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Oracle & Marvell Earnings, Intel & Mobileye, Planet Goes Public, C3 Wins Big, FTC Sues NVIDIA – The Six Five Webcast
by Daniel Newman | December 13, 2021

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:

  1. Oracle Earnings Report
  2. Intel Set to Spin Off Mobileye
  3. Planet Plans to Become a Publicly Traded Company
  4. C3 AI Wins $500 Million DoD Contract
  5. FTC Suing NVIDIA Over Arm Deal
  6. Latest 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.

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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:

Patrick Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy, and we are here, maybe a day late, for another awesome Six Five Podcast with my amazing co-host, Daniel Newman. Daniel, how are you doing?

Daniel Newman: I’m doing good, Pat. The StreamYard logo is in duck. And I think the reason we missed our podcast is somebody was out doing duck stuff. I don’t even want to explain that, duck hunting? Remember that game? That game was awesome, by the way. Who had a Nintendo out there? Anybody have a Nintendo out there? That was my favorite game growing up.

Remember that Nintendo duck hunting game and the gun? Oh man, so fun. But yeah, you know what? Every so often we tell you guys out there we’re not going to be perfect. We’ve been pretty consistent about doing Friday mornings, but we’ve both been I’d say burning the candle at both ends. So it’s not so bad to take a day and maybe do something that’s just slightly fun. And by the way, on a beautiful 80 degree, Texas, December day.

Patrick Moorhead: I know. Yeah. And it’s kind of a little bit more normal today. It’s in the 50s. But we’re so far away from snow, it’s not even funny. But Daniel, let’s jump in here. So we’ve got some great topics. One reminder I want to throw out there is we are going to talk about publicly traded companies, but please don’t take that as investment advice. This show is for informational and educational purposes only.

And if this is your first time to the Six Five Podcast, we cover six topics, five minutes each, a little bit of news, but more analysis and why it matters. So we’re going to be talking Oracle, Intel, Planet, C3 AI, NVIDIA, and Marvell. And we are going to kick off with Oracle earnings.

So where do we start? Up 16% in the past couple days. What on earth happened at Oracle? The way that I would summarize this, Daniel, is it’s the first time the street actually believed that Oracle is a cloud company. Buybacks help. Okay? Don’t get me wrong. But total cloud revenue.

And it’s interesting. Everybody defines a little bit differently, even different analyst firms do. I mean, Gartner considers it IS plus PAS. AWS, really, they say it’s about IAS. Google and Azure, really it’s about IS, PAS, and SaaS. So Oracle’s definition is IS plus SaaS.

So think of infrastructure and a service and either NetSuite or Oracle Fusion apps. That was up 22%, $2.7 billion. Fusion ERP and NetSuite ERP, kind of a copy and paste from previous four or five quarters at that 20, 30, something percent growth. I saw a couple flexes in the press release. I mean, we’re all used to Larry getting on the call and flexing on customer wins, particularly about SAP. That’s been a common theme.

But let me read you this. Amazon Aurora customers are discovering that moving to MySQL with HeatWave, which we’ve written many white papers on, you can check out on our website, and Daniels, can increase their performance by 10 times the corresponding reduction in cost.

Now, here’s the kicker. Essentially doing the opposite here, typically it’s Amazon picking on Oracle, but here’s Oracle picking on Amazon with a 10X. So I feel like this is kind of the beginning of maybe the confidence era for Oracle, where they’re not having to make excuses or explain away. They feel like they’re in a pretty good position. Daniel, am I just completely overthinking this?

Daniel Newman: No, I think you broke it down pretty well. First of all, Pat, you and I know both from personal and tracking the tech space, it’s been a sort of turbulent period over the last 30 or 45 days for tech. Value has done a little bit better than growth. And of course the indices have been pretty well propped up by the biggest names.

Now, Oracle year-to-date is over a 40% return to investors. Now, that feels like growth. And it certainly is a type of return that people that are in the growth are looking for. But actually the company has all the characteristics of value. They pay a dividend. They actually have been increasing their buybacks.

But concurrently, at the same time, they’ve hit new record highs for their share price and they’re firing on all the right cylinders. And Pat, I think you said the exact right thing. The market is finally recognizing them as a cloud company. Now, this is a company that has over 70% of its revenue on a recurring basis.

So all the cloud SaaS consumption stuff where we’re like recurring revenue, this company’s been to doing this forever and they’ve been doing it really well. But Oracle, they’re a little bit of a company that people love to hate. And so call spade a spade.

I saw an article on CMBC that came out that actually the headline was something along the lines of based upon a one-time payment that had to be made to Mark Hurd from when he left HP, quarter terms to a loss. That was the headline. Now, at the same time though, this was in the after-hours market, the stock was up over 10% and breaking a hundred dollars for the first time in whatever.

There’s a little bit of this negative media. There’s some negative sentiment that seems to kind of hover, but the company is in transition. Now, they’ve recently seen a challenger position really neck and neck with Google Cloud rising up to compete for that third cloud. When you mentioned $2.7 billion, that’s not for the year, that’s for the quarter.

So you’re talking about a $10 billion cloud business. And when you start to kind of put all these factors together, you’ve got the potential number three spot, and you’ve got a company that is firing on all cylinders and addressing multiple markets, by the way.

Because with NetSuite, they’re actually addressing that SMB. They shared a stat, Pat, and between Fusion and NetSuite, the company has somewhere around 36,000 subscription customers. So they just have a lot of things going for them. So like I said, Oracle is one of those older tech companies that tends to carry some conservatism about its upside and prospects.

Larry certainly is an exciting, somewhat provocative and sometimes controversial chairman and chief technology officer. But you know what? Execution’s execution, and this company has seen a tremendous rise in results this year and the cloud business really modernizes it. And the company should be happy. Its investors and shareholders should certainly be happy. And Safra Catz, Larry, and the executive team should feel good about the results so far this year.

Patrick Moorhead: Did you call Oracle conservative?

Daniel Newman: 74% recurring revenue. Most of their customers are tied up in long long-term contracts and their growth rate is 6%.

Patrick Moorhead: I get it now. It’s funny I was thinking Larry and conservative. But I was thinking in the wrong…

Daniel Newman: I haven’t seen him in the ballot box, Pat, but I do know the guy owns like a couple islands. So I’m thinking he likes to… I know what you’re saying. I’m just being funny. I’m guessing though he probably would like to see the tax rates stay low. He did move the company to Austin, Texas.

Patrick Moorhead: I know. That still froze me. When I look at press releases from them from Austin, Texas, I can see their offices from my house now.

Daniel Newman: It makes my heart warm.

Patrick Moorhead: Aww. That’s so nice. And I can see where you live downtown too. Hey bestie, what’s up?

Daniel Newman: That’s my home.

Patrick Moorhead: Hey, let’s move to the next topic. Intel is not spinning completely out. Not completely spinning off, but they are setting up what I guess I would call a tracking stock. Correct me if I’m wrong here, Daniel, what are they doing?

Daniel Newman: Let me sort of break this down. This is an interesting play in an era of companies seeking to aggressively unlock value that is within the deeper walls of broader technology offerings. We recently saw what Michael Dell did in a very sophisticated instrumentation of value for a shareholder spinning off VMware to bring a ton of capital into the company, improve the company’s debt structure after many years.

And some people may have looked at it negatively, but it was definitely a positive. Then you have Honeywell recently taking its quantum business, which was essentially adding nothing to the share price, but is a really interesting technology. And they took Honeywell Quantum, combined it up with CQC and created a new company that they’re going to be the majority owner of, by the way.

And now you’re hearing what Intel’s doing. And Pat, here’s what’s going on. And I think you and I know this, you got to talk to Pat and the CEOs of both Intel Mobile. I had a chance to talk to pat that day. We both had a whole bunch of media and people were asking us, this is what we do.

And so what essentially is going on is you’ve got a red hot automotive space right now where the share prices are absolutely roaring. I mean, Tesla’s forward earnings versus Intel’s is something like 13 times. Put it this way: Intel is just over 10 times trading forward earnings. Tesla’s trading at 130 plus times forward earnings.

It’s not just them though. You look at Rivian’s IPO. Rivian’s worth more than $100 billion. You’ve got Lucid Motors, barely sold a car yet, under the investigation of the SEC, and peeking out a valuation od up above $70 billion market cap. These companies became worth more than companies like GM in a matter of weeks.

And it’s all based upon this trend towards autonomous and electric vehicles that has the market so excited. Well, in the future, Pat, by 2030, the bomb of an electric autonomous vehicle is going to be something around 20% semiconductors. So you’ve got a company like Mobileye, which different than Lucid and Rivian, actually has revenue, has customers, is shipping units, and is profitable.

And you say, “Well, it’s locked within this Intel construct.” And right now Intel has been somewhat kept in the penalty box for a long time because it is in a major transition to its IDM 2.0. It’s trying to transition to its new process, it’s new packaging. It’s trying to win in areas like AI.

It’s trying to protect market share. And all the while something like Mobileye that just announced shipping it’s 100,000,000th IQ. It’s building a entire system though. So it’s not just the chip. It’s the safety, it’s the policy, it’s the mapping. Robotaxis. They acquired this company Movelt.

And so here’s what I think, Pat. I could talk about this for half an hour, but I’m going to kind of make it short and give you a chance to bounce on this. One is essentially they have a $50 billion, maybe even $100 billion market cap company that they spent $15 billion on less than five years ago, locked inside of the company, returning probably pennies on the dollar to shareholders.

And they say, “Hey, there’s another way to do it. Let’s spin this thing out. Let’s raise a bunch of capital. We can reinvest that capital that we don’t need but would help us. We can reinvest it to move IDM forward, get these fabs going, get these process and hire more engineers.”

At the same time, if this thing goes from $50 billion at IPO to $200 billion and we’re the number one shareholder in this entity, we win, we win, we win, we win. And Intel, this is an area the company’s doing really well. And so you can challenge a lot of parts of Intel’s business, but Mobileye has been extremely successful operating mostly autonomously, a lot like VMware , Pat.

So I like the deal. I like whatever you want to call it, it’s a spinoff fish, but it’s definitely not going to be part of Intel corporation and the INTC ticker anymore. And I think that’s good for Intel, it’s good for shareholders, and it’s good for people excited about autonomous vehicle technology.

Patrick Moorhead: So I need to start off with a rant here. Essentially, we’re all okay that Wall Street is lazy. The Wall Street analysts are lazy with Intel. All of the companies that you cited and all the value, by the way, I don’t even think you mentioned Tesla.

And yeah, I get that Tesla isn’t the core technology company, but essentially they’re doing ADAS right now, L2 Plus, and Mobileye is actually in many more cars than that and has a killer roadmap. So this is them being lazy. It’s, “Hey, oh gosh, I can’t break out and evaluate this business because I’m lazy,” or, “I don’t know how to do this.”

And I think that’s completely ridiculous. So this is why this is happening because Wall Street analysts are lazy. The company was already very much separate, exactly like you said. I felt it. I mean, trying to get an answer on something. There were small parts of bigger Intel stories, but they did that…

I give credit to Intel. I think more things they’ve operated like that versus sucking in companies have gone much better. And as you said, what I did pick up with my discussion with both Pat Gelsinger and Amnon was I came in thinking focus, which was Intel has to do this because they need more focus on their core businesses.

And I think the two of them probably talked me out of that. And maybe I should have known that going in, given that they were separate. Pat was very clear with me that when it comes to supply chain and things like that, they will very much be leveraging Intel.

Let’s put aside kind of the nightmare that’s out there right now with supply chain moving forward. But I did get the sense that Intel has helped Mobileye get supply that it may not have been able to receive before. And that that’s going to continue in the future.

Gelsinger didn’t say this, but to me I was picking out code for IFS. That Mobileye will be an IFS customer, for sure. And the type of Silicon I think would be great to prove out because Mobileye Silicon is very much like a lot of the rest of the world and new customers that Intel would want on top of Qualcomm and Amazon.

So the one thing we forget too… And how hard is it to evaluate this company when you have there? My rant just continues here. The other thing I’ll say is that business has tripled in revenue size. And by the way, is four times bigger on a new basis than Qualcomm and NVIDIA. I don’t know.

Daniel Newman: You’re talking about just the automotive, by the way.

Patrick Moorhead: Just the automotive part. Anyways, my apologies for the rant, but it just seems like laziness. And I don’t want to say, oh, this is part of the deconstructing of these huge superpower companies with big businesses inside of them. It’s Wall Street laziness.

Daniel Newman: Yeah. I know we don’t like the boomerang. We got to keep moving. I’ll just say one thing. There’s a little bit of the laziness in there. There’s a little bit of it makes it really hard when you have such a gem locked into a company that’s going through a longer transition.

So I’ve been very vocally supportive of Intel’s longer term transition. I think the company’s going to do okay. But you look at, like I said, how do you make it investable? People want to invest in autonomous vehicle companies. They may or may not want to invest in chips for PCs.

So you give them the option to make that investment in the one growth area they’re excited about. You’re totally right about the laziness, but the other side is I think it’s a smart financial engineering by Intel.

Patrick Moorhead: Well, here’s the thing, Intel never hid the profitability of Mobileye. They reported all the way down, gross margin, percent. They told everybody their financials. So unlike other companies that bring companies in, they hide the financials in order to invest, Amnon was very clear with me, “No, we were profitable when we were bought/purchased. We are still profitable today.”

So let’s move on to the next topic. I think boomerangs for a Saturday are fine. Let’s move on to an exciting company called Planet. Daniel, you and I may have talked about them before. I’ve written multiple articles, done a bunch of interviews with the CEO and the key sponsor, dMY technology. I will call him the king of SPACs, Niccolo de Masi. By the way, I call him king of SPAC. We’d sometimes think of Chamath Palihapitiya as the king. Niccolo actually has better returns for the last couple months. But…

Daniel Newman: Yeah, I know, Pat. I hold still by.

Patrick Moorhead: Okay. That’s right. So net-net, Planet’s a data company. Its business model, essentially, they obtain data from their own satellites that they built through an agile process and they have a model where they can sell the data to anybody. Because there are companies that they will do scans and only sell it to one customer.

So it’s more of a cloud-like, more like a SaaS-like type of thing. 200 satellites, that’s 10X more than anybody else, 10 to 20 times more than anybody else. But anyways, that’s who they are. They went public, New York Stock Exchange, dollar sign PL, and this.. You could probably hear the dog in the background. My apologies.

Essentially, out of a de-SPAC with dMY Technology, DMYQ. So they brought in, let me see, $590 million in gross proceeds, set a record 2% redemptions. And essentially only 2% of the people in the pipe said, “No, just give my money back.” The average for Q4 is between 50% and 75%, which is absolutely astounding.

And they have $200 million pegged for investments. A lot of that is OPEX. Interestingly enough, sales and marketing and distribution, because they have the tech. I mean, they’re literally running planetary circles around their competition like BlackSky. But interesting company. They’ll have a $300 million war chest after they make these investments for, this is just my hunch, not what theirs saying, for potential acquisitions.

Daniel Newman: Yeah. A great result. We’ve all seen the market has been extraordinarily punitive to SPACs. So seeing such a low redemption rate means that people that are in this, despite the volatility and market generations right now, believe in it long term. We certainly know space is an interesting topic. The biggest tech moguls on the planet are all interested in this area.

And so kind of going back to what we talked about, it’s an area that’s becoming more and more investible and people want that opportunity to invest. So good job. Congrats. And I saw some of the work you did, the podcast. Pat, put them in the show notes. Let everybody see them. You had some good conversations with the leadership of those teams.

Patrick Moorhead: Yeah. So let’s move to another really exciting more mature company, but still a startup. C3 AI pretty much blew away the shorts, haha, with its Department of Defense win. Daniel, what’s happening?

Daniel Newman: This is pretty interesting. So just the other night, I got an alert that basically showed a press release that came up from C3 saying they wanted a $500 million DoD contract. I’ve had Tom Siebel on my Making Markets podcast before Tom was the CEO. He’s a fairly well-known entity from Siebel Systems back in the day. And he started C3 AI.

The whole idea here is really a business that’s 100% in on enterprise AI. So you’re talking about applications for oil and gas. You’re talking about smart grid, smart city. We’re talking about financial institutions and healthcare, very, very specialized, high end.

This is a company that’s had a number of partnerships. They’ve done with Google Cloud. They’ve had partnerships with Microsoft. They’re working with ERP providers like Infor, NCS, also even working with cloud data platform Snowflake. So this is a company that’s doing interesting things, has a number of interesting partnerships.

But having said that is a little bit slow growth in terms of they went IPO this year. The stock came out at around $50. It shot into the hundreds and has recently fallen all the way back into the twenties as growth again has been slaughtered. And this company had almost 15% to 18% short interest and the market has just loved battering this thing.

It’s mostly a company that adds a handful, 20, 30 customers on a quarterly basis. And these customers are spending millions. These are not small deals. These are big deals. But it’s an area that’s maturing a little bit at a slower pace in terms of consumption is not happening as fast as like an AWS or a Google where you got lots of people swiping credit cards. These are big complex deals.

So this for example, though, is a deal that was probably going to be the largest so far. And as I see it, when you have an opportunity to validate yourself with US government, a Department of Defense that says we want to partner with you for your technology to basically help us accelerate our AI capabilities. In the defense space, in my opinion, that was a huge win for the company.

And by the way, the stocks shot up double digit percent the minute it happened and shorts had to start covering. And that’s why I said stunts of shorts because literally they’ve been taking this thing down since IPO. It went up to like a hundred. They’ve taken it down 70%, just absolutely battering it. Even though the company has been hitting its targets and hitting its growth, it just hasn’t been able to grow fast enough.

So what I basically say here is Tom Siebel came out trying to establish a marketplace and to kind of put some definition around what is enterprise AI. And so enterprise is never as sexy as consumer. We think a lot about AI. We think about Alexa and we think about intelligent apps and gaming.

This is the kind of AI that enables a trillion data points to be utilized to determine when a Colombian cartel might be using money laundering tactics or fraud in banking and when tens of thousands of credit cards are being swiped at the same time.

This is the kind of technology that can help companies identify that and hopefully in the future more effectively eliminator thing. We’ve heard efficacy a lot throughout the pandemic. Well, we need efficacy with our technology. So good win for Tom Siebel, just good one to fit in in a week here, Pat, because it’s always good to see companies that have been kind of taking it across the chin be able to hit one out of the park.

Patrick Moorhead: Yeah. This one really peaked my interest, Daniel, because I would’ve expected a company like Palantir or one of Joe Lonsdale eight VC companies when something like this, or for that matter, Azure. So super interesting to me and might make me actually go research the company more. Because when I think enterprise AI, I totally get it right.

Because if you look at most of the AI out there, it’s focused on consumer market. And getting to applied AI for enterprise has been super tough. I would say primarily those companies weren’t able to afford it or their partners weren’t capable of actually doing it or they just didn’t have enough data out there. So DoD win by enterprise AI companies C3 AI, very interesting beating out companies like a Palantir. Interesting stuff, Daniel.

So we are in the final lap here. We have two more topics to go. Let’s jump into FTC suing NVIDIA over the Arm deal. So it’s interesting. Just to put some of this in perspective, a couple years ago, maybe it was 18 months ago, NVIDIA made a play for Arm and they have been slowly making their way across the globe to get approval for the deal.

Arm is essentially the arms dealer for the smartphone market, IoT market, and increasingly becoming relevant in areas like ADAS, even the server market. Gosh, if you look at what Amazon is doing with arm-based processors and the PC market. So to stop the deal from going through in the US, the FTC sues. It sounds pretty dramatic. Okay?

But it’s essentially this is the FTCs instrument to slow down this deal. And they were very focused on areas that they would harm competition, which were ADAS, smart NICs, and Arm-base CPUs. So you can imagine who might be complaining about this? And you have to have complainants in this.

And ultimately we will find who it is, but I wouldn’t doubt if it was Intel, Marvel, who’s in smart NICs, multiple small ADAS systems, maybe even Mobileye, and potentially Amazon with Arm-based CPU for cloud service providers. So I’m not naming names here, but this is likely who’s behind this.

The irony is always the FTC comes in and talks about how it harms competition, but nobody was talking about how this potential deal could actually enhance competition. There is no doubt in my mind that this deal will increase competition in the hyper scale server market and quite frankly the enterprise server market, which is dominated by Intel and has been dominated for the last 10 years, with AMD just recently getting into the double digits.

But if you look at Power, if you look at Arm, if you look at a host of other processor companies and instruction sets, they really don’t have any market share at all. And I think probably the second thing NVIDIA would do is just ramp up competition in this market under the NVIDIA banner.

The other place where I think this D yield could increase competition is the PC market. AMD and Intel have a hundred percent of the PC market. Well, let’s say 99.97%. Qualcomm is coming in strong with a new roadmap. When the NUVIA architecture hits, they’re going to get more competitive.

But the first thing I think NVIDIA would do if this goes through is to create a monster CPU chip. It’s a market that NVIDIA understands. It has power. It has respect. And I think that is an area where they would actually increase competition. And in the end, really what all these companies want who are complaining is they want a fair shot that NVIDIA won’t get first dibs on the IP.

And secondly, they want certain features in new instruction sets that benefits their business as much as it might benefit NVIDIA SOC business. My final question is, well, what next if this doesn’t go through? We’ve talked a whole lot about I just pontificated on what I thought was going to happen if it moved forward.

What else is going to happen? Is Arm going to go through an IPO and then essentially be starved for resources and have to get mega profitable as it’s been investing for the past five years? Is there going to be some magic consortium of companies who are going to throw down money to make it happen?

Boy, you think getting Arm to make agreements on a new instructions set are hard. Imagine having to get Apple, Samsung, AWS, Qualcomm, Microsoft, and Huawei, all to agree on something, pretty much all competitors. That would be slower than an IEEE group itself. And that’s super slow.

I did hear a very provocative thing, Daniel, that I wanted to share with you. We’re not rumor mongers, but I had dinner and somebody shared something that very rarely makes me do one of these. And that was, “Hey, Patrick, it’ll be interesting if the Arm doesn’t go through.”

QTL from Qualcomm gets spun out and gets combined with Arm and you have a super duper licensing company that goes all the way from the very smallest core to 5G and wifi and connectivity and ends up to be the IP arms dealer of the planet. Anyways, I’ll leave it there. I’m going to pull the pin on the grenade and throw it in room and then leave.

Daniel Newman: I’m not even going to quite comment on that. I can’t imagine how the regulators would look at that setup. I mean, obviously Qualcomm has been through years of its business model being scrutinized, but the recent FTC ruling did rule in its favor and it is going to allow them to continue operating.

Which of course, then you have to put that in contrast to what’s going on here, because that does set up a fairly interesting and provocative discussion, Pat. Here’s the kind of where I’m struggling. So one is Arm doesn’t make a lot of money in its current state.

I think it nets about a billion dollars. And in this business, that’s not very much. It is the current instruction set provider to a number of the world’s largest technology companies that have spent lots of money to in-house the talent to take an Arm instruction set and make it usable at scale, whether that’s AWS and Annapurna, whether that’s what’s going on with Amp here, partnering with companies like Microsoft and Oracle. You’ve got Apple, who of course has done really well with an Arm instruction set on their new max.

Of course, in the beginning, we found all the things they did wrong, but very quickly rectified most of them. There’s still some work to be done. But my point is that it’s a very interesting crossroads. Because the companies that are in the current state of Arm, doing well with Arm are companies that have vastly more resources.

So it’s not really stirring up competition. It’s just enabling the biggest companies to basically take advantage of what Arm has built and they make it better. The promise that NVIDIA’s making is to inject significant R&D capital in to ideally make the instruction sets more off-the-shelf ready. That would be the ideal here.

The problem is, does anybody really trust them to do that and not have some sort of self-interest? Which then, again, takes you back to what I mentioned when I talked about the Qualcomm ruling. Because of course, they’ve got a similar ecosystem that’s got to be looked upon here.

You’ve got an Intel and you’ve got the AMD that’s basically holding the entire x86 market under their control. And there’s no plan to distribute that in any capacity. And at least having a more competitive offering would at least add a third. And Pat, you and I always talk about having three is always better.

So if we’re consistent in our verbiage, then this could potentially help Arm rise up to be a genuine x86 competitor. Whereas right now NVIDIA really doesn’t have any market share to compete with x86. It’s inconsequential the amount of Arm market share.

Even as AWS is doing really well, even as Apple is doing really well, it’s still pretty small in both those categories. Okay. So quick pivot here. This deserves a pivot. The other challenge I have is we’re in this state right now where big tech, you have to ask a question about the regulatory environment with Lina Khan and what she’s doing.

There’s step A, which is appropriate regulation and enforcement, which is something I think we’ve been pretty weak on and we’ve let deals go through. That’s how the Instagram, WhatsApp, Facebook thing has become what it’s become. Now, at the time when Facebook acquired those things, there was no breach of antitrust law and there was no clear indicator of how they would actually breach antitrust law.

But of course, if you’re a conspiracy theorist or you’re just negative on the intention of big tech, you can look at any acquisition deal. This could be AMD Xilinx. And you could say they’re going to control the entire FPGA market at large. We can’t let this deal go through.

Is that really necessary to stop? Is that even a big enough market to warrant stopping? But just to have that power and wheel that kind of control here. So what I worry about here is now we’re going from a state where the FTC needs to look at a deal and see legitimate opportunity to create harm and then stop the deal before it gets done because they know that harm will be done.

But on the other side, it’s their job to review the plan and then hold the company accountable to the plan. I’ve even heard Jensen and NVIDIA has gone as far as to say they’ll create a licensing business that’s a wholly separate company from NVIDIA. So they’ll have the R&D and such in-house and there’ll be a relationship, a little bit like what we talked about with Intel and Mobileye, where they’re going to cross-relationship for certain resources, but it wouldn’t even be held underneath NVIDIA.

And that would give the opportunity to more directly regulate the business. And I heard that Lina khan rejected that. And of course there’s reasons to reject it. This Arm space between mobile connectivity, servers of the future. I mean, this is a massive opportunity. But the idea is now we’re kind of playing the minority report game. We’re basically assuming the worst. We’re looking into the future.

You’re guilty before you’ve broken the law. And we have people who I don’t think are necessarily competent to read the tea leaves. Because if they were, they wouldn’t be working for the government. They’d be building awesome freaking companies. Sorry if you’re the one.

But my point overall is that I worry about how much control lawmakers, legislators, policy makers and influential in the beltway people have to stop a deal, to stop another company from rising up and becoming even stronger, which NVIDIA has done. But at the same time, Pat, I can easily argue either side of this deal.

I can easily argue why they should let it happen and I can easily argue why they shouldn’t. And that’s why for the last six months I’ve called it a coin flip. Now, with that, I will say this deal is probably less than 10% now. The probability of this happening with all of those probes plus the FTC is less than 10%.

But I don’t know what SoftBank’s going to do. And I don’t know that people realize that this deal not coming through, a consortium’s not going to work, maybe an IPO on its own. That would need to raise a ton of capital because the company in its current state isn’t worth that much.

So it’s not going to go raise a ton of money on an IPO unless people really are betting on the future. But where does that R&D money come from, Pat? It’s going to need to make it more competitive than it is today? So SoftBank’s on the hook, NVIDIA could be out billions of dollars. This can weaken the competition, which is the unexpected consequence is, who’s going to pick that up? So it’ll be very interesting to see.

Patrick Moorhead: My favorite one of your comments was the precognition. And if you look at what the FTC did with Qualcomm, they never actually showed any proof of consumer harm. What they showed proof of was potential consumer harm, which was just prick and ironic. Which by the way, back in the day when I was a chief witness on AMD versus Intel, and also all the investigation of Intel, there were mountain of proof and we would’ve been laughed out had we had no proof. It’s crazy.

Daniel Newman: You know what, Pat? Long and short, it’s very interesting because it used to be consumer harm and competition were almost uniquely interdependent. And it’s not the case anymore. This is why platforms can’t be regulated the same way. And you and I have talked about this.

We did an awesome pod back in the day. I’m calling about this in case we can put it in the link. But you can’t actually say that people care. They love the apple platform. They love the Facebook platform. Nobody cares about side loading. That’s only a competitive issue. So now you’ve got this conflict when the company didn’t have enough competition, the consumer was hard.

But now the consumer’s like, “I love this. I don’t care. I don’t want another way to buy this.” I just want to buy it here on the platform. This is the same thing here is it’s not always together. So we might need the spur competition, but you can’t say that consumers are going to be harmed by having more choice and having better product.

So I don’t know. This is going to be a really interesting one to watch, but my gut says it’s over, as much as I hate to say that. I just don’t see how this goes.

Patrick Moorhead: Yeah. I’m not a very good odds maker, but it’s dramatically lower in my mind than where I was before the FTC had. I thought, for sure, this thing would get hung up in China. I figured they could pay enough money and follow the rules in Europe to squeak by. But this might be different. But hey, let’s move to our final topic. I got to tell you, I think I like Saturday pods better, Daniel.

Daniel Newman: It’s fun. It’s fun to have a little more time to boomerang. We’re going to finish probably faster than normally, even though we’ve done more boomeranging. Maybe when we don’t have as many like signals, because on Friday morning, all the emails are flowing and you got lots of things and meetings ahead, where maybe we talk slower. I don’t know. But we’re flying through.

Marvell last week, while you and I were in Hawaii, had earnings this week. It had its industry analyst day the week before it had… I believe it was a week or two before it had its investor day. And the only conclusion that I could come to, Pat, is Marvell is on fire.

I wrote a piece for MarketWatch that basically somehow titled it Marvell can no longer be kind of in this what I call also ran semiconductor space. It really has to be on that top list of companies. If you’re looking at investible, if you’re looking at collaborations and partnerships in the enterprise space, this is a company that’s attached to all the right secular trends, automotive, enterprise, data center, 5G.

This is a company that’s growing at pace. This is a company that’s returning over 80% year-to-date to its investors. And by the way, quick victory lap, early in the year, I did four must watch semiconductor companies for the year that weren’t named Intel, Qualcomm, AMD, and NVIDIA.

And I picked Marvell, Lattice, Applied Materials, and Micron, and three out of those four have returned over 70% year-to-date. So Micron was the only one that didn’t return that high at low double digits around 12%, 13% as of last week when I last checked.

Anyhow, Matt Murphy came on board, took on this company at a crazy inflection point and essentially has brought it from a consumer focused to a enterprise focused company, making really wise acquisitions, Inphi, a 410 billion deal, which by the way, you and I broke earlier in the year. The Innovium deal. Inphi with optical.

And this is all about networking. Innovium with hyperscale connectivity. And let’s just talk about the business units of this company. It had record revenue this quarter, $1.2 billion. That’s 61% growth. And it’s four categories. Data center, which is 41% of its revenue, it grew 109% year over year.

In enterprise, 20% of its revenue grew 56%. Carrier, which is one of the areas it’s pretty well known for, more established 18% of its revenue 28% year over year patent. Automotive is now creeping up on double digit of its revenue and it’s growing at 114%.

A five-year mega transformation that is taking this company into the stratosphere. I know I sound like a fanboy, but Pat, in the two years that we’ve spent tracking this company, it went from, “This is kind of an interesting company. It’s doing…” A year later like, “Ooh, this company’s doing really well.”

And now I’m like, holy crap, you cannot talk semiconductors without talking about Marvell. And so beyond the numbers though, what I really want to point out is this is a company that has attached to the most important mega growth trends in enterprise tech. They have a ton of really important collaborations.

They’re in many designs within data centers and in cloud and automotive right side by side with these other names that you always hear about. And they’re part of the connectivity and the automotive space. The ethernet. It’s all about, how do you get data from point to point?

And Marvell is behind a whole lot of that with a whole lot more growth in its future and a lot to feel really good about. So I won’t hog this one. I won’t take too much time, Pat. But what a quarter, what a run up. Marvell, man, put it on the list.

Patrick Moorhead: Yeah. By the way, I need to make sure I don’t come off like a fanboy either. But just to put in perspective here, let me dial back to 2016. The company launched an internal investigation by the board’s auto committee and were investigated by the SCC. They said they didn’t ultimately find fraud, but said that there was significant pressure on their sales team.

And literally the company got a letter from NASDAQ’s listing qualification staff threatening to delist the company over its delayed filing of its 10K for 2016. Starboard came in, active investor, started making a lot of waves. Oh, and that same year paid a $750 million fine to Carnegie Mellon over patent. And net-net, the CEO, Sutardja and his wife, Weili Dai, who are still big investors in tech today, stepped down in April.

So there are some companies who have this incredible run-up and there are certain reasons. But starting in such a pit and moving up, you can imagine how challenging that is for employees. So divesting yourself of pretty much all consumer, acquiring multiple companies in the data center, essentially inventing the category of offload networking, because it was either Annapurna or its Marvell.

For the record, Marvell had it first as a device, Annapurna shrank it down into a chip. But essentially Marvell has put itself in as the Arms dealer to the hyperscaler data center market in multiple areas. They’re the same for the carriers as well. They got out of some businesses that didn’t make sense that I know some people were shocked at.

They got out of general compute and really got into what I’ll call custom compute, getting out of custom engineered CPUs, but has a custom engineered ASIC solution. So where do I go from here? Stock up 521% in the past five years. Matt Marshall, Chris Cutmans and company, just absolutely crushing it at Marvell.

Daniel Newman: Yeah. I think you hit it on the head. And the leadership team has been great. They’ve been generous with their time to spend talking to us and the results have spoken for themselves. And by the way, I don’t think we sound like as bad a fanboy as Jim Kramer does.

So I think if he can pull it off, we can pull it off. I mean, look, sometimes you just have to give credit. I mean, I know we tend to be more bullish. We’re I guess naturally more optimistic guys. We do challenge things and we genuinely think they need to be challenged.

And we do try to ask the right question. That’s what being an analyst is all about. But at the same time when someone pulls it off and does well, it’s also okay to applaud. We live in a world where everybody wants to tear people down. I think that sometimes building up and giving credit is a great thing.

So congratulations to Marvell. Good week for Oracle. Good news for Intel, Planet, C3. I mean, really other than the FTC one, which is more of a tossup of really fascinating debate, these are good things. And you know what? I can live with feeling good about them.

Patrick Moorhead: Yeah, it’s a good thing. Maybe we should add, when we do get into fanboy mode, talking about what the companies need to do to doing better or potentially risks. I know we’re at the end here, but Marvell does not have an FPGA capability. And they have ASICs. They have a lot of other things, but they have the potential to get picked off by particularly Intel because they have FPGA and an ASIC business.

So interesting stuff. I think as AMD and Xilinx come together, interestingly enough, AMD and Marvell will probably be one of their bigger competitors. Not on the digital side of networking, but the compute and the custom SOC for data centers. Great stuff, Daniel. Great show. And are we doing one next Friday or this Friday?

Daniel Newman: Yeah. I think there’s one more in us because then the Friday after I think it’ll be Christmas Eve. So assuming there’s some news and some stuff to talk about and I think there will be next week, we will be back. And then we’ll probably take a couple weeks off for the holidays.

I think you’re going to be flying somewhere and I’m going to be trying to figure out how to close out the year. But you and I we’ll both hopefully at least get a little rest. Hopefully everyone out there will get a little rest, a little R&R, a little holiday time.

No matter what you celebrate, take advantage of the bank holidays. Take those days off, catch up, catch your breath. Because gosh, we’re going to come fast and furious, Pat, right back into 2022 off the CES, for me off the NRF, MWC, south by Southwest. And by the way, taking this show on the road.

We’ll tell you more about that later. Oh, and one last thing, Pat, Six Five Summit back again next June. Got to start talking about that all the time. It is the best event of the year. We got over 30 companies committed to come back this year and I think it’s going to be bigger. It’s going to be better. And pretty soon I think we might be able to announce who our opening keynote speakers going to be, but we’ll have to leave you hanging on that one for now.

Patrick Moorhead: That sounds great. So I just want to thank everybody for tuning in here. And as usual, if you like it, hit me up on Twitter. If you have complaints, hit it up with Daniel Newman on Twitter. But no, we want to hear everything you have to say. Give us an idea. If you have a topic you want us to cover, let us know. You know how to find us. So with that, have a great remainder of your weekend. Take care and thanks for tuning in.

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