On this episode of The Six Five Webcast hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The six handpicked topics for this week are:
- Intel Investor Day and Tower Semi Acquisition
- Alphabet Set to Follow Apple IDFA – META?
- Cisco Posts Solid Q2 Results
- NVIDIA Delivers Another Record Quarter
- AMD Closes Xilinx
- Lattice Earnings Report
For a deeper diver into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Transcript:
Daniel Newman: Hey, everybody. Welcome back to another episode of The Six Five Podcast. I’m your host, Daniel Newman, principal analyst, founding partner, Futurum Research, joined by my always esteemed collared shirt, sweater-wearing, good looking, and bearded friend, Mr. Patrick Moorhead, Moor Insights and Strategy. Patrick, good morning.
Patrick Moorhead: How are you doing buddy? You should get a medal. It’s 5:00 AM where you are. It’s a mere, I guess it’s 7:13 here, but you’re always bragging to me about you getting up at like 5:00 and working out, so I don’t feel too bad. I don’t feel too bad for you.
Daniel Newman: Thank gosh the screen wasn’t big enough to see that pathetic effort to flex after you mentioned my workout right there.
Patrick Moorhead: I don’t know. I heard the shirt rip over your high intensity microphone.
Daniel Newman: Yeah. I’m here in California, San Francisco, out here for a number of different meetings, meetings that you and I both attended, me in person, you remotely.
Patrick Moorhead: How did I do that?
Daniel Newman: Good for you. Well, you did take a trip. You went to Cabo, and then you came back and you couldn’t make the turnaround, you poor thing you. But you’re looking tan and a little bit like you took at least one wrinkle off your forehead, which means you got some sun, you got some beach, which is good stuff. So for everyone out there that hasn’t watched, or maybe hasn’t returned to The Six Five in a while, first of all, shame on, but we’re glad to have you here. Six Five, we do talk about six of the biggest pieces of tech news or stories from the week. But we don’t do news, we let other people do news. We do the analysis.
So what we do is, we like to break down the stories, talk a little bit about what you need to know. So we’ll have six of those this week. We try to spend about five minutes each. That doesn’t always happen, but we are not held accountable if we go longer than that. We do talk about publicly traded companies during this show. But remember it’s for information and entertainment purposes only, so don’t take anything we say as investment advice. I’m glad we got those disclaimers out of the way because we will be talking about some earnings today, Pat. We’ve got Intel’s investor day.
A little story about Alphabet that I just thought was so interesting I forced you to talk about it with me, we were going to talk about earnings from Cisco and NVIDIA and Lattice Semiconductor. And we’re also going to wrap up and talk a little bit about AMD as well. So Pat, we’ve got a lot to cover. Speaking of Pat, we had a high energy Pat Gelsinger yesterday, leading Intel Investor Day. So we’ve got kind of a twofer here, Intel’s Investor Day, and they made a huge acquisition announcement that fit their Investor Day this week, Pat. Both probably have a lot to say, but you get to go first.
Patrick Moorhead: Yeah, so let me do it in chronological order here. So earlier this week, Intel bought a small foundry called Tower Semiconductor. And for those of you who aren’t familiar with vernacular, foundry is just a fancy word for a chip factory. And I think the reason we call them foundries instead of factories and gives them a fancy name is because these foundries can cost up to $10 billion a piece. So maybe they deserve their own name.
But essentially this is following on the strategy of Intel to become an end-to-end foundry partner. And what do I mean by that? So what it means is to be put in the position where they could make any kind of chip under the sun, whether it’s RF, radio frequency that requires certain technologies like silicon on insulator as a material or doing photonics that requires technologies like silicon germanium, high performance silicon germanium, and quite frankly, that don’t require leading edge nodes.
And if you look at what Intel’s capabilities are, it’s leading if not bleeding edge nodes and technologies. And whether that’s RibbonFET 20 angstrom nodes and everything in between, that’s actually perfect for the highest performance computiles. And if you compare that to what Tower offers is think of RF that are inside of every smartphone, every PC, anything that’s connected wirelessly requires an RF module. And that just requires a specialty type of technology and specialty type of process. Sensors, visual sensors, heat sensors, radio activity sensors, those are all the types of things that Tower manufacturers.
And this one is just extremely straightforward here, but as we saw yesterday, and I’ll go into some of that analysis a little bit later, it definitely folds into the Intel financial plan really well in that it is going to be a accretive on day one, at least at the non-gap EPS level. Not necessarily in the gross margin because the gross margins aren’t that good compared to what Intel does, but on the EPS line, it will absolutely bump it. It was a tuck in. I mean, when you’re a company like Intel, 5.4 billion is a tuck in. Expected close, 12 months. Tune in for more details. So let me shift to the Intel Investor Day. Daniel, you spent eight hours, nine hours-
Daniel Newman: Fourteen.
Patrick Moorhead: Fourteen hours doing it. I think I spent four hours online with one break, but you can go read the news. I mean, I’m literally just going to go through my opinion and my analysis of this. So, first of all, I still think Intel’s strategy is the right to strategy. High performance computing is what it does with leading edge nodes. Don’t yawn when I talk. Come on.
Daniel Newman: Did that happen?
Patrick Moorhead: It may have. It may have been a ghost. This is premium content, dude.
Daniel Newman: This is premium content. It’s still 5:00 AM though.
Patrick Moorhead: Yeah. The strategy high-performance computing, regardless of what kind of chip it is, CPU, GPU, ASIC, whatever it takes. Plus, building the foundry, which provides scale and enables the company to amortize their factory assets better than just being an IDM. So execution came across, and we had heard Pat Gelsinger use the word groovy in execution style. What I’d like to see is, they need to reinforce the say/do ratio. Daniel, you and I have talked about this with other companies. I give Jim at Lattice, he kind of burned this into my brain when I met him, when he was at AMD, current CEO of Lattice.
Daniel Newman: I think it was a great articulation of open in what they did. It was like, wow, this is really good. And when you add that to IFS to what they’re doing in software, which was a shot across the bow to NVIDIA with CUDA without actually using the word CUDA, they got their point across. I did like the difference between core markets and growth markets. No yawning, stop that, stop, get more coffee.
I’m not yawning.
Patrick Moorhead: This is good content.
Daniel Newman: Keep going, this is great.
Patrick Moorhead: Now, what I’m looking forward to is, Pat said that they were going to break out the six businesses in crazy detail. I literally want to see how much money, for example, they’re losing in graphics right now. I want to see the crazy profitability that they have in Mobileye. And I’m hopeful that maybe Wall Street gives them a second or third… Look, I’m going to leave it at there because I’ve already talked for like four minutes. If you want to see my best analysis, go on Twitter. I haven’t written anything up yet.
Daniel Newman: Well, you had a nice piece on the Tower deal for everybody and you can catch that on Forbes. And listen, I’m going to touch on that really quickly. I mean, that was pretty straightforward, Pat, the Tower, deal pretty straightforward. You want to have a foundry business, you can’t miss 30% of the market. I mean you can, but when you’re doing it, Intel is trying to do it and trying to say, “Hey, we are offering a genuine alternative here on US soil in Europe, and then of course across Asia.” You have to be able to handle those old lagging nodes that by the way have been a huge strain on our supply chain. So if Intel’s going to be part of the solution to the longer term resiliency of the manufacturing of chips, handling that whole mix is going to be important to the company.
Having spent the day, I did all the breakouts in the morning as well as listening to the sessions in the afternoon. I thought Pat did a really good job. He was super energetic. You could see his passion coming through. I think that’s been pretty evident from the beginning with him, you know he loves this job. He certainly is a believer. He was going into these breakout rooms with the execs and we’d be asking the execs question and Pat would jump in and be… I mean, he was just like, he wants to be out in front of these people, and I really admire that. I think the say/do thing that you mentioned is so important. I just think the street is going to wait until some of these things have come to fruition before they’re going to reward Intel and Kelleher, their EVP on the process side was reiterating in the session, parody by 24, leadership by 25.
I think that’s really what the market’s waiting for. The problem, of course, is that Intel and its shareholders and its board are probably going to be a little frustrated if the price doesn’t budge over the next couple of years. But having said that, showing growth in all these areas, retaining market share, slowing down some of the bleed in some of the areas, server, PC, where AMD have been so strong making headway in AI, the mobile ideal and what ends up happening there, I think it’ll give a short term jolt. And of course, Pat, I think I’ll end on saying, you and I both came to the conclusion that IFS could very well be another spinoff business if it grows big enough, fast enough, you got TSM getting a 30 time multiple, 30 X forward earnings, whereas Intel’s getting 10 right now.
And just as a little perspective, and we’ll talk about NVIDIA later, but Intel is, it’s hard to not see it as value and being somewhat unappreciated. It sits at 10, it’s trading at 10. I mean, basically the market is saying there’s not a lot of confidence in its execution. And I’d say the more I listen, the more you’d say it’s hard to not believe Intel’s going to be able to turn a corner here. I think you’ve said 23, Pat, is the year you really start to see maybe this starting to materialize, a lot of this stuff. So I think that there may be a little bit of a delayed, but it seems to be going in the right direction. It was a positive day.
I’d say about 90% of it I’d heard in some capacity. So most of it was kind of like little bits of addition here and there, but good to hear from the leadership. And by the way, their new CFO really sharp, really, really sharp. And talking about how to squeeze another point of margin out. Well, I’ve seen how the streets responded when margins compress. So if they can get another point out of it through creative financial leadership, it could be really big for the company.
Patrick Moorhead: Yeah. And, can I clarify just one thing?
Daniel Newman: Yeah.
Patrick Moorhead: 2023 is where I see the product where they get access to TSMC chiplets. So not necessarily financial, mostly from a product competitive standpoint.
Daniel Newman: Okay. No, thanks for clarifying that. I just, I remembered you saying that. So I was-
Patrick Moorhead: So you actually do listen to what I say. Oh my gosh.
Daniel Newman: I listen, I might be yawning, but I still hear you. Listen, there’s just the… My body’s reaction to this time, for whatever reason, I can’t make myself stop yawning. I’m chugging hotel room coffee. I mean, this is the best I could do. So listen, let’s move on to the next topic. This is a little bit more of a fun one. We don’t always get to these topics, we had a chance to squeeze it in today, but an article came out. I actually got a call from the Wall Street Journal, and this is what brought my attention to it, that Alphabet here is set Pat, to follow Apple with their IDFA and basically just how big of a loser could this be for Meta. Now, going back a few weeks, I think we’ve all seen Meta stock, not only their stock, but sort of brand, the reputation has fallen off a bit of a cliff over the last couple of months.
Last year, they announced the metaverse and I think it was met with a lot of enthusiasm. In fact, I would credit Meta for creating this buzz about the metaverse. we’ve been doing AR and VR and XR for some time, but Meta created some significant relevancy and now we’ve got a lot of following going on in this space. And we’re hearing about it from leadership companies, from NVIDIA, and we’re hearing about it from Microsoft. And so, that’s a credit, but also it’s a $10 billion or so a year investment for Meta and in the process, they also lost about $10 billion in the last year due to changes in privacy policy by Apple. And so, when Apple did their IDFA, which was their new pro privacy, which basically forced users to opt in to sharing their data with apps like Meta rather than opting out, which was the old way of doing it.
And here’s the long and short of it is Meta uses our personal behaviors across multiple applications on our mobile devices and on our computers in order to target us with advertising, this is how they made their money. Apple basically flipped a switch and said, “No more.” Now you’re going to have to actually, as a user choose and say, “I want Meta Facebook to be able to track me around the web so they can give me optimal advertising and feed me information into my stream.” Clearly the market is opting out as much or more. And here was the kicker though, it was only for Apple. So in the US, this was a really big deal, because Apple has about 50 plus percent of market share, we’ve called it dominant before, Patrick. They have a dominant share in iOS, but Apple internationally has a slightly smaller percentage, but Alphabet hadn’t turned this on yet.
And you go, “Will Alphabet do this?” Well, as a company that does a lot of advertising, does Alphabet want to expose itself to creating maybe unfavorable and unfair advantages for themselves? I really didn’t think they were going to follow the IDFA type track with privacy, but here it is, this week, it was announced they’re set to follow down the same path, basically meaning that the hundred percent of the mobile devices in the US are now going to be looking to give users additional privacy capabilities which will absolutely strangle Meta and Facebook in their advertising business, really bad news for Facebook. And then I don’t know if you heard, but this week because of additional pressure coming out of the EU on Meta, Zuckerberg, and then we’re talking about maybe even pulling the whole product off the whole of the continent right now. Now again, it seems a little bit dramatic and it would be a bit of tug of war.
So you’re going to take your platform away from a giant Western continent like Europe, but they’re talking about it. And Pat, Google and the Android operating system has what 70 or so, maybe even a little more than 70% of the global market share. So this could be really devastating for Metapad and I just thought it was, wow, so interesting. One question that comes to mind is, what will regulators do if… Because this is really [inaudible] issue Pat, because you’re giving people more control over their data, which is something that a lot of regulators have been looking at, but concurrently you’re hindering competition by basically giving likely, we don’t know exactly how this will work yet, but likely giving Alphabet and its own advertising somehow an advantage over others due to the opt-in that is going to be required, Pat.
So it is really interesting. They covered it on Fortune, on the Wall Street Journal, it was front page news on a number of big sites. So Meta, I don’t know, I don’t know how quick they can pivot this business, but you talk about 10 billion just from Apple, another 10,000,000,020. This could be huge, Pat.
Patrick Moorhead: So I have a slightly different angle on this, in that I absolutely think that this is going to be another issue for Meta, but Alphabet, just like Apple has their own ecosystem. So notice how, when this IDFA stuff came in, Apple’s advertising revenue went up. Apple can still do all the tracking that it wants, just like Google who owns Android, which is 75% of every phone in the planet and has 80% Chrome market share can create their own little walled garden of advertising. So this is actually an advantage I believe to Google and its advertising because you’re using their services, and so much that even France is like, “No, no, you can’t do this because that will limit competition in the advertising market.” So it’s kind of a head scratcher here. From a privacy standpoint, it seems pretty awesome. And then you have… If Google ends up pulling this chain, then other advertisers, other advertising networks are actually at a disadvantage.
Daniel Newman: Well, it just seems like for whatever reason, Facebook, more than every other platform is getting hammered by these privacy changes and it just, I guess it just goes to show how invasive Meta and its various social platforms have been in terms of using your data versus others that use data, but maybe not at the same magnitude in order to decide what advertisements to feed you. But you’re absolutely right, there is a huge conflict there. So Apple and its own advertising, it’s the benefit of privacy and the cost of giving an unfair advantage to these by the way already monopolistic platforms. I mean, I’m sorry, but I’m not saying they are monopoly, that’s the court’s decision, but I’m saying you can certainly say by data and by the size of their market share that they have monopolistic behaviors and market shares in certain parts of their business and Android even bigger on a global scale also makes most of their money in advertising, so it’s a-
Patrick Moorhead: It’s not illegal to be a monopoly, it’s just illegal to harm consumers or competitor. And what’s funny is we saw with the Qualcomm thing, it’s the potential to do this. As we saw the FTC, Star, Economist.
Daniel Newman: That’s the direction they’re trying to go into is they want to be able to predictively, like minority report, decide before a deal’s even done whether or not it’s going to be harmful and monopolistic, but yes, you’re right, that’s a great add, Pat. Good context. All right. Good topic. Fun stuff. Let’s move on. Let’s talk about Cisco. So Cisco and NVIDIA both report after the hour at the end of the day, both are bellwethers in different respects and different markets Pat, but you had some good coverage on Cisco. So I’ll let you give the first stab at that one.
Patrick Moorhead: Yeah. So first off, the top and on the bottom and a really nice guide, they saw a couple point bump, which was really, really good for Cisco. And I think, first off, super strong results even though they’re having a hard time with some supply constraints. So they had $14 billion in product backlog, which is absolutely astounding. So they did these figures even during supply constraints, really great demand its third consecutive quarter of more than 30% product growth, which I think is additive to what I talked about before. And that’s really catalyst 9,000 switches, wifi, 60 access points, private 5G is really driving a lot of that demand. So, one thing that was kind of a head scratcher at first, which then I’m thinking, “Okay, not really much.” Was that hybrid work was down 9%.
And my first thought was, “Wait a second. We’re still kind of in this pandemic, right?” Well, not necessarily in how licenses are done. Somebody might do an annual license and it’s not paying on a quarterly basis, they might recognize that revenue up front. We also saw what happened with Zoom, and their numbers have gone down as well. So once I thought through it, it wasn’t too big of a deal. Every one of their customer markets was up double digits on a product basis, enterprise, public sector, commercial service provider. It’s almost like in this case, the pandemic is over, which obviously it’s not, but the only reason that you would be pumping up, particularly things like a catalyst switch was at the core of the network, is if you have a bunch of people coming back to work, so all in all, a really, really great quarter.
Daniel Newman: Yeah, it was strong for Cisco. The company’s mid high single digit growth is what people are looking for, Pat. You mentioned the backlog. I think that was a really, really positive thing. Of course, backlog can indicate two things. One is just huge demand coming your way. It also can be indicative of some of the ongoing supply chain challenges, because trust me, they don’t want it on the backlog. They want it in a box and shipped out to people. I do think that Cisco’s making the move, the pivot to software, something I’ve been really focused on for the company. It’s something that definitely needs to happen. The downside of collaboration is something to kind of keep an eye on. WebEx didn’t grow quite as fast as some of the other collaboration businesses throughout the pandemic, but it was also very established when the pandemic did start.
Whereas some of the others were a bit newer in terms of adoption, but that’s an area for the company to keep an eye on for growth. I think the kind of quote, unquote, Cisco, the software company. I mean 3.8 billion in software revenue this quarter, 6% growth, obviously that’s not a fast growth software number, but you are talking about a fairly large overall for the quarter. You’re talking about a run rate of nearly $15 billion in software on an annual basis. The software backlog is also 2 billion, so it’s not inconsequential on the software side, but it tends to get tied up with hardware that they’re not able to ship. And then of course, you’ve got the ARR numbers, Pat, their ARR is now up to 21.9 billion, 11% [inaudible] growth, so that’s pretty solid too. The one other thing that happened this week and this isn’t necessarily about earnings in general, but you might have heard, or if you haven’t, have seen some of the headlines, there is some talk of Cisco potentially trying to acquire Splunk.
Splunk’s a company I track very closely and watch. I actually think that would be a tremendous acquisition for Cisco, this all-encompassing data and observability. You’ve seen the move with app dynamics that have been made, but Splunk’s fast growth top line hasn’t been profitable at this point. It’s still a growth company, but they would bring an element of the ITSM, SecOps, ITOps, observability, most of their revenues move to the cloud or moving to the cloud, mostly subscription revenue in an area that as data continues to proliferate and grow, companies are going to continue to invest in Splunk has a lot of big customers that they would bring along with them. That could be really good price tag, 20 billion, probably not enough to get the deal done. I think about 24 billion, you’re going to get everybody to the table.
This could actually happen if Cisco keeps pushing, but that was really interesting. I know it wasn’t in the earnings per se, because there hasn’t formally been a deal or an offer made, but I could see that happening. All right. Let’s keep moving Pat onto another big earnings slate that came out this week, NVIDIA. NVIDIA had a huge result, big growth, another quarter of record revenue in almost every one of their business units, borrowing automotive. Well, we can talk a little bit about that because I actually think there’s some better news in automotive despite the fact everybody kind of slammed it because it was the only miss. And so I’m not going to read the revenue trends Pat, you can post them up here. Everybody knows what they are, but big growth in the mid double digits for gaming much higher than that for data center.
And you’ve seen almost parody now between data center and gaming. So these two business units are tremendously big. Another big number too was in, which this quarter had a huge triple digit growth and that’s kind of where they house their omniverse business. So you can see as some of their new products are rolling out, that’s going to be an interesting area to watch about NVIDIA’s quote unquote, play in the metaverse, which they call the omniverse and that’s going to be an area. Pat, the market actually bounced the stock off, it fell. So they had this great result and I wrote a market watch piece. And my headline, first quote was something along the lines of, I said, “After NVIDIA exceeds estimates, most investors would’ve expected the stock to rise.” And in the better part of the last two years, I do think that’s true. Right now, the market is looking for…
Because it was not only a raise, it was a huge raise. I think the guidance was like 800 million above what the street had said. So they beat revenue and their margin. Some people were like, “Oh, it’s the margin.” And you know what they had, they guided to the… I think their margin fell a little below the midpoint, but it still was in the range. So it wasn’t even out of range. It wasn’t like they came at 64% and they had estimated 67. It was like they had estimated 65 to 68 and the estimate was like 67.1 or something. I don’t have it right in front of me, but it was basically in the range, long story short, I thought it was a great quarter. I thought it was… You have record revenue for what, like the… It’s like the 11th, 12th record breaking quarter in a row right now.
Data center’s absolutely been explosive. They’ve got a hundred billion TAM in data center right now, Pat. And by the way, I think now I’m hearing the TAM for metaverse is about a hundred billion as well. So you got a huge TAM there. Gaming business has been robust, even automotive Pat. They announced the Jaguar Land Rover deal on the day of their earnings, which again, won’t hit until 2025. So the thing about their automotive business is it has kind of gone sideways and even down a little bit as companies like Qualcomm have really accelerated and Mobileye Intel. But I do think some of it’s about their focus in automotive, the things they’re focusing on and the timelines, there are two big deals like MBUX, the Mercedes deal, 2024, their Jaguar Land Rover deal 2025. So I think their automotive has a little bit of a over the rainbow thing going on if you want to be patient.
The way I basically ended my analysis on this Pat is that they’re at 80 times earnings. Okay. So NVIDIA, it was trading at a ridiculously high multiple, in just… Because AMD’s got its own army, AMD’s at about 45. So just to get a sense of just how much people actually believe in NVIDIA, they’re betting at it. It’s about eight times higher than Intel in terms of how it’s forward multiple. They’re in all the right markets. They’re in AI, they’re in gaming, they’re in automotive. They’re in the metaverse. They’ve got product leadership. They’re in with the hyperscalers.
They do have some competition with homegrown chips, Pat. But as I see it, it’s not really about if NVIDIA will see another rise. It’s the fact that this market is screwy. People are worried about interest rates, are worried about inflation. This had less to do with NVIDIA and its performance and more to just do a general market sentiment, which is that growth isn’t going to be as good as it has been. And therefore we’re going to punish and make people who are investing in growth weight a little bit longer to see any further returns.
Patrick Moorhead: So you pretty much took everything out of this.
Daniel Newman: I did not.
Patrick Moorhead: It was good analysis here. I’m looking at my notes and you pretty much ticked everything off. No, one thing. So first of all, I totally agree that the reaction to the stock makes no sense at all. But with that said, that’s just me agreeing with you. What I find amazing is they can crank these numbers up with an architecture that’s two years old. Ampere. Ampere was introduced in May of 2020. So it’s not fully two years, but literally they’re doing this on the back end of an architecture. And that’s typically not where you are going to get your best margins. You’re going to get your best margin at the beginning or at least until you’ve [inaudible] the R and D costs from it. So that just says the best is literally yet to come.
If and when, I do believe they’ll bring out a new architecture at their next GTC, but it just shows just how good of a position that they’re in. I do think the market gives them credit for dominating AI training forever. And that’s not going to happen. Not that I’m doubting their capabilities, I just believe it’s such a profitable and lucrative market that other people are going to get stronger. Intel’s going to get stronger. AMD’s going to get stronger. On the auto side, there were some comments about some supply chain issues that were in there. They did recognize cockpit decreases in. It is wild watching the cockpit numbers of Qualcomm go up as the NVIDIA go down. When I asked the company about that, what they told me is that this was a conscious move of resources from the cockpit to autonomous driving. I have no reason to not believe that, I think Qualcomm would probably say something different though. But all in all, an amazing quarter and potentially their NVIDIA’s PE is weighing in here.
Daniel Newman: Yeah, absolutely Pat. And I’m not doing much of a spin back, but I do like what you said about, when does the next launch in architecture have to come out? We see some very interesting accelerator chips. You mentioned Intel and AMD, but even companies that we’ve been seeing technology from like rock that are doing interesting thing in AI acceleration, there’s a whole little startup ecosystem of companies that are more focused on building accelerator chips that are… That could be pretty disruptive. I mean, we’ll see, but it’s going to be interesting to watch what could materialize there. All right. We’ve got a couple more topics, Pat. We had a big one, a big story, big day for Lisa Su, AMD, because unlike some deals that weren’t able to get done, she got a big one done. In fact, one of the biggest. Is it the biggest Pat ever in semiconductors?
Patrick Moorhead: Yeah, it’s the biggest largest in semiconductors and the second largest deal ever in tech, only second to Dell, Dell EMC, which is truly incredible. So yeah, after 16 months, the deal is closed and what a contrast to Qualcomm and NXP not going through and NVIDIA and Arm being called off. So what I’d like to do is just talk about what the two companies bring together. So first of all, AMD is really focused on high performance PC server game console, CPU, GPS, and SOCs, about an 85 billion TAM. Xilinx is focused on embedded markets with FPGAs and very high performance and programmable data center SOCs with an annual TAM of around 50 billion. So combined is about 135 billion TAM. So it adds $50 billion worth of TAM to AMD. AMD typically takes a horizontal approach.
The only difference I would say is game consoles. Xilinx really does take a more vertical approach and really leans into specific use cases. So I talked about what AMD is strong in, Xilinx is strong at automotive, carrier, industrial, aerospace, and defense. They have very mature and accelerated software stacks for things like artificial intelligence, networking, networking analytics and video transcoding. So the combined companies, the way that I see is really, I would say highlights with the data center. You have to fundamentally believe that the data center is going to be finding the right combinations of programmability and fixed function that’s super-efficient. Marvell is actually in this business. They have an ASIC business and they have businesses that combined elements of programmability and discrete functions. AMD has FPGAs and they have CPUs and GPU and fixed function accelerators.
So I really believe that’s the long term for these folks to really make things happen. I like too that the competitive puts and takes of AMD. AMD’s business is extraordinary. I was at am when the stock was at 90 and I was at AMD when the stock was a buck. I mean, those massive swings are just crazy. Xilinx, they have 10 year designs. Now, it takes a long time to get there but once you get in there, it’s a very sticky business, particularly on those vertical businesses, but good luck to Lisa Su and the team, it was the biggest acquisition, quite frankly, because there was no cash, it was a stock deal. And both the value of AMD and Xilinx went up, which made it go up, I think by about $15 billion between the offer price and the close price.
Daniel Newman: Absolutely Pat, and you covered this. We’ve talked about it a few times before. I think the getting this into the show is really all about the deal got done. And I think there was a… With what was going on with the video arm, with what’s all the attention that regulators are paying to these large scale deals, although based on the real litmus tests for getting deals like this done, AMD, there’s no reason it shouldn’t have and it did. And I think this will be enormously important to their longer term growth strategy. Where was that next wave of growth going to come from? It was a leadership move and it was a big move and it’s a bold move. And to your point, it was risky, so there’s a lot of ups.
There’s a lot of downs. FPGAs are competitive. They’ve kind of gone in and out of favor at different times. They seem to be coming back into favor in a big way. And we’re going to talk more about that in a minute too when we talk about Lattice Semiconductor. It augments the product well. It gives them more competitive capabilities in segments that the company is expecting to grow and has grown. So I like it. I like the move. And again, everybody’s kind of rooting for Lisa. So it’s not a bad time to be Lisa Su or AMD right now.
Patrick Moorhead: Yeah. Yeah. Daniel, I totally agree. My last statement in my Forbes article was, I said, “Hey, the tight rope CEO Lisa Su will need to walk is not disrupting Xilinx’s market while getting value from its people and assets for the entire company. Having watched Lisa Sue in action the past decade, you’d have to be a fool to bet against her.”
Daniel Newman: There you go. So you said it for me, Pat. We’ve got one more topic, so let’s get into it because you got to go, man, you’ve got a busy day. I’m up early because of you, so I want to get us through this one. So speaking of FPGAs, Pat, and speaking of patient of a really strong market, I actually came in Tuesday night, sat down Wednesday morning with Jim Anderson, Lattice Semiconductor. That podcast will be out in a few, maybe even today, in fact, but you and I should talk about this. Last year I had marked Lattice as a company to watch among the semiconductors that aren’t named Intel, AMD, Qualcomm or NVIDIA, because it seems like that’s what we always talk about. Their growth has been fantastic. I think a 32% quarter growth, 26% I believe was on the year growth.
And this is a company that focuses on the kind of the low to mid-tier FPGA market space, made some very interesting acquisitions this year, has increased its focus on software, moving into areas like AI, playing in some very interesting spaces, automotive, industrial, IOT. They are partnered sidecar with a number of the big chip makers that we have talked about. So this is a company that is seeing more of their chips per device than ever before. So they’re seeing an increase. They’ve also been a company that’s been kind of a bit of a supply chain winner. There’s a benefit to the programmability of these Pat because it gives flexibility to companies and as Lattice has made it possible to do FPGAs affordably with software that’s flexible, they’re seeing more and more adoption of their products across all these different industries.
So they’re seeing their operating profit jump. They’re seeing in guiding towards significant growth. It’s kind of one of those really good stories. I mean, at the peak of last year, they were up like 80%. I mean, this company is starting to get recognized. They’re doing everything right. I mean, a 3… Pat, you had this in your tweet, so I’m going to steal it from you 3.7% gross margin improvement in the quarter basically means they have unbelievably elasticity in their pricing that they can continue to drive prices and customers are willing to pay, doing some very cool things with their technology, too, Pat. Some of their sensing technology that they’re using for some innovative applications and client, for instance, to be able to see over the shoulder for visual hacking using some of the technology, Pat, some of their technology and servers for some security, for firmware, to be able to help prevent server in some sort of attacks that could be done on data center technology by catching it early in the boot, as opposed to letting it ever affect the deeper software layers.
Just doing some really interesting things with their FPGA, Pat. And like I said, increasingly involved in partnering with some of these big chip makers, they couldn’t disclose all of those names, but Jim did tell me in our conversation that they are seeing their growth in a demand from automotive. They’re seeing growth from the big server and cloud companies growth in 5G mobility technologies and huge opportunity in industrial applications as well. So great quarter Pat, it’s hard to not root for Lattice semiconductor up and comer in this FPGA space. And of course competing to some extent with Xilinx, but they sort of meet at a certain point in the market. So they’re not going head to head. I just put you to sleep. You going to wake up. Is that a yawn or that a hurry up and be done already?
Patrick Moorhead: No, I got to go in like two minutes, so…
Daniel Newman: All right, let’s go. So give me your best. Fill it in for me.
Patrick Moorhead: Lattice crushed it. I mean, if I look at Jim Anderson’s performance over the last few years, I mean, he’s done exactly what he said he would do. He got the company out of business that didn’t make sense. And he got them into businesses that made sense. Good profit. The first couple years, not a lot of revenue growth. And Jim said, “Listen, 2022 is the year of growth.” Well, I think he hit it a quarter early. Revenue was up 32%. And yeah, I want to put a highlight on the gross margin. Usually we talk about basis points because it’s easier, but 3.7%, screw basis points, he literally improved.
Daniel Newman: 370 basis points.
Patrick Moorhead: Yeah. Yeah. And his forecast for 22 was even higher gross margins, so I didn’t necessarily expect a gross margin improvement. I really wanted to see growth. The secret weapon here is that we have all this growth and the new mid-range that the company, new mid-range FPGAs that the company announced, but hadn’t shipped, haven’t even impacted yet. And the way this is square at the belly of Xilinx and Intel. AMD, Xilnx and Intel’s Altera, where Altera and Xilinx are both very focused on the bleeding edge, the highest end FPGAs and in Xilinx adaptive SOCs, it’s essentially leaving this mid-range wide open for Lattice. So literally the best is yet to come for these guys.
Daniel Newman: And there you have it. So big week, Pat. Some really interesting topics. We’re getting to that tail end of the big tech and tech earning seasons. We’ll have a couple more of those coming up over the next few weeks, Pat, we’ve got on the road. So next week we are off late in the week to Barcelona. We have a whole bunch of what we call six five in the booths. So you’re going to see Pat and I doing the analysis in real time with a number of tech companies that have asked us to come in and say hello. So look for that. That will probably be either augment our regular show or it’ll replace it during this period of time, but we will be going on the road. We will also be doing a big launch for one of the companies in the near future, Pat.
And that’s going to be a first time of what we call our on the road edition. And The Six Five summit is coming back June seven to nine. We’ve got some very exciting name speakers. This is going to be our biggest and best ever event this year. So look for more on that. That’s the site should be going live anytime. Pat, we got our marketing stuff now, so we can finally get out there and get all of our great partners. So if you’re one of our partners and you’re like, “Hey, I didn’t do it last year, but we want to do it this year.” We want to hear from you. But for this week, in this addition for this 5:00 AM wake up call for Friday, someone’s going to go see his baby girl today. I love it. That’s not me unfortunately, I’m just going to be traveling. But anyways, great show. Hit that subscribe button.
Good news to me, bad news and criticisms to Patrick Moorhead on Twitter. We’ll have to see you soon. You’ll have to wait for our next show. We know you will, standing by, but for now, we’re out of here. See you later.
Patrick Moorhead: See you buddy. Got to roll. Great show.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
