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Talking AMD, Honeywell, Qualcomm, and T-Mobile Earnings and AWS and Google Cloud Performance – The Six Five Webcast
by Daniel Newman | February 7, 2022

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. AMD Earnings Report
  2. Latest Honeywell Earnings
  3. Qualcomm Earnings
  4. Recent T-Mobile Earnings
  5. Google Cloud Quarter Performance
  6. AWS Quarter Performance Results

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:

Listen to the episode on your favorite streaming platform:

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. Today, driving the show, Daniel Newman here, principal analyst, founding partner, Futurum Research, joined by my esteemed cohost, Six Five Podcast partner, Mr. Patrick Moorhead. Pat, it’s Friday buddy.

Patrick Moorhead: I know, it’s Friday. And we’re broadcasting from our Bunkers here, it’s 22 degrees and it’s Austin, Texas, and we just don’t know how to handle things like this, compared to, let’s say, Cleveland, Ohio, or Chicago, Illinois. So yeah, everybody’s off the street, pretty much everything’s shut down, but I don’t know. Here we are, it’s kind of nice. I think I saw one person walking to work downtown. But, no, Daniel, it is awesome to be here, it’s my favorite thing to do during the week. We just let it rip, right, let things lie where we’re going to lie, and here we are.

Daniel Newman: The Friday morning is all about letting it rip. And I tell you what, it’s funny, in the green room before we went on the air, everybody, right, I was saying to Pat, I go, “Hey, Pat,” because I’ve only been here six months, I said, “Pat, when can I drive again?” And you go, “Hey, you grew up in Chicago, buddy, now.” And my response to Pat was, “Yeah, but in Chicago they plow the roads and salt them, here they just leave them like ice rinks and just say ‘Good luck.'” Pretty much they say stay home, right? That’s the thing.

So down here in central Texas, it’s kind of like, you get about 10, 15 days of winter a year, and when you get that winter, it is basically like … They’re all snow days, it’s all snow days. So my kids haven’t been to school in like a week, and everything’s canceled. And again, I look outside and I’m like, “What is going on?” But that’s just the world we live in. I mean, it’s basically like getting snow at the equator, it seems. Anyhow, really crazy busy week, it’s been a ripsaw, see-saw crazy week in markets. We are in kind of wave two, as we like to call it, for the earningspalooza, and this is the last week that we’re going to be kind of on all earnings before we get back to just the occasional spotted in earnings of some of our clients.

But this week, there’s a ton going on. We’ve got AMD, Honywell, Qualcomm, T-Mobile, Google Cloud, AWS. And that wasn’t it. I mean, we had an absolute bomb from Meta that almost set the markets on fire, set them ablaze, and that came a day after Alphabet came out with some great numbers that everything looked like it was going to be rosy. And then the day after, Amazon comes back and has a good number, and we are just all over. I say we’re on a razor’s edge around here, and we’ll talk more about that in a few minutes. So we’re going to talk about several different earnings today, and kind of some conditions and growth and strategy, but before I do that, just a quick reminder, the Six Five podcast. Six topics, more than five minutes each. The goal is five, we never actually do that. We try to focus more on the analysis, getting between the lines, not telling you what is easily available and readable online. If you can find it online, we will try to get between those lines.

Just as a reminder, the show is for information and entertainment purposes only, and while we will be talking about publicly-traded companies, please do not take anything that we say as investment advice. Pat, I know we’re going to go long, because we always do, although we’ve got some that’ll be quicker and some that’ll take a little more time. But the first one I think is going to take a little more time, because there’s a lot to unpack. What a quarter for Lisa Su and AMD.

Patrick Moorhead: Yeah, Lisa Su and the team keep getting us in the habit of beating, even though they’re looking at sometimes 40% growth, they just seem to keep beating. And they absolutely had it beat, they beat on EPS by 21%, beat on revenue by close to 7%. Think they were up 12%, the market rewarded their bullishness. But they had record revenue, net income, and EPS, and I think there was a lot of focus on this gross margin line. So this is the AMD gross margin since 2006, and you’ll see it’s been a few years since they got to 50%. Now part of this, even in 2018, was the fact that on gross margin basis, the consult businesses were lighter on gross margin but heavy on net, because they get paid NRE. So it’s going to be low gross margin but very high operating margin or net margin. So the market absolutely loved what they saw here.

And from a pricing standpoint, Ryzen and GPU ASPs were up. I’m not surprised, because with the limited availability, the company is moving wafers to higher margin products. They didn’t say that Epyc had increased ASPs, but when you’re selling processors for $2000 apiece, I know that’s different. What they did say about Epyc was that it was the seventh straight record quarter for revenue. And this would make sense. The company is very strong in the cloud, but they did mention some increasing strength in the enterprise. And this would make sense, because it takes about, I would say two years of soak time for any new processor to really become accepted in the enterprise. It was the same for Opteron when it first came out back in 2006. Now, back then it was a two socket and four socket world, and you would’ve been a fool not to buy Opteron, so there’s a little bit of a quicker uptake in enterprise. But given the competitive state of Epyc, I’m not surprised at that delay.

Had a strong guide, too. In fact, without Xilinx numbers, a 45% revenue increase for Q1, nearly 51% gross margin. That is just insane. I have to go before 2006, if NVIDIA ever hit that. And, quite frankly, they had a killer 2022 guide, 51% gross margin without Xilinx, increase of revenue of 31%, 31% versus the 45% we’ve seen. I see that as a sandbag, aka conservatism.

Daniel Newman: Yeah, the overall results from AMD were once again impressive. I think the number in focus, Pat, for me was the gross margin number and the expansion. There was a whole lot of speculation, especially after Intel’s results that, there was Intel’s results, which they obviously had some additional expense related to their process overhaul to 10 nanometer. But there was also TSM that had come out and basically said, “There’s going to be some price increases,” and when those are going to hit, it’s not exactly like, “Hey, we’re going to raise prices and right away we’re going to see those reflected into the numbers. So there was some wonder about how all these established companies would do with these higher prices, potentially impact the margins. And the answer is no. The answer is that AMD is continuing to hit volume, hit growth numbers. They’re expanding market share, I think we will see that in the next market data that comes out from Mercury, that they did gain some market share. The area that’s been really fire for the company has been in the Epyc, but really across the whole portfolio, there’s not really a part of it that you’re like, “God, that’s really going badly for them.”

They are showing strength and growth everywhere. They’re seeing significant revenue growth, they’re delivering much higher profit. And of course, in a inflationary environment where earnings are being compressed, to some extent the higher earnings are going to be necessary if they want to keep that share price nice and tidy and high, I think, over 120, which is where it is. It had fallen for a while when the whole market had fallen, I think their earnings absolutely re-invigorated their base of investors, pushed the price north, and showed that they know what they’re doing, they know how to run their business. And Pat, what you’re showing right now is their guidance, and their guidance is, they gave the full year. They’re expecting significant growth, they’re expecting to be able to control and maintain their high margins, their growing margins. So everything’s in the right place for the company, Pat, there really isn’t much in this particular report to be concerned about.

The one thing I will say as a macro topic is every semiconductor company seems to be more bullish than the overall market is. And semiconductors, as you and I love to say, eat the world, that the foundation of every software, every application, every gaming console, every TV, every automobile that gets purchased are a whole bunch of chips. So if chip companies are feeling good about their future, then the broader tech slate should also reflect positively, because at the foundation of all that technology are semiconductors. So good quarter, Lisa Su, AMD, congratulations. Let’s keep going.

So let’s pivot to something that’s a little bit, I would say a company that you and I talk a lot about that I feel like we’re constantly sort of introducing to the tech community, a company we’ve worked with on a number of different fronts that also reported this week, and that’s Honeywell. I don’t want to really spend a ton of the time on this show talking about the materials business, or the safety business, or the mask business, because that’s not why two tech analysts get on and talk about Honeywell. I think what I really want to just take a few minutes to talk about is sort of the way the company is perceived in the market.

So Honeywell is a value company. I did a MarketWatch piece where I looked at some of the different companies that are both tech and value, and I noted that about Honeywell. And Honeywell came up a little short on their revenues and their guidance, and that caused, for Honeywell, a very significant sell, I think it fell like six or 7%. And Honeywell falling six or 7% is kind of like Meta falling 30%. Companies like Honeywell don’t move that much and they’re seen as value plays, and they’re dividend plays. But what I’ve really been watching for with this company has been how it’s been approaching and being appreciated for what it’s trying to do in technology.

And I’ll sort of break that into three different pieces. The first piece has been recently spun off, which was the quantum business, which was a very interesting path the company went down. And now they are the biggest investor in a company called Quantinuum, which is a private company that I believe at some point will come back public, but at this moment in time, they’re acting as the investor. But they’re using their experience in the controls business to actually participate in a growing opportunity, which is quantum. But we’re going to sideline that one for a little while until we figure out what the plan is, are they going to de-SPAC, are they going to IPO? But that’s what’s going on with Quantinuum, and Quantinuum is a really interesting company, because they’ve definitely been on the leading edge of a number of different quantum breakthroughs, of offering the first available as a service quantum software in security. So they’re doing some interesting things. But like I said, right now, since we’re talking Honeywell, Honeywell’s specific role here is playing investor at this moment in time.

And the second and third tech overlaps that I really believe need to be given attention is Honeywell as an edge IoT and software provider. So when you think about where all the data that comes into our systems of record, you got ERPs, you got CRMs, you’ve got smart cities, smart grids, automotive, jet engines, and planes. All that data, companies like Honeywell have a really unique position. So they have what’s called their Forge software, and Forge has really been working closely with companies like SAP and like Microsoft, your traditional IT systems of record, to basically grow and create more validity in the market as a software and data company.

Now, it’s still early, but it is passing $1 billion in revenue, this part of the business for Honeywell. And over the last couple of quarters, I’ve had multiple opportunities to sit down with their leadership, including a recent pod I did on Making Markets, the less cool podcast I do, because Pat isn’t with me on it. But I talked to Darius Adamczyk, the CEO, and I talked a lot about that, the pivot to software is going to be a huge one for the company, because if they ever want to be appreciated like a tech company and get the valuations of a tech company, they’re going to need to be seen as one. And I will say, to date, it’s still pretty nascent to most of the market, but it is an opportunity. Forge, the edge business, IoT, smart buildings, technology, technologies that help keep buildings safer, those are the kind of things that they’re going to be leading the way on.

And the last thing, Pat, and I think you and I have both written a ton about this worth talking about is ESG. There are going to be two kinds of ESG companies. There’s going to be companies that provide the analysis and data visualization, and those are going to be a lot of the traditional ERP companies that we know. We’re going to see solutions from Salesforce, ServiceNow, SAP, Oracle, Microsoft, they’re all going to have technologies that are going to help companies measure their ESG efforts, their sustainability efforts. Honeywell is uniquely positioned because of where they play in the materials space to actually enable companies’ ESG initiatives. So they’re going to be playing a little bit higher up the stack in terms of helping the market and helping technology companies that have made these bold, market-facing statements about their ESG strategies to help them actually achieve this through sourcing, through materials, through materials planning for their products and solutions, and that’s going to be an interesting money-making opportunity for the company, is something that they’re going to focus on more and more.

So the numbers themselves, this quarter was not great, the guide was not great. But the question, and what I’m really looking for in the company is can they make this pivot and can people start to finally recognize what they’re doing with Forge, with software, with ESG and sustainability in a meaningful way, I would say that answer is not clear yet. That’s going to be up to leadership to really tackle that, but I do think it’s a big opportunity.

Patrick Moorhead: Bro, you stole every piece of thing I was going to talk about, but let me do a quick …

Daniel Newman: I was trying to think of things.

Patrick Moorhead: No, no, no, no, it’s fine. So a couple things I really appreciated was if you look at the lower right hand corner, there as a breakout of some of the financials here. And what you see here is net P&L investment of $60 million in 2021, that’s code for 2021 loss, and 150 million loss in 2022. And that’s, by the way, that’s called investment. And also we saw a sales figure of $20 million for 2022, and it looks like, a margin improvement of 30 BPS means that they’re at least making money at the gross margin level, and I really appreciated that.

To your point about sustainable, check this out. Here’s the deck, here’s slide one and slide two. And listen, many of you might be bored with some of the ESG stuff, because quite frankly, every company tries to convince Daniel and I that they’re an ESG company, okay? Here’s the difference. Honeywell is different because they are literally at the epicenter, and I would even put SAP in here as well, they’re at the epicenter of where the ESG action is, okay? And I’m just going to say it: the people who create the pollutants or the energy, right? Cars just don’t show up, okay? They need to be manufactured. And at the center of buildings, at the center of factories, at the center of airplanes is Honeywell.

And not only with the sensor systems, but also with the energy storage systems, with the material science and plastics that go into it.

So a lot of companies are talking about ESG, but Honeywell’s one of these companies that’s literally in the center of it with the companies that need to make those changes. And on top of that, which Daniel talked about, is their Forge platform that then puts a data analytics capability on top of the data that are captured with their sensors, that they have a pretty robust ecosystem for, including SAP. So there we go, Daniel, I was able to squeeze something out of that.

Daniel Newman: That was pretty good, actually. You went a layer deeper, kind of gave people the what in terms of what are those things, those sustainable data points that the company has, the fuels, the buildings, the materials, all those different things. I think visibility to that is super important. And I like that you mentioned the hybrid infrastructure. So not a beat back or a circle back there, but you actually, you underestimated yourself a little bit there. I think you had more in your pocket than you wanted to admit. So-

Patrick Moorhead: I tried, buddy. I was sweating that. You were going through that, I’m like, “Man, I was going to talk about that.”

Daniel Newman: But you know, off the record, and this is the off the record on the record, because we’re live, so people can hear us. But I said to you, Pat, I’m like, “Honeywell’s quarter didn’t give us a lot from a tech angle,” and then somehow we managed to spend like eight minutes talking about it. So that’s why the Six Five is nothing more than theoretical at this point.

So hey, let’s move on to the next topic, which is a biggie that I think we will easily spend 10 minutes on, because you will spend at least six just to get through it. What a great second quarter for CEO Cristiano Amon, another one of those ones that kind of was quiet because it was reported on the day the Meta bomb went off. But if you wanted something to feel about that day, Qualcomm.

Patrick Moorhead: Yeah, absolutely. So NVIDIA crushed their fiscal Q1 ’22. They had it beat on the top, they had it beat on the bottom, and they had a raise. So really, the trifecta of what you would want. They had another record revenue, another record EPS, and another record EBT quarter. And what i really liked is in their deck, they said, “We have revenues, that’s QCT, revenues exceeding any other fabless company out there.” And it’s like, do you hear that, NVIDIA, do you hear that AMD, do you hear that folks? I do like that fire, and if Cristiano weren’t CEO, we definitely wouldn’t have hit that. Handsets, just a banner quarter, 42% improvement. And then rounded out with their growth areas, RF front end at 7%, automotive at 21, and IoT at 41%. Some people are asking, “Hey, what’s up with this 7% versus 42% on the handset?” And it’s very simple, that RF customers buy earlier than they do on the digital side, because they’re, quite frankly, concerned with the availability. And potentially the previous quarter was bigger than it should’ve been, but this quarter for sure was endemic of a buy ahead. So great stuff there.

Their guide was really good too. 10 to $11 billion in the top line, $2.80 to $3 on EPS. Net net, their growth and diversity strategy is working. Daniel, I gave you a lot of oxygen, buddy.

Daniel Newman: Yeah, well, you hit a lot of the key points. I had a chance to dig in deeper, you and I actually got a briefing from both their CFO and from Cristiano on the day of earnings, so it was great to get a chance to speak to the senior team, get their takes, ask some questions, try to get beneath the hood and say, “Hey, what’s ahead?” You mentioned guide, just terrific. One of the things that Cristiano said that really stuck with me was, the company is, at this point in time, by revenue, the largest fabless semiconductor manufacturer on the planet, was basically either trending towards, what is it, 35 billion? He said they’re nearing 10 billion a quarter on the QCT side.

Now, just as a little bit of a reference, I believe NVIDIA’s guiding toward about 25 billion in revenue this year. So NVIDIA, which trades at well over 40 times forward earnings right now, even after a significant pullback, Qualcomm on the day of its earnings was around 17. So if you look at the way the market treats Qualcomm, I think what was being sort of insinuated through that conversation is, “Hey, we’re fast growth, we hit double-digits, in some case high-double digits. We’re diversified,” which was something that Qualcomm was often accused of not being, because it was basically handsets.

And I did a little bit of assessment of this, Pat, when I wrote, I did a writeup on MarketWatch about this, and I just looked over the past couple of years. In fiscal 1 of ’20, the first time they broke out those business units, it was a $3.6 billion total, so across those business units. At this point now you’ve seen, handsets have doubled since they first reported, so that was five quarters. The handset has more than doubled, the IoT business has more than doubled. The IoT business now is a $1.5 billion a quarter business for the company. We’ve seen the RFFE grow about 22% from that time five quarters ago, but it actually, the full year five quarters ago, but that actually has grown much faster if you look at individual quarters before that. It was about five quarters ago that started that big ramp where they had their near first billion dollar quarter.

And then automotive has also grown about 27%, but you can’t forget, that’s a $13 billion pipeline that is now with their acquisition of Veoneer, the skateboard, the digital chassis acquisition. I want to say, sorry about that, I just totally slipped on it, but it was the ADAS part of the Veoneer business that they acquired. And then on top of that, you add on all these subsets, and you’ve got a business that’s, it’s impressive. And about a third to 40% of it on a quarter-by-quarter of QCT’s not handset. And I think that’s a really important thing.

And then behind all this, Pat, is you have a extraordinarily robust licensing business, which doesn’t get talked about as much as it needs to be, but it’s, one, extremely high margin, and two, it basically gives Qualcomm a piece of every dollar that comes in in the 5G, basically for every 5G thing that sells on the planet.

And the one last thing, Pat, I think worth mentioning here is you said this really well, and it goes back a ways, but the sub-5% expectation … Sorry if I doubled up on a couple things you said, buddy. The sub-5% expectation for Apple over the next couple of years I think has really put the market in [inaudible]. So you got this kind of opposing forces. You got fast growth, but the company’s appreciation in terms of its P/E has still been pretty slow. But at the same time. You’ve got a lot of the things falling into the right place, and lastly, the antitrust space seems to have sort of shifted away from Qualcomm, at least at the moment. And by the way, now that I say that, we’ll probably see something get filed today. But in this particular moment in time, it seems that the Alphabets, Amazons, Facebook Metas seem to be much more in the crosshairs, at least at the moment, so …

Patrick Moorhead: Yeah, if I can, can I do a boomerang on this one real quick?

Daniel Newman: Yeah. And by the way, you said a lot, so if I did repeat any data points, it was only because I felt everybody out there needed to hear it as well.

Patrick Moorhead: I got you, no, I appreciate that. I just thought because you weren’t listening to what I was saying.

Daniel Newman: Maybe.

Patrick Moorhead: No, it’s funny, I want to put an asterisk, you had brought it up, kind of the Android growth versus Apple. And I wrote a piece in Forbes that essentially said that Qualcomm in 2025 will be Apple-proof. And especially what that means is is based on growth in all their other businesses and the growth in Android, Qualcomm is no longer going to be reliant as the biggest driver of their stock. In fact, Cristiano Aman and Akash said they essentially zeroed out Apple at, I believe 2025 was the year, correct me if I’m off on the year. But what I really liked is they did 60% of their year-on-year growth in revenues was from Snapdragon. It essentially means they’re gaining market share in Android, and I think this is part of the becoming Apple-proof.

Anyways, I thought that was interesting. I think Cristiano maybe two quarters ago laid it to rest, but I think repetition is important. For everybody to know that Qualcomm’s essentially becoming Apple-proof.

Daniel Newman: It’s a big one. And it’s Arriver, by the way, that I was choking on. The part of Veoneer that they did not spin off was Arriver. Sometimes, I think, Pat, weeks like this, when you’re just digesting so much, that perfect factoid brain that I try to keep goes imperfect on me. So let’s keep rocking and rolling, Pat, because there was a company … By the way, I think you and I both kind of put a tweet out. I stole your sort of Google tweet style look where I showed T-Mobile, they had a fairly big beat, if I’m not mistaken. The line was something vertical.

And so it was basically, this is a company that had strong revenues, exceeding expectations. Not by a ton, but had a really big beat on its earnings. And then on top of that, the company had really great net adds in its 5G business, which is something that, I think that over the past few years, we had the John Legere era of T-Mobile, where it was kind of the cool, everybody switch, pink, attention-driving.

But you said something to me in the green room, and I’m going to steal a little bit of your thunder, because I think it was really worth pointing out, Pat. And that’s that for the last few years, 5G, as it’s been coming into market, there’s been a bunch of companies that have been playing in this space. AT&T, Verizon, and here in the US, and T-Mobile I’d say are the three biggest. T-Mobile, of course, did the deal with Sprint. But for the beginning period of time, we heard mostly about Verizon and AT&T. But over the last couple of years, while Verizon and AT&T have seemingly been focused on content and other diversification strategies, it appears that T-Mobile has been locked and loaded on 5G. They had a huge net add number this quarter, and I believe they’ve now reached 210 million customers on their nationwide 5G network.

Now, think about that math in your brain a little bit. There’s like, what, about 347 million people in the US, total? I don’t know if that number’s changed much, that’s a number I’m pulling from the back of my mind, but I think there’s about 350 million citizens in the US, and they have 210 million customers by the end of the fourth quarter on its nationwide 5G network. So on top of that, though, what I thought really drove T-Mobile’s numbers, here, Pat, was guidance. And maybe it’s worth reiterating that I’ve said this over the last few weeks, I’ve said this here, I’ve said this on other channels. I don’t think people were necessarily expecting this quarter not to have good tech earnings. And despite all the headwinds about tech, I think most people said, “Well, this was really the October to December timeline.”

And remember, mid-November the NASDAQ was at all-time highs, tech was booming, the economy was looking very good. This was actually, in November/October, this was before omicron, so it almost was starting to look like we were on the backside of COVID, before the next wave, and now what’s coming, pi or nu or I don’t know. But anyways, now that we’re … So we had about a month where it was in that period of time, two months where it wasn’t, but very little that was going to impact earnings on these giant tech companies who had all these deals already in funnel, Pat.

So what I did say was going to happen, though, was the market was going to be overtly paying attention … Or, sorry, acutely would be the right word here, paying attention to what do guidance numbers look like? If you look at Facebook and Meta’s numbers, they got destroyed because their guidance was bad, their capex was high, and their forward earnings started to look at risk. T-Mobile was the opposite. T-Mobile has extremely bullish net add numbers they’re looking at 2022, five to five and a half million is what they’re talking about. They’re predicting strong earnings for the year, strong revenues, and strong growth. And they’re focused on 5G, and they weren’t part of this FAA, 5G C-band issue, because they’re operating in a different spectrum.

Overall, I’ll just leave it here. Great numbers, good growth, huge network, customers are using it, by the way. Disclosure, am a user of T-Mobile, and if you’re an international traveler, by the way, I always loved it for that, because of the relationship with Deutsche and T-Systems, especially when you go over to Europe, I never have issues. So over the last few years improvement. One last ask, Pat, better T-Mobile service downtown Austin.

Patrick Moorhead: Yeah, that would be great. AT&T has it kind of locked downtown Austin here. But no, you brought up some great stuff, and if I could find the right tab here, I wanted to just show some of the amazing … And these net adds are off the chart, but let me strategically just talk about what T-Mobile has done. As AT&T was off spending $80 billion on Time Warner, $80 billion, and oh, by the way, they’re going to spin it off and merge it with Discovery for 40, so that’s like a $40 billion loss, and Verizon buying companies like AOL and Yahoo and trying to become a content play, little old Sprint and T-Mobile really stuck to their knitting and stuck to the core of what they do, and that’s providing great cellular service with expansion into business communications services. That’s exactly what we’re seeing here. T-Mobile got mid-band by buying Sprint, and yeah, I get they’re doing some spectrum acquisitions too. But net net, the company was their first, and quite frankly, if you look at what they paid for Sprint versus what T-Mobile and Verizon paid for C-band, it was an absolute steal.

And now you see T-Mobile stealing all of these consumer customers away from AT&T and Verizon. So I understand the desire to not be a purveyor of quote-unquote dumb pipes, but I don’t think T-Mobile is that. But if I look at AT&T’s disastrous, disastrous acquisition of Time Warner, which includes the much often-talked about this week, CNN, and then if you look at Verizon buying AOL and Yahoo, I’m expecting them to buy Napster next. Did I just say that or what, am I thinking that? No, I’m just kidding. No, I think this is just an exclamation point and sticking to the core, knowing what you’re good at, and sticking to that.

And this is part of the problem with being a public company is you do stupid stuff in the name of growth. And I think what we saw at AT&T is senior management got run out, and there’s a new crew in there right now, and their stock has done horribly. Anyways, having a good Friday.

Daniel Newman: It feels like there’s an analogy or a parallel to Succession here, although it’s not actually, because obviously Succession was about, more lean to more what was going on with Fox. But if you think about it, I just think about that show, and if you haven’t watched it, by the way, highly recommended. But I’m thinking about in the beginning when they acquired that first sort of forward-thinking media company that they later decided to just dissolve because it was all a big sham, it sounds to me like some of the buying decisions of some of the other media/mobile companies, and their decisions looked somewhat similar to that.

Again, there’s kind of always those two opposing forces, Pat. It’s growth at all costs and stay in your lane. And so sometimes staying in your lane is what you got to do to be successful, and at least at this particular point, T-Mobile has done that, and they’ve done it at the expense of the other giant carriers here in the US, and you got to give them credit where credit’s due, so good job T-Mobile.

So Pat, we’re going to hit the hyperscalers here at the end, because they both reported … We’re not going to dig in too much to the overall business, I might tap out and do a few things with Alphabet, but let’s talk about Google Cloud and let’s talk about AWS Cloud, let’s start with Google.

Patrick Moorhead: Yeah, so let me flash this screen up here.

Daniel Newman: By the way, you’re so good at this production stuff, man.

Patrick Moorhead: Listen, if this analyst thing, if I crash and burn on that, maybe I can do …

Daniel Newman: You can produce the show for me.

Patrick Moorhead: Exactly, yeah. I’d love to be your handmaiden. So yeah, now let’s dive into this, and this is going to be really quick for me, because quite frankly Google doesn’t give a lot up about Google Cloud. And Google Cloud comprises IS, PaaS and SaaS services, SaaS services like Google Workspace, and IS services like IS services, and everything in between. And they’re very strong in IS and PaaS and machine learning and analytics, and they typically use it as a land and expand strategy to go in and get more.

But net net, Google Cloud had 45% growth, all the way to $5.4 billion. You can do the math, gets them to a $22 billion run rate business that, quite frankly, is incredible. And the team there and the leadership team deserves a lot of credit. They are still losing a lot of money, they lost $890 million in the recent quarter, but that loss narrowed. It narrowed 39% year-on-year, and it narrowed $353 million. And that’s it, that’s, I’m sticking to my guns, baby.

Daniel Newman: Yeah, I think we can keep this one fairly short, Pat. Had the chance to talk to Emily Chang about this, I’m doing my victory lap. You’ve taught me how to do this, I’m so good at it now. But enjoyed the opportunity to do this with talking Alphabet, and this is the part that’s most interesting to me.

Look, the company’s financials are incredible, the amount of revenue and earnings they create, but that’s all the advertising business. The one thing I think everybody can pretty much shake off at this point is that the IDFA Apple stuff is going to hurt Google. It might, but not in a way that’s anywhere nearly as adverse as what it’s done to Meta. And I guess that’s the difference of having people that use your platform because they want to, and people who are being advertised to because they want to talk to their friends. It’s a totally different experience, and people continue to go to Google, use Google.

And by the way, we’ll circle back, because I’d say Amazon’s had a surprisingly big advertising business, too. But the cloud business, Pat, there’s a really simple conversation that’s going to continue every quarter until it’s not, and that’s do they become profitable? And by the way, do they need to be profitable? And that’s probably, arguably maybe the bigger question, is Google doesn’t want to be number three or four. And then depending on how they’re being ranked, in some cases they’re sitting behind Oracle, too. Google wants to be number one. Google doesn’t do things to be number three or four.

And so growing organically or racing for profits when you’re creating huge earnings per share through other parts of your business, do you get the leeway from the markets to invest, grow, and not make money? And, by the way, be pretty transparent about it. Because a lot of companies could just hide that in that overall number, and just say, “Hey, cloud’s now X billions of dollars, we’re not going to-”

Patrick Moorhead: And they did do that for a while.

Daniel Newman: For a while. But they had to break out the revenue. But I’m saying, they could be spouting off the revenue, Pat, and not sharing the loss. They could just say, “Hey, this is how much revenue we’re doing,” and just bury the actual loss into the bigger number. They’re being transparent. So I give them credit for that particular action.

They’re going to try to grow, you see, we’ll get to AWS soon, but almost 18 billion a quarter. That’s the number that’s in the mind of Google, that’s the number they’re chasing, and all I’m saying is they’re going to spend and they’re going to spend, and don’t even be surprised in my opinion if you see the losses stop. You may see bigger losses, because if they’re going to want to grow, they’re going to need to make acquisitions, they’re going to need to add services, they’re going to need to build more data centers, they’re going to need to buy more compute power, they’re going to need to hire more salespeople. And I think they’ll do it.

And by the way, I don’t know that that’s wrong, because when you have the business they have, the leading side of their company, I think they’re allowed to do that. So I’m not saying it’s right or wrong, that’s a decision they’ll have to make. But if their shareholders, and following their, what, 20 to 1 split now? Don’t feel confident and don’t get excited, and they’re worried about Google Cloud and they sell for that reason, I’d be surprised. Because it’s growing at a good pace, not quite as fast as Azure, but it’s growing at a good place, they’re narrowing losses for now, they’re gaining customers every quarter, I think Google Cloud has a bright future.

Patrick Moorhead: And check this out, I had to share this with you, with the audience. So Corey Quinn, we kind of go back and forth with him on Twitter. By the way, he’s an economist for his company, and he essentially helps AWS clients. And he had a really nice thing to say, and you can read it here, about Google Cloud. He said essentially, if he were starting from scratch, he would pick Google Cloud. And I know people were talking about that, we were going back and forth about it. But that, if nothing else, is some pretty strong affirmation for Google Cloud.

Daniel Newman: Yeah, Pat, it’s hard to not feel like they’re going the right way. The knock is going to be profit. But I don’t know if that’s a knock when you have a business that’s creating the type of income they have. Don’t they get to make best? Don’t they get to invest in growth? Every company does that. The market can be disproportionately critical of things at times. But I would be betting more on Google’s investment than Meta’s silly $10 billion a year investment in VR headsets. So call me wrong when I’m wrong, but I’m not buying that $800,000 plot of land next to Snoop Dogg’s Metaverse house. Just not yet, not yet. Not saying the metaverse isn’t real, just hasn’t, I don’t think that’s as smart of an investment as what Alphabet’s doing.

So hey, we got one topic left to go, and let’s stay on the hyperscalers, Pat.

Patrick Moorhead: Let’s do this.

Daniel Newman: Let’s stay tight, let’s stay narrow, and let’s talk about the cloud business. Because the huge one-time profit from Rivian, which was super cool and everything that they were able to surprise by like $24 a share, that was a bit of a windfall. So that didn’t necessarily make entire sense. But what I will say, Pat, is that broader result did kind of save the market yesterday, because the market was in a tailspin.

So I think after Meta’s result, people were really thinking it might be doom-y for Amazon, ecommerce was going to get crushed. But it was only up 1%, the actual traditional ecommerce business.

But AWS, I’m telling you, I don’t know how they do it. I’m being totally sincere. You and I have talked about this quarter after quarter after quarter, the law of large numbers, the average growth is going to get harder. It’s going to get harder, because now they’re a $10 billion company, remember, now it’s a $12 billion company, or quarter, $12 billion a quarter, now it’s 14 … Pat, I think we did the metrics. Am I right or wrong that AWS now in total revenue, I think it’s surpassed IBM. Just AWS.

Patrick Moorhead: Yeah, they just, if you annualize their quarterly revenue they just nipped IBM in the bud, and if you compare quarter-on-quarter, they did.

Daniel Newman: Yeah. So that’s not a knock, that’s just to give perspective to the magnitude of AWS within the overall Amazon. So you got a business that’s still growing 40%. Like I said, they started … Remember, Pat for a while they fell into the high 20s and low 30s and were going, “Okay, we’re going to start to see this pullback, we’re going to see it in the mid-20s, it’s going to slip into the 20s.” And I would say that the forces that are here for AWS is A, the diversification of their product portfolio. It started with storage, storage networking, storage networking compute, all the core infrastructure. But they’ve gone up and down the stack, from services to PaaS.

They haven’t overly tapped into software yet, which is still pretty nascent, and a huge opportunity for the company if they decide to go down that route. But hybrid cloud with outposts, a very diverse set of services for AI and ML, Braket for quantum, which I’m guessing isn’t a huge revenue source yet, but it’s going to be down the line, they’re playing in that space right now. Edge and IoT, Snowball and everything that’s going on there is a big business.

So from edge to cloud, from public to hybrid, AWS has a very comprehensive service. And of course they never really say, “Hey, we’re into multi-cloud,” but they have with ECS and EKS built solutions for people that want to be able to do that with their own open-source and development capabilities using AWS to do that as well.

And then finally, Pat, they’ve built a pretty healthy, profitable business on home-grown chips. They’ve got some really compelling, including the stuff they’re doing with Graviton, they launched the Graviton Challenge at our Six Five event, which I like to throw that out there every once in a while. And who knows, maybe they’ll launch another Graviton Challenge at the Six Five Summit in June. Throwing that out there if anyone at AWS is listening.

All right, but you know, Pat, I’ll leave it there and leave a little bit for you, but it’s a diverse company playing up and down the stack, its growth continues to impress. And by the way, kind of the opposite of the Alphabet thing. It is the profit giant for Amazon, and while Amazon’s core ecommerce and other businesses actually doing create a whole lot of op inc, AWS is an absolute margin monster.

Patrick Moorhead: Yeah, I mean, I’ll just flash this up there and hopefully you can see that AWS generated 152% of Amazon’s operating income. And you might ask, “Well gosh, how could that possibly happen?” Well, it’s because international operations lost 1.6 billion, and North America lost 206 million. That’s exactly how that happens. It’s an absolute cash machine. And the cool part is the increased revenue, 40%, but the increased op inc, 48%. That must mean there are some fixed expenses that don’t increase with the amount of business they do, like people, which is an incredible thing.

The diversity of what you can get from Amazon is incredible, and it’s truly ironic that their value proposition when they first started was simplicity, right? If you wanted a virtualized workload, you could get one. Okay, one size of a virtual machine. And then IT was like, “Hahaha, I need multitudes of it.” But they did it for scale.

And then once they got to a point of scale, they then offered every flavor of compute, storage, and networking that nay human, I think, would need, and then they kept adding more, right? And I like to consider what AWS does on EC2 compute as decommoditizing computing. This was this notion amongst other hyperscalers that compute was commoditized. And I’m a big believer, I spent 20 years in product marketing and product management that you don’t become commoditized, you allow yourself to be commoditized. And what AWS did is they, Daniel, as you said, started creating their own silicon on the compute side, and then … Well, first actually on their networking offload, they did that for eight years before they built their own compute engine. They have an inference chip, and they have a training chip that’s in customer test right now. So I think they keep moving that forward.

In quantum computing, right, they have one flavor of every type of technology, trapped ion, neutral atom, and superconductor. Again, hedging their bets on this thing, and I wouldn’t be surprised if they bring in even more partners into the fold. But quite a machine, Daniel, and yep, it’d be cool to have AWS on again to chat about some type of challenge, or maybe announce another program at the Six Five Summit 2022, which is June 7th to June 9th, hold your calendars.

Daniel Newman: I love that you put that out there. And by the way, Pat and I will also be bringing you some stuff live from Barcelona at the end of the month and early next month from MWC. Are we back? So far so good, no cancellation yet. I’m thinking this is going to happen.

Patrick Moorhead: Yeah, if anybody needs some cool videos, wants to have some conversation with Daniel and I, we are there. We’re going to have Six Five in the Booth, 10 minutes long, it’s chill, we come into the booth, see some cool products. Heck, we don’t even have to interview you, we’ll just riff inside your booth. Hey, you want more of a news desk kind of sitdown on a couch like we did at CES, we have Six Five on the Couch … Oh, no, actually it’s called Six Five on the Road.

Daniel Newman: On the Road, in the Booth, at the News Desk, we’ve got, actually, let’s not do that, because we’ve worked really hard to try to travel together. But listen, what a show, what a day, what fun we had. Six topics, we covered them all. AMD, Honeywell, Qualcomm, T-Mobile, Google Cloud, AWS, and I even dropped the Meta bomb a few times, because how can you get through this week when a company like that loses like a third of its value in a day and not talk about it? But we appreciate everybody out there and want to thank you all for tuning in. Hit that subscribe button, good news to Pat, I mean, to me. Bad news to Pat, I mean, to me. Whatever works out. Keep in touch with us in the socials, we like to hear from you in our community. So for this week, for this episode, though, it’s time to say goodbye, promise we’ll be back next week with more, better, thoughtful analysis on tech. See you later.

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