, hence it’s importance and the addition of this $40 billion investment.

Daniel Newman: Yeah. You hit it on the head, Pat. We’ve got to keep it running along here. But big news and we’ve been talking about this a lot, not going to go away anytime soon and great call all the memory stuff. So let’s go on to our last two topics. We’re going to kind of keep the thread going here momentarily about Micron and NVIDIA, and Pat was just worth noting, so you and I have been pretty bullish throughout this conversation about the overall enterprise technology space, but we’ve called out the PC space a little bit, but there was a few warnings that came out this week that maybe brought some concern to what’s going on in the entire chip space.

Now, while markets are rallying, the NASDAQs up 20% and possibly coming out of market. CPIs down, PPIs down, everybody thinks the world’s good again. Well, Micron CEO, Sanjay Mehrotra came out and said that, “Ooh, we’re not just seeing slowing in PC memory. We’re seeing slowing in all memory, IOT, automotive, data center, which could mean weaker results.” Even though last quarter, their results in the data center held them up pretty strongly.

And then on another note, NVIDIA came out and bombed. I mean, for NVIDIA, this was absolutely the bomb. I mean 6.7 billion versus 8.1. They came out two weeks early to basically let everybody know that this is going to be bad. Which is you got to remember, this is a company that’s come over record after record after record result, huge growth, high double digits, sometimes triple in data centering and gaming. And so, off the top, really quickly about gaming. That’s what they put as the big miss. I think everybody is speculating that it’s not really gaming because there’s some indicators in, we’ve talked to some of our manufacturers that are actually saying gaming is still somewhat strong, but what happens when you flood, I don’t know the number Pat, but thousands, millions of GPUs into the market that are no longer being used for crypto mining and you make them available. I think that might slow down the demand.

We saw this in Best Buy’s numbers because Best Buy had a rough quarter and the stuff all starts to tie together. This is a supply chain thread of what the real world looks like when you couldn’t get the GPUs for a long time. Now you can get them. And it went from completely unavailable to widely available. I don’t know how much we’ll hear about the realities of crypto and the mining business during this crypto, winter and its impact on NVIDIA but I think it’s bigger than it’s being indicated here, Pat.

Of course gaming may have slowed down with other discretionary. Now on the other note, data center is only set to grow 1% sequentially, but it is still 61% year over year. So the data center’s not as big of a problem, it looks like it’s okay. But the overall growth of gaming was kind of shocking.

But the note from Arocha is probably more shocking than the rest of it because they had such a great quarter then the previous one. There was such a resiliency and strength. We heard from things like Lattice. We heard from AMD that had great results. And so it’s kind of been interesting to watch this bifurcation between smartphone seemed to be holding up. PCs seem to be down. Gaming, it’s not quite clear after a quarter. Enterprise, you got companies that are kind of looking strong. The Cloud seems robust so the pullback seems small, but some companies aren’t growing as fast in the data center as others. So you’re kind of seeing this bifurcation that’s going on and what I’ve ultimately has come clear is it’s really unclear what’s going to happen for semiconductors going forward.

But what I will say and I stick to my concept deflationary tech will rule. Companies will keep spending in the data center. They’re going to spend to reduce head count. They’re going to spend to make processes more efficient. That means Cloud, SAS, Enterprise, Edge, AI. Consumer is more tepid, more volatile. That’s all I can say about that. But I do think the top end premium products based on what TSM, Qualcomm and Apple have reported are going to do better just like vehicles, top end vehicles. People keep buying them because guess what? Rich people are rich in every single economy pack. So I’m going to pause there, but that is what’s going on with the warnings.

Patrick Moorhead: Yeah. So Omnicom I mean, listen, they’re ahead of Samsung and KIOXIA with technology. They’re not as large from a fab point of view, but long term there’s going to be demand and being first to market with technologies like 232 layer NAND is a big fricking deal. And then on NVIDIA, listen, I do believe that gaming is down a little bit. There’s so many things going on in gaming. Gaming is down a little bit from pandemic. We’re not just in our houses, but the second part is there hasn’t been a major title that has swung people around the room and that is what gets people to upgrade graphics. The third thing is NVIDIA is about to lay in their next generation architecture. My guess is that it’s going to be announced at GTC. So you have some inventory stuff going on.

The fourth thing is that every other coin except for Ethereum and Bitcoin, Ethereum 2 and Bitcoin is done on GPUs. I don’t think this has any regard for the long term viability of the company or the long term viability of gaming as a market. It’s going to get a lot cleaner. I think we’ve probably got, NVIDIA probably has two quarters of inventory needs to burn through. And at that point, the new 4,000 series is going to be out. NVIDIA, sorry AMD is going to be out with their new one and Intel will probably be taken down a few notches. My guess, below that $400 point. So nobody panic, nothing has structurally changed with NVIDIA or Micron.

Daniel Newman: I made NVIDIA my recommendation when I went on Squawk last time. I still recommend it. I’m not saying it’s bad. I’m just saying this is the normalization process, Pat.

Patrick Moorhead: It’s down to the reasonable price too.

Daniel Newman: Yes. Right on. So take us home. All Apple products are made in…

Patrick Moorhead: All Apple semi-conductors are made in Taiwan and a lot of the piece parts that go into every one of their devices are made in China. Now it just hit me, I was having dinner with a person I really respect in the semiconductor industry, a guy named Syed Alum who runs the practice, semiconductor practice at Accenture. And we were just kind of talking about how much supply chains for different companies and it really dawned on me that the colossal risk that Apple has. So Apple is currently worth right now, $2.74 trillion. 100% of its CPUs are made out of TSMC in Taiwan. And is there a chance that China invades Taiwan, heck maybe they just take over TSMC, what happens to Apple? What happens for its ability to crank out these parts? I think people say there’s just no way that would happen.

Well, what was Germany saying before Russia invaded Ukraine, right? There’s no way, right? Like, “Hey, this is a good thing. We’re going to outsource all our natural gas to Russia.” And now when I talk to my German friends, they’re like, “How did we get here?” It’s so obvious, right? And are we going to be at this place, having this conversation where Apple can’t ship and we’re like, “Well of course. They didn’t diversify their supply chain enough.” Does this mean that other manufacturers aren’t as at risk, they are at risk. They’re just not as big a risk, right?

Samsung, right? Not as risky. HP, Dell and Lenovo, not as high risk because the exposure, if you’re buying Intel, a lot of those leading edge processors are made on the west coast of the United States. Are there a lot of other things that are made out of China? Yes. But those lead times for leading edge, if something happened at TSMC, a lot of companies would go down. But the fact that 2.7 trillion of market capital is at risk, I find absolutely spell binding and can’t believe that people are ignoring it.

Daniel Newman: So there you have it, Pat, I’ll leave it at this, craziness, absolute insanity, doing war time drills off the coast of Taiwan and everybody’s just shaking it off. It’s absolutely crazy to me. We know what this means. We passed a bill. It’s more than two years away before we’re getting any relief. And by the way, that doesn’t do anything for, I mean, is Apple going to crawl back to Intel? I mean, who’s going make their chips if something was to happen in Taiwan.

Patrick Moorhead: I don’t know. Or is Apple just cozying up with China right now by doing stuff like this, right? Apple has Taiwanese suppliers to label products made in China, right? Is that a giant suck up to China and a giant slap in the face to Taiwan?

Daniel Newman: Listen, we have covered this, Pat. This is freaking insane. It is crazy. And by the way, this is the Guardian. So all right, the Guardian called it. You called it. I called it. This is not partisan. This is insanity. I don’t know what’s going on. Long and short, we have a real risk here. Hopefully people don’t forget about it. The Chips Act will not fix this instantaneously, if at all. We need to keep being resilient and keep thinking about how we would handle a situation like what happened in Russia and Ukraine. Hopefully we do. I bet we won’t. It’s just not in our society these days to think about anything more than what’s right in front of us, Pat, but that’s why we’re here to do that every week. So thank everybody for tuning in, another great episode. We appreciate you very much. Send your great comments to me, Twitter @danielnewmanUV, everything else to Patrick Moorhead. We love our community. Thanks for tuning in. We’ll see you later.

Patrick Moorhead: Take care everybody.

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