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Intel Fab Co-Investment, Zoom Perspectives, Salesforce, NVIDIA, Dell Tech & Marvell Earnings – The Six Five Webcast
by Daniel Newman | August 30, 2022

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

On deck this week is:

  1. Intel “SCIP” Fab Co-Investment Program
  2. Salesforce Earnings
  3. NVIDIA Earnings
  4. Zoom Earnings, Perspectives Analyst Event
  5. Dell Earnings
  6. Marvell Earnings

For a deeper diver into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.

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. Daniel Newman, joined by my always esteemed, super handsome, good-looking co-podcast partner in crime looking at me. He’s blushing. He’s blushing, in crime, Mr. Patrick Moorhead. Patrick, good morning. Welcome to episode 136. Can you believe that?

Patrick Moorhead: I can’t believe that, then again, I can. But literally, it’s the thing I look forward to most of all during the week. But God, I just feel like I’m back on the road again. This whole gone Monday through Wednesday, back, a little bit of Thursday and Friday. I mean, we are back, baby.

Daniel Newman: We are back. We are on the road. I don’t know yet what timezone I’m in. I think I was in nine days at one point last week. We were busy. Another crazy week of tech news, tech earnings. This is going to be an earnings palooza lite because we didn’t quite get six out of six. We could have if we wanted to, but we didn’t want to. We actually consciously said, “We’ve got to not just do another earnings show.”

Patrick Moorhead: I’m with you, brother.

Daniel Newman: But what a wave of earnings. And then the implications of what’s going on in the market probably is something that we could provide some context to everybody out there, and that’s really what we do here on The Six Five. We’re not equities guys, but we do believe this is kind of a moment of truth. We are in an economic impasse right now. A lot of people are wondering what kind of inflection point this is. Hopefully, here on the show, we can help you all figure that out.

So we got a great show today. We’re going to be talking Intel, Zoom, Salesforce, NVIDIA, Dell, and Marvell. For those of you new to The Six Five Podcast, the concept was six topics, five minutes each. Let’s just say we have fallen off that wagon, but we do do six topics, but they will definitely not be for five minutes each. Since we have already kind of broken the news that we will be talking about earnings, I’m going to do the quick rundown there as well. This show is for information and entertainment purposes only. And while we will be talking about publicly traded companies, please do not take anything we say as investment advice.

And then finally, I’m looking at the camera, okay? I’m looking at the camera. I want you to make note of that right now, because I know how to look at the camera. The problem is, is when you need to have as much information on as many topics as we do, sometimes you got to look at your notes. That’s the real truth of what’s going on. And I’m not as good at keeping my eyes on my notes as Patrick is, but don’t, for a minute, mistake and think that he’s doing this all by memory. We work very hard to bring you this show week in and week out to tell you what’s going on, but there is absolutely no way we have all this in our heads by memory. All right. Taking a breath. How did I do?

Patrick Moorhead: You don’t? You don’t? You don’t have all this in your head?

Daniel Newman: I might.

Patrick Moorhead: Okay. I can’t believe you didn’t even bring up that you were on the road for 11 days. Did you forget?

Daniel Newman: No, I said I was in nine times. I kind of mentioned it, but you were probably reading your notes when I said that and you probably weren’t looking at me.

Patrick Moorhead: I probably was, but you couldn’t tell. It looked like I was paying attention to you because I was looking at my notes for the next topic.

Daniel Newman: You certainly do it better than me when I’m on the road and I’m working off of a laptop with a camera, because the problem is, when you have your good setup, you can sort of position everything on the screen and then you can have the video here and you look in here and then your notes, you glance, but you come back.

When you’re on the little tiny screen, you really are trying to navigate between having the video up and having all your notes up and switching tabs, and it’s just not as good.

And if a perfect world came, Pat, we could just teleport in and out of the meetings, and I could always be at home or in my studio on Friday. I share it on social, my CNBC is set up. We always like to do our victory laps. I did Squawk Box this week, and I had a leather chair in a hotel room pressed against the white wall. I used an end table next to the bed that I ripped the phone and the lamp off of, put it in front of the chair. I put two garbage cans upside down on top of the table, and then I took a Keurig coffee maker, stacked it on top of the garbage can, stacked the light on it, and then put the camera on front of it. It was absolutely the most trailer-looking setup I’d ever seen, but it looked okay on TV.

So we figure this stuff out. We’re handy. This is almost like Popular Mechanics, Moorhead, but we figure it out. But you know where I’d rather be? I’d rather be at home on Friday, like I am right now, podding with my bestie. You ready to rock and roll this show?

Patrick Moorhead: I’m ready to rock and roll. Let’s dive in right now. But I’m not going to try to take over as host, because I do know who the host is this week. It’s Daniel.

Daniel Newman: You know what? You know what? You know what? Sometimes, when you’ve been in 10 timezones or nine and you haven’t slept in a while, you get delirious and you get so excited about your podcast, and you just want to take it over. Patrick, let’s do the one non-earnings topic, a big one, Intel. Mr. Gelsinger, David Zinsner announced a big new initiative, Smart Capital program. Talk about it. What does it mean?

Patrick Moorhead: Yeah. So I got a chance to talk to Intel CFO David Zinsner before the announcement went out just to make sure that I understood this, because we like to talk about chips because chips are eating the world. But let me step back here. Intel, since Pat Gelsinger came back on the scene, really doubled down at being a manufacturing powerhouse. There were some questions with the prior CEO on whether they would spin that off some way, shape, or form, but Gelsinger came in and just doubled down on it.

And there was the moniker of the overall strategy, which was called IDM, which stands for integrated device manufacturer 2.0, which said that not only was Intel going to double down on its own fabs, it was going to work with other foundries, but everybody had the big question of, “Well, how is this going to get funded?” So we saw what happened with the CHIPS Act, not only in the United States, but also in Western Europe. That’s one source of funding. But what about the rest?

Well, Intel came out with SCIP, which stands for Semiconductor Co-Investment Program. It is a partner model very similar to what we see in energy when they’re building things like nuclear power plants, dams, and hydroelectric power plants. And what they’ve done is, Intel has partnered specifically on the Arizona fab. This is a $30 billion investment with Brookfield Asset Management, their big alternative asset manager, and they will provide 49% of the funding and Intel will provide 51% and have a controlling stake, and they’re going to share, right? It’s basically a rev share, which those terms are not known yet.

But here’s all I needed to know, which was the rate… There’s multiple ways to get funding. You can pay for cash. You can get debt. There are different ways to do this. You can do it with equity, and you can do a JV, like we have here. So this is lower than Intel’s weighted average cost capital. And essentially, you don’t need to have a finance degree to understand what that is, but it’s essentially an internal rate, a hurdle rate that looks at how you do financing in type inside of your company.

So this is actually a good deal because it’s lower than the weighted average cost capital, probably north of debt, but it’s accretive as well. So I think this is brilliant. I think this is expected. And when you’re making $200 billion in investments, you just can’t do it alone. So hats off to the team at Intel, brilliant deal. It hasn’t closed yet. It’s supposed to close the end of 2022. I don’t know why it takes that long, but it does. Interesting to see how that works out.

Daniel Newman: Yeah. This was a big one, and there was a lot of news this week. And as we said, there’s a lot of earnings that were talked about in this… I think it got good coverage, but maybe not as much as it maybe deserved. In the wake of the CHIPS Act, there’s been a lot of attention now towards, how are we going to get all this manufacturing underway? There’s also a lot of attention towards Intel as to, now that this money’s coming in, how does the company keep on its path? You mentioned IDM 2.0.

Intel has no ambition of not being ambitious, meaning their intent is to, yes, expand capacity, manufacture more, become a leading foundry here in the United States, but concurrently, it wants to regain technology leadership. You will not hear Pat Gelsinger tell any different story. And while there’s certainly speculation as to how big the foundry opportunity might be and there’s speculation as to how difficult it may in fact be to catch up on process and gain leadership back, there has been no sign of slowing.

Well, as we all know, it’s an incredibly capital-intensive business that Intel is in. And for the company to be able to, A, keep its focus on the technology leadership while, B, concurrently making these mega real estate investments of building these facilities and then taking on the responsibility financially and as a participant in the national ambition of bringing more chip manufacturing here to the States, access to capital is going to be key.

So this kind of goes back, in my mind, to when they brought David Zinsner into the company. He worked at Micron as a CFO there, and everyone knows that memory is one of the hardest businesses. It’s got some of the lowest margins in semiconductors. Price elasticity is much lower than in… Had a monolithic and higher-end chip designs. And he was known for being a very creative CFO. And right now, that is exactly what Intel needed was someone that could think beyond traditional levers that are typically pulled by a financial leader and could really be a partner to Pat Gelsinger to basically enable him.

So this particular idea may take some of their winnings out later by taking and de-risking, but at the same time, it’s going to give the company expansive capital resources now and over the next few years when the company really needs it. And I think if you’re in the market, you’re looking at the company, it’s been pretty beaten down by the market. Creating and having free cash flow, which Intel’s balance sheet is much healthier than the stock price would indicate, and two, being able to put that capital to work to achieve its IDM 2.0 strategies to be able to regain that process leadership and be able to put all the investment needed to speed up the operational capabilities of becoming a leader in the categories it’s chasing after. This is going to help.

And that’s it. That’s how I see it. This is going to help. It’s a move. It’s a smart move. And I’m cautiously optimistic that this is the kind of thinking the company is going to need to regain the leadership it’s chasing. So that’s it on that one, Pat. I think you and I covered it. It’s about as much as you could say. And again, went way over five minutes, because that is what we do here on The Six Five. You ready to talk some Salesforce?

Patrick Moorhead: Oh, I am.

Daniel Newman: I knew that you would be. So let me jump in here. I have Salesforce. A lot of eyes on the company. Always a bit of a bellwether in the SaaS enterprise software space. How did they do? Well, company beat on revenue, company beat on EPS, but you can look that stuff up in the news. I don’t need to read that off to you. They guided a bit conservatively, which seemed to spook everyone, despite having a beat on top and bottom. And they also made their first-ever stock repurchase authorization, $10 billion. And for the beat and for the buyback, guess what the market did?

Patrick Moorhead: Absolutely punished them.

Daniel Newman: Punished them, sold hard, which seems to be a bit of a trend here, and we’ll be talking about that actually, I think, with every single company we’re going to talk about, Pat. But on a revenue standpoint, 26% growth, saw a very, very small decline in margin, like 50 bips. So, really strong across the board. Every quarter though, when I’m looking at Salesforce, what I tend to look at is what they call their disaggregation of revenue. And the company does a really good slide deck. So if you ever want to go to their investor relations site, check this out.

But over the last few years, they have sort of spanned out their businesses. CRM used to be known as CRM, like sales, but now they have a Sales Cloud, a Service Cloud, a Marketing Cloud, and then they have these other categories called platform and data, and those are populated by the Tableau and MuleSoft acquisition, this data, and then the Slack acquisition and the Hyperforce platform as their platform business. No surprise. The business was kind of steady Eddie, Pat.

Every quarter, I kind of laugh about Sales Cloud, Service Cloud, and go, “20%.” It goes, “20%,” which, at this rate of maturity, is a pretty good growth rate. Guess what? The constant currency, 19% for sales, 18% for service. Where’s the big growth coming from? Platforms. Platforms. And huh, who doesn’t want to be a platform company right now? Well, in the last year, the company’s platform business is up 56%, hit 1.5 billion in revenue this quarter, and is just a hair and a sniff away from being bigger than the Sales Cloud.

Now, that’s pretty remarkable, after all these years. Their platform business is about to become the company’s biggest business. At the current growth rate, it’s probably only two to three quarters away from surpassing the current biggest business that everybody knows, of course, is sales. Other areas, effectively, the company is still disproportionately doing its business in the States. It’s like 65, 70% of its revenue. But in positive news, it is seeing some solid growth, especially on constant currency in APAC and AMEA, which means there is some significant growth yet to come if they can succeed in reaching these new markets.

And the other thing I guess I would say is, I kind of alluded to the fact that the market really squashed them, and I think that was basically a byproduct of Marc Benioff’s comments, whether that was on his earnings call or that was on his interview with Cramer. He just seemed to be a little bit apprehensive to be confident that this next quarter would be as successful as this quarter. And by the way, that’s been thematic to what we’ve heard on a number of the calls that happened this quarter. And that’s where I’m wondering if there’s a bit of a lagging indicator of a slowdown, of course, low unemployment. We feel like inflation’s turning over. There seems to be a bit of a euphoria that maybe that we’re not going to go into a recession.

But some of the comments this week that came from CEOs seemed to indicate otherwise, and I think that kind of led to some of that strong selling, the elongated sales cycles that Benioff was talking about. But overall, Pat… And I know you like to be a little tough on Salesforce, so I’m going to leave that open for you and let’s debate, but it was a pretty good quarter. I can’t really see why people were quite as negative as they ended up being.

Patrick Moorhead: So first off, I am surprised at how big that platform number is, and there’s a lot of Slack in there.

Daniel Newman: Is there a lot of Slack?

Patrick Moorhead: Well, I’m assuming because it’s application development, it’s automation, Hyperforce, AI and data, it’s security. I don’t know it as well as you do, but that number still is pretty big when the genesis of the company is sales, and that 50% growth year on year. I mean, I can’t argue with numbers, be it by acquisition or organic. I mean, I can take potshots at organic growth, and it’s still a concern that I do have of the company. I mean, listen, they’re doing really well today on the market. I mean, they’re only down… They’re not even down a point. Right?

And when I look at how they’ve done, I mean, EPS was a heck of a lot bigger than it was the prior three quarters. They beat by almost 16%, and that beat the prior two quarters, and they beat on revenue or they met pretty close, which is very similar to the last three quarters. So the guide may not have been too enthralling, but they’re not taking shots right now. Listen, long term, Salesforce knows that it needs to become a full platform and ecosystem, and this is different from the way that they break out their numbers, called platform, to compete with Google, Microsoft, and even, it’s funny, to a smaller extent, NetSuite, but Oracle. That’s where this business is headed. Heck, when we talk about Zoom, we’re probably going to talk a little bit about platforms too.

So they have a few things they need to fill in in terms of customer… Sorry, in terms of employee data. They’ve pulled a little bit of that in with Slack, but they really don’t have access to emails. They don’t have access to productivity. They have this… I don’t know. I always have to look up the name again. It’s called Quip, that is a personal productivity piece. I don’t know if I’ve ever talked to a customer that uses Quip, but it’s sitting there. They just introduced video into some of their chat capability, and they’re going to be able to parse, not only employee data, but if they would enable something like a contact center in there.

So, interesting stuff, Daniel. I’m really investing a lot of time learning more about the company and what they do and what their strategies are, and I’m impressed. I think I’ve come a long way.

Daniel Newman: There should be a little moment where all the confetti falls. Pah, dah, dah, dah, Pat’s moment. So speaking of moment, you had a really good tweet. I want to set you up for this one. So NVIDIA earnings was kind of like a… It was almost a muted moment because we’ve kind of known for two weeks this was going to be a bit of a piñata. And the market almost forgot. It was like, “Oh my gosh, look how bad NVIDIA’s result was.” And then it was like, “Well, guys, two weeks ago.” So anyways, dig in. Give me the scoop there.

Patrick Moorhead: No. I mean, I really couldn’t believe some of the headlines, and some of the press’s headlines and articles are actually machine-generated. And the only reason I know that is because you look at the bottom and it says, “Machine-generated by Zacks,” or something like that. But these were real journalists who were writing about this. Again, they hadn’t put out a warning three weeks beforehand. So there were really no surprises other than, I think, there were some verbalizations out there on crypto which I think spooked a lot of people.

All I’m going to do is talk about gaming and I’m going to leave the rest for you. Doesn’t mean I don’t want you to talk about gaming, but it’s a very complex thing. Right? There’s a lot of things going on with this gaming number that by the way was down 33% after growing, I think, for nine straight quarters.

Daniel Newman: And I think they were all records, Pat.

Patrick Moorhead: Yeah. Yeah. Exactly. So first of all, you have no new AAA titles that are really driving new card purchases. Okay? That’s one impact. The other impact was the crypto cash, and I’ve always known that… By the way, anything that’s not Ethereum and Bitcoin is likely done on GPU. So the other 200 coins you can buy out there on Coinbase are done on GPUs, and until we get to Ethereum 2.0, those are done on GPUs as well, but NVIDIA put in some special sauce into their driver that apparently drives those hash rates down. But anyways, crypto crashed and people are doing less mining, and therefore they don’t need GPUs as much to do that.

Next impact. Company currently has the 3000 series of GeForce GPUs. I believe that we’re going to have a hard transition to the 4000 series by the end of the year, and they got to clear inventory. Next impact, COVID impact. We used to all be sitting at our homes, and a lot of people, all they were doing was playing games, which was a motivation to have even better games, and we had stimulus checks that we know people went out. Some people bought iPhones. Some people bought PCs, but a lot of people bought GPU cards. So that’s gone.

So this is not a simple scenario. None of this, to me, changes the fundamentals of, PC gaming is growing, not as fast as a rate as it was during COVID, but people are not sitting at home. Second of all, I don’t think that NVIDIA is in any less of a competitive position. They still have 80% market share for discrete GPU cards, and I don’t expect, with NVIDIA’s new cards and AMD’s new cards coming out, that AMD is going to make some sort of black-and-white, 10-point or 20-point share shift. So I think they’re still looking good.

Daniel Newman: Yeah. First of all, I think that was a really good breakdown on what’s going on in gaming. I think the one thing that you said that I would maybe just reiterate is the fact that the crypto/gaming relationship is much more interdependent than everybody wants to believe. So we’ve seen NVIDIA changing its product. I think it’s the CMP that it’s going to be rolling out. But right now, that’s a very small amount of revenue that’s going into another bucket.

But up to this point, they haven’t really 100% been tracking which GPUs have been going for crypto and which have been going for gaming. But we’re in the middle of a crypto winter. Crypto is down 60, 70, 80%. And the migration of people that were staying at home from work on free payroll from subsidies that were just becoming crypto miners are now maybe doing different things. Now they’re getting their student loans forgiven, or whatever they’re doing instead of crypto mining, and that means less GPUs.

You also ended up with a flood of GPUs that are going to enter the market, both secondhand. And of course, as inventories and supply chains relax even a little bit, that means there’s going to be more availability. It’s going to drive the elasticity down. It’s going to make prices go down, which both price elasticity and availability are going to impact the market. Until that cycle of availability got dumped and the market sells through that next batch of big-volume sales to the OEMs and to its partners, NVIDIA could slow down for a period of time.

The areas I like though, and I went on record a few times saying this, is the trend lines, the secular trends. We’re in the first two innings, three innings of AI. It is on an enterprise level, 61% growth in the data center. Another great quarter. By the way, the company is still larger than it was a year ago. So I just want to point that out. Even with this terrible result, you have a company that, yes, has been growing at 60%, trading at 80-plus forward earnings, which you can’t valuate a company when you have Intel trading at eight.

If the growth slows to single digits, there’s going to have to be a major earnings compression. But I think this was a quarter about normalization and resetting expectations. I think Jensen saw his opportunity. Let’s tear the Band-Aid off. Let’s get this influx of inventory out of the market. Let’s get the next generation of cards out. Let’s get our products for crypto in place.

Let’s keep pushing forward with AI. We’ll get our next generation there. And by the way, we’ve got the metaverse, which nobody else has the complete product stack that NVIDIA has to help develop. So for the Facebooks and Microsofts, all these companies are developing for the metaverse.

Right now, NVIDIA is the golden goose with the Omniverse platform, which hasn’t fully even started to see the buying cycle there. And then the last point that I have to say, Pat, is automotive grew. So talk about a silver lining. That figure has been garbage for the last six, eight quarters. It has been flat to negative every quarter. You’ve been hearing Qualcomm and Intel and Luminar and all these companies coming out with win after win after win. It looks like NVIDIA is getting traction in China. You saw this quarter, it has some serious relationships being amped up with Chinese EV makers, and let’s not look at that as a bad thing. There’s a ton of volume to come out of China, and it seems that NVIDIA is finding its legs with its new DRIVE Orin with the Chinese automakers. Big volume, big opportunity.

Of course, I would like to see more growth in the US with the automakers that I’m buying from, but it’s a super competitive market, and that hasn’t gone as well. But Pat, I mean, it was a big growth number. Of course, it’s a small overall number, so no one really talked about it. But I think I heard a guy… I don’t tend to comment on other analysts, but this was a financial guy. A guy from Loop Capital said something along the lines that he thinks that it’s possible that NVIDIA could get up to 30% of its revenue from automotive. I mean, again, I’m not-

Patrick Moorhead: Interesting.

Daniel Newman: What’s that?

Patrick Moorhead: Interesting.

Daniel Newman: And my point is, is they… And right now, it’s like 3%. And so, that has a little bit to do with the fact that the automotive BOM moving from where it’s at to 20% of every vehicle by 2030. Even if NVIDIA is the third player in overall, there’s probably a 10x potential for growth. I haven’t done that formula yet, so don’t hold me accountable. I’m just saying there’s a big growth opportunity there, and that hasn’t been an area they’ve capitalized on. So outside of gaming, not all that bad, Pat, and some good secular tailwinds in their favor.

So let’s jump into Zoom. You and I put a lot of content out there. We were in San Jose at the Zoom event. You had a nice sit-down with Eric Yuan, pictures all over the internet, Pat hanging out with the CEO, Dan flying home jet-lagged and tired, missed out, little jealous, not going to lie, throwing that out. Look, the Zoom… I’m going to macro this one. Okay? Zoom beat on EPS, missed by a hair on revenue. The company is now feeling the pain of 300 to 400% growth quarters, four quarters, five quarters in a row during the pandemic boom. The next four quarters, they grew 30, 40%. So you got to look at the compounding there, 300% by four quarters and then another 30% for four quarters, and now they’re running into a bit of a growth wall on overall revenue.

You got a couple of headwinds, of course. Companies are going back to hybrid models and in-person. Some companies are probably doing less meetings. Some companies… And I don’t think it’s enterprise companies. I think it’s some of the small businesses that were spending money on Zoom likely falling off a little bit. But I think overall, you’re talking about a company that’s gotten to a billion dollars a quarter, and this is probably the number one thing I think is getting… Well, there’s two things, two things being missed about Zoom. One, people that think it’s not an enterprise company are wrong.

If you look at this… And we were able to talk to their CFO, Kelly Steckelberg, and she basically said to this, look, they’re growing almost 20% in enterprise still, they have 120% net expansion rate, and their large customers are growing by 37%. So I put a very simple formula on Twitter, enterprise buy-in plus each customer spending more plus more large customers equals good. So as much as people don’t think Zoom is humming, they’re getting good business from the right kind of customers. So maybe some of those small businesses are falling off, but big businesses are actually not falling off. So they are a company that’s attracting enterprises.

The second is the platform. Now, they’re halfway to where I want them to be with the platform. Okay? On the platform side, they really are becoming a full-stack collaboration platform. Problem is, is I think the market wants to see them as a full-stack, digital HQ, or future-of-work platform that is being a little bit more aptly communicated by the likes of Microsoft and Salesforce. Now, Microsoft is doing it. Salesforce at this point is mostly just talking about it. And Zoom has an opportunity because the one thing Zoom has, people love Zoom. People that actually use Zoom tend to be very happy with Zoom. Other bigger, more distributed platforms create more complexity, and people have more challenges with identity management and full integration, but those other platforms, integrated ERP, CRM, workflow management, project management, HCM systems, procurement systems.

Right now, Zoom is not really telling that story. Zoom has a Contact Center. They’ve built that. They’ve already got the Five9 thing in the rear view. People don’t fully get that. They’ve got Events. They’ve got Chat. They’ve got all those things. But I think the market wants to know, how do you connect to that larger data lake of systems of record that run businesses where Zoom seems to be on the outside, and Microsoft Teams? And to some extent, the Salesforce-Slack have an inside track, Pat. So I said a lot. I feel like that’s what’s being missed. Turning it to you.

Patrick Moorhead: I don’t know if there’s anything left, but I’m going to give it a shot here. So I’m going to focus less on earnings and more on the Perspectives event. So each research firm has a way, a certain way, it does its research, and I have product experts inside of my company. But there’s an element that I look at which is senior management, and I had never actually talked to any of the senior management face to face. I mean, sure, over Zoom. I had never done this before. And Zoom Perspectives, I mean, literally gave me new perspective on the company.

I met with the chief operating officer, chief financial officer, CFO, chief product officer, and spent about 25 minutes talking to CEO Eric Yuan. And I have to tell you, I am more convinced than ever that this company is going to grow in areas that are important, which are big enterprise and even big government. But the company does have a lot of challenges right now. They have some product challenges in terms of timing, which is… First of all, Zoom has a product velocity coming out of product development that I haven’t seen in a long time.

And Daniel… Well, actually, people who don’t know me, I spent a lot of my career on the product management, product development side, and I’m just amazed at how quickly they can crank out products that work well, and it used to be the thing. And listen, I was the biggest critic or one of the biggest critics of Zoom and their privacy and security challenges, saying that they had a certain level encryption when they didn’t, the ability to come in and Zoom bomb. To their credit, very few people are talking anything about that. Right?

So it’s one thing to have product velocity and not have security and privacy, but when you have all those together, I think that’s pretty impressive. Now, the challenge about all their new products, like Events and Chat, is twofold. So first of all, enterprises need products to be out there for a long time before that big center gets comfortable with them. They have competition, and some… You get an E1 license from Microsoft, you get Teams for free, or if you have a lot of Cisco Webex equipment in there, you’re likely going to be standardized on things like Cisco.

So there’s the baked timing element which only time can cure, and then there’s the getting credit for it. Even watching Cramer or even talking to big customers, pretty much Zoom is known for video, and video is looked at as a feature now because, quite frankly, Microsoft and even Google have done this great job de-positioning video as a feature inside of a holistic platform.

Daniel Newman: Good call on Google. I totally missed that.

Patrick Moorhead: Well, the company has a tremendous amount of work to do. Heck, even Salesforce put a video feature inside of that. So investors don’t look at it as a business, and hence what makes Zoom great is holding it back. The company has to take a very different approach on how it addresses the market with its products. I’d like to see one or two things happen.

First of all, I want to see Zoom talking more about the future that it believes in. What future does Zoom believe we are going to be in in three to five years? And then they can talk about the products and their approach and how it leads up to it. They also need some help repackaging some of their products in making Chat a little bit more evident. I’ll admit, until Zoom AR… I thought Chat was just inside of a video stream. And until Zoom AR hit me up and chatted to me, I didn’t even know that they had an enterprise chat. This is a year ago.

But I’ll bet you, and I haven’t done a survey on this, but if you do your survey, people are going to be surprised that Zoom has a Chat function. So with the positive and my recommendations, I actually feel a lot better about Zoom than I ever have. And with the COVID stock, meme stock thing over, don’t you think that Zoom’s competitors are going to pull back the reins a little bit on how much they’re investing? So I actually think being focused on this area is a good thing, and I don’t think the competitors are going to be investing nearly as much as they were to the prior two years, and that gives Zoom an advantage.

Daniel Newman: You done?

Patrick Moorhead: I’m done.

Daniel Newman: All right. All right. All right. So, Pat, I tell people sometimes you’re the best earnings tweeter in the business. And I mean it. I sincerely mean it. I may or may not have queued up some of my thoughts, even though I’ve written articles and done TV segments by using Pat’s tweets to back me up. See, I’m all about giving credit in public. I don’t have any issue admitting when there’s some brainchild going on here. Your Dell tweet maybe was the best of the best though. Dell had its earnings, I’m sure, good. But the market’s been a little tough. What do you think, Pat? What does your tweet, then more important, your intuition say about Dell’s quarter?

Patrick Moorhead: So the quarter was great. It was the forecast that pulled the stock down 7 to 8%, and I think it’s hovering off 8.96% with the combination of the actual guide and the numbers, but also some of the commentary from the senior leadership team. So I’m going to hit the high points. It’s just record revenue, not only overall in the company, but records with PCs and also in their infrastructure business. First time bringing out APEX, which had an ARR of over $1 billion. And by the way, not to be confused with recurring revenue number, which was $5 billion, which is, I would say, APEX-like business that is managed services, but not under the APEX moniker or not sold under the APEX moniker.

But I’m just going to go straight to the guide, because I think that’s really what is driving the market right now. So the guide, PCs declining in the high teens, infrastructure growing in the low teens, and a headwind of about 5% of foreign exchange. So that was the big piece. Now, long term, none of this matters, because if I look at Dell’s strategy, which is to consolidate certain areas that are, let’s say, a little bit less strategic, and then lean into things like APEX carrier and telco models, which by the way, the company had a nice rundown of wins that it had, I see nothing necessarily changing.

I see PC growth rates getting back to pre-COVID once we’ve kind of driven, ground through this uncomfortable spot, because quite frankly, the equipment back in the office is terrible, and none of that is being accounted for in some of the growth rates. The market numbers from a revenue standpoint, and even notebook numbers, have been driven down by Chromebooks which, quite frankly, consumers rejected and companies exchanged the Chromebooks they bought out for PCs. But those purchases will continue for the office into the future, and I think Dell is very well-positioned to be competitive in those markets.

Daniel Newman: Whoo! Good job.

Patrick Moorhead: Man, I left a lot though, buddy. I left so much for the quarter.

Daniel Newman: There’s a ton here in terms of the numbers. I like that you kind of zoomed out and went macro. Dell’s a hundred-billion-dollar-revenue company. There’s no five-minute segment that’s ever going to hit it all. We’ve had the chance to talk to some of the executives, listened to the story. The company is doing a lot of things right, whether it’s pushing things forward with the investments into repurchasing, whether it’s adding a div.

They understand where they sit as a company. They are a growth value company. They’re growing, but they know they also kind of have deep value. Pat, here’s the thing. We thought PCs this quarter were going to be absolutely a disaster. There was no way not to feel that way based upon some of the early readouts from the chip companies.

Patrick Moorhead: Yeah. Intel was down 25%. Yeah. That was a big number.

Daniel Newman: And when you see… Look, I mean, we have backlog to work with in terms of, Dell had some backlog and commercial numbers to push out, but a record revenue in the PC business, which is pretty darn impressive, given the fact that what we keep hearing is, the consumer is in huge trouble, PCs have hit the wall, and there’s going to be a huge decline.

Now, what I think the guide said is, this may be coming yet, to some extent. There may be some of that slowdown, but it didn’t happen yet. Fine. I think Dell managed it really well, has been absolutely a beast throughout this entire pandemic of managing its supply chain and keeping the growth coming.

ISG seems to be picking up. I used this weighted thing. Throughout the whole pandemic, CSG was up here, really strong, and ISG kind of lagged a little bit. Of course, the VMware spin had a lot of people concerned. But over the last few quarters, you’ve seen kind of a parity now, and now ISG is about to have its day. I think as we see more return to work, you’re going to see more investment in the data center. I think in the end, you’re going to see that business start to pick up some slack.

I love seeing APEX broken out. I’ve been talking to their CFO, Tom Sweet, and other leadership team for a while and I said, “Look, I know in a hundred billion, a billion’s not a lot, but people need to see what’s going on here.” I don’t think it was my recommendation, but I’d like to see it out there now because now we have a benchmark. And Pat, you and I have been waiting a long time. We need a benchmark. What is ARR and what is APEX? That’s going to be a big opportunity. It’s going to be super competitive because they’re not only competing with HPE and Cisco and Lenovo, but they’re also competing with AWS and Microsoft, Google, Oracle.

But I think Dell has a good symbiotic relationship with a lot of those hyperscalers as well, and that will be an opportunity as we see on-prem and public cloud building a… Is it multi, Pat? Is it hybrid? I don’t know. We’re not going to do that right now. We don’t have time. Anyways, I’ll leave it at this. The resetting of the guides is important. I think being a little conservative is a Michael Dell special. He’s not the type that’s going to beat his chest and overplay his hand. He’s being conservative. He’s going to reset the market. They’ll take their lumps this quarter.

And if they’re right with their guide, they’ll keep on growing. They’ll get back to growth and they’ll make the market happy, but it’s going to be over a longer tail. We’re going to have probably two to six quarters with some interesting economics coming into play, especially on CSG. Still like Dell. I like where they’re heading. But like I said, it’s the byproduct of where we are in the market.

So last one, Pat, another goody, another record revenue quarter for a company called Marvell Technology. You and I… Sometimes, I feel like we get a little giddy when we talk about Marvell. And as analysts, we need to be cautious about that. But there are just these companies that… And it’s a little bit like Jim Anderson’s Lattice. We do that with him too, where they’re just doing everything right and they’re really reaping the rewards. About a year ago, I wrote a piece on MarketWatch where I basically said Marvell has joined the must-owns of semiconductor names.

And this quarter is just another quarter with further evidence that Marvell knows how to operate, that the company has gotten closer and closer to 90% of its business being exposed to data center, enterprise cloud, and away from consumer. That’s been Matt’s strategy, Matt Murphy, CEO, and that is making such a big difference right now as the consumer markets do become more at risk and the semis being the leading indicators of that risk. So you saw them beat. They were almost perfect. I mean, it was right on earnings. It was right on their revenue, and that represented a 41% year-on-year growth.

But they’re growing op inc, they’re growing EPS, and they’re guiding nicely to about a 29% growth. And guess what the market’s doing? Selling. Why are they selling? Well, you and I talked about this offline. It’s not as obvious as others. It wasn’t a really bad reset in the guide, but I do think that there is some leading indicators, if you listen to Benioff’s comments, you listen to Dell’s comments, you listen to NVIDIA’s comments, that there is some harsher economic situations and that this guide, and then maybe that expected beat of the guide, is going to be harder and harder to achieve even for Marvell.

I guess, if I’ll try to give you a little more on this one, I’ve said for a number of quarters in a row, I like where their exposure is, data center, carrier, enterprise, automotive. Those are areas to be in. I like that they’ve pulled a lot of their risk away from consumer. I like the fact that they’re very aggressive in partners. They’re very aggressive in this cloud-scale silicon, these custom relationships that have really bear fruit for the company and results for their shareholders.

I don’t know if there’s more they can do, Pat. I just don’t know right now in this current market. You saw them shift effectively away from the risk to the de-risk, in my opinion, almost from 40 to 90% in a few years. They’ve got the right clients, the right business, the right growth rates. They’re in the right markets, Pat. I’m going to keep this one short. It was a good quarter. I don’t care if the market’s selling. We don’t recommend buying, but maybe this would be one to look at.

Patrick Moorhead: Yeah. I like to separate Wall Street’s pricing and movement with long-term value of a company, and I know that is kind of an oxymoron because the share price should be basically all future cash flows compounded on each other. So essentially, I think Wall Street’s very short term, at least here in the United States. Yeah. We’ve known that for a long time. But I think it’s important because when you see a stock like Marvell that’s down this morning, 6%, some people might look at that and say, “Gosh, what’s wrong with the company?” And it has absolutely nothing to do with this.

You’ve heard the moniker or the meme “sell on the news”. Marvell, in each successive four quarters, has beaten less than it has before. Okay? So for instance, in Q3 2022, it beat EPS by 12%, and then three and a half, and then 1.34, and here, it was around 0.87% on revenue. In Q3 of last year, beat by five and a half percent, then one and a half, and then one, and then they had a slight miss. So as those investor expectations went up, getting trained that the company was going to beat by a certain amount, and then you put out a forecast that’s over 10 points lower than your current quarter’s year-over-year growth rate, people are going to react.

Daniel Newman: Deceleration.

Patrick Moorhead: Yeah. And by the way, I’m still amazed at the growth that they had in the cloud, which was 48% growth. That’s huge, right? Carrier is on a $600 million annual run rate, the 5G element alone. They’re getting content gains inside of the enterprise. I mean, they doubled their auto Ethernet year on year and, by the way, didn’t contribute to that revenue, but they brought out the first auto switch for the car, kind of cool. Had an Ethernet switch inside of the car.

But anyways, none of this numbers stuff, at least from a price standpoint, has any impact on the company. I’m actually surprised at how much they grew when you compare to how Intel did for the quarter. It was a pretty big shocker, particularly when you look at the data center, because they’re in the same data centers as Intel, and somehow Intel didn’t grow, but Marvell did.

Anyways, good quarter, good company. Like I always get around to, I sometimes feel I’m way too positive on the company, but this amount of change for five years, six years going from 38% data infrastructure to 89% is completely unheard of. Before Matt and team took over that company, it was a consumer company. It was 62% consumer, and now it’s 89% data infrastructure.

Daniel Newman: Like I said, I love it, the de-risk. Totally. And Pat, I know you’ve got to run. We’ve got to run. It’s the end of the show, but you kind of are saying something very simple. They are a victim of their own success. When you start to see deceleration… We’ve seen that now. This is what Zoom’s going through right now. You did amazing, and now you’re just doing good and we want to penalize you.

But unfortunately, that’s how this trade works. You got to keep growing, growing, growing. But we are not equities. We are thinking about the business. The business is in a good place, in the right markets, at the right time. Lot to feel positive about there. Pat, that’s it. That’s our show. Intel, Zoom, Salesforce, NVIDIA, Dell, Marvell. We’ve got to go. Thanks everybody for tuning in. Keep in touch with us on social. We’ll see you later. Bye-bye now.

Patrick Moorhead: Bye, 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