On this week’s episode of The Six Five, hosts Daniel Newman and Patrick Moorhead get together to discuss:
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Transcript:
Patrick Moorhead: Hi, this is Pat Moorhead and we are live with The Six Five Podcasts, six topics, five minutes each, all analysis. Only enough news to give context. We are back from Vegas. Dan Newman, how are you doing my friend?
Daniel Newman: We’re out of practice. It’s been so long since you and I have been on the air together. I didn’t even know what to say. I’m doing good. As you can see, I’m in my beautiful studio in Nashville, Tennessee, also known as the Fairfield Inn in Suites in downtown Vanderbilt. In case anyone wants to come visit me, I wanted to give my full location to everybody out there.
Patrick Moorhead: By the way, you’re going to have to look that up on Google Maps. I have no idea where that is. It was pretty cool Yesterday. I flew in back from AWS reinvent after doing 15, Six Five interviews. And by the way, being analysts, which is truly our bread and butter. And we landed long enough for you to pick up your family to go to Nashville, which was good.
Daniel Newman: That’s great planning, Pat. You just got to kind of have that planned out. You get to the airport, the family meets you at the airport, you catch the next flight. So it’s the life.
Patrick Moorhead: No rest for you.
Daniel Newman: No rest. Well it’s family stuff. You got to knock that out every once in a while. So I’m happy to be here. What a great week, Pat. I mean we really did stay busy. A lot of times people don’t know, but we’ve got our firms as research and analysis firms and they’re both very busy. And then you and I have this media company, The Six Five, and it is absolutely exploded. What’d you say? We did our 50th on the road.
Patrick Moorhead: Yeah, 50th on the road.
Daniel Newman: And gosh, we’ve got to be getting up to what, 700 or 800 episodes all in altogether with the summits and with you know.
Patrick Moorhead: Yeah, including super cuts. I think that’s exactly where it is. We’ve got to do something about In the Booth. Think we only have 15 In the Booth, so we’re going to have to step on that.
Daniel Newman: Get on everybody out there, book it up, book it up.
Patrick Moorhead: That’s right. So let’s dive in here. Little reminder, we do talk publicly traded companies, but please don’t take anything we say as investment advice. We have some pretty awesome topics today. In fact, we’re going to be talking a lot about AWS reinvent. Dan, you know I spent again over three to four days there and we’re going to talk earnings, tech earnings, Marvell, HPE, Pure, Dell and Salesforce. And also with Salesforce we’re going to be talking about the potential impacts and reason for Bret Taylor, CEO stepping down, second to co CEO in 18 months. I think this is going to be a fun one. Probably not a big deal as everybody thinks, but hey, let’s not prefetch that. Dan, I’m going to call my own number on this one. We’re diving.
Daniel Newman: Oh, you love to do that buddy. You love to do, that’s your show.
Patrick Moorhead: I love it. I do like to do that. But you know what? There was so much content we would need 10 people on here to kick this off. So I’m going to hit a couple of areas. So I’d like to set a little bit of context and Dan, this might sound a little bit familiar, but we’re 15 years into the cloud and most 15 year olds are not that mature, but they’re out of those gangly 13 year old age that all of us were in. And the great thing is choice that’s out there and the amount of partners that’s out there is immense. AWS has the clear advantage in IaaS, around 50% market share.
There is the past in the SaaS market that other people have as well. Not a whole lot of talk about multi-cloud, but why don’t you give a little bit of editorial. This is less about AWS and more about my belief systems is that multicloud, just like hybrid is not debatable. Companies use multiple clouds for IaaS. In fact, I haven’t talked to a Fortune 1000 CEO that didn’t use more than one cloud vendor for IaaS in past.
So really the only debate is how you manage those that having separate dev sec network ops teams per cloud. You can check out some of the stuff I’ve been talking about on Twitter and LinkedIn about that. But that’s the one area I’d love to see more definitive messaging from AWS. And listen, this is not the chill show. There are pluses and minuses with every show and every vendor. And it’s easier to do this when that vendor has 50% market share. AWS is the market share leader in AI and ML. And I felt that the company’s doing a really good job answering the questions or the challenges of data sprawl, quality, governance, lineage, security, lack of reuse of even AI algorithms and learnings, auditability, complexity, transparency, costs and performance.
I do think they need a little bit more investment in on-prem. You cannot get these services as part of their hybrid solution. AWS and IaaS compute, I mean not only are they the market share leader, but they have the broadest view holistically from left to right and then top to bottom. You want the highest performance, the highest performance per wat. We got it. You want the lowest cost. We got that. A lot of our own homegrown stuff, a lot of different types of compute even though we like to smoosh them together. General compute from a CPU, inference, training and even network offload. They provide their own processing units but also have leading instances from AMD, NVIDIA, Habana and Intel. And I know Habana’s part of Intel, but I don’t want people to confuse that they only use Intel CPUs. Habana is very much an intel owned training part.
Probably most impressive though is what they’ve done with their homegrown silicon. And we had an incredible speaker on The Six Five Gadi, check it out if you can, talking about Graviton, Inferentia, Nitro and Tranium. Dan 10 years ago would’ve never said that a vendor that did anything other than chips could do good chips. But AWS does its own good chips and it’s not just containers, it’s VMs, it’s containers and its serverless. So props to the company on that. It must be very hard to compete with AWS on compute because no matter how you pull this thing, they seem and appear to have the lead. By the way, this is what is making the alternative companies like Ampere Computing so popular with Google Cloud and also with Azure and Oracle Cloud. But again, I’m going to leave. There’s a lot more oxygen I left you in the room Dan.
Daniel Newman: This is one of those topics that we could have done an entire show on. Had we not done seven hours almost of recordings with AWS folks on The Six Five, I would’ve said we should. But instead what we should do is put in the show notes, the links to all of them so you can check them out. Because we did, we talked containers, we talked home grown silicon, we talked sustainability, we talked about AI and ML a lot. And if those are things that you’re interested in, I can’t beat it here in a few minutes. What I will say is there’s a couple of themes that are really important and noteworthy.
The first theme is clouds are not all the same. And there seems to be this overarching desire to make IaaS because to some extent when you’re just talking compute network and storage, you can create what’s called this concept of commodity. And it’s not a commodity. AWS between this, what Pat talked about with this homegrown silicon, with this homegrown silicon, when you talk about with their a AI ML services, when you talk about the overarching services for different instances in compute with their hybrid cloud approach, you get differentiation across the business and that makes the company different than Azure and it’s different than Google, different than Oracle.
And by the way, all kind of approach the pricing different too of consumption and how businesses are going to be able to move to these clouds and stay with these clouds. So noting that AWS has the most comprehensive suite, especially when it comes to the infrastructure itself. But the extensibility, like you said of a AI ML, a lot of people say mention another cloud, which by the way has done a very good job for being the leader in data services and it’s actually not yet.
And we’ll see where that actually lands. The second thing is multicloud is here period. You use this stat a bunch of times in some of our videos pathway. It’s like a hundred percent of big enterprises are multicloud now. And I’m not just talking about multi-cloud because they happen to be using a SaaS application somewhere in the org that sits on another public cloud. Every company is doing some version of multi-cloud for governance, for data residency and sovereignty for redundancy. There’s a lot of resiliency. There’s a lot of different reasons that that’s being done. But it is being done. And I think AWS has arrived there. And that’s something that took a while for the company. It wasn’t fast to get to, it was slow to get to hybrid cloud. It was slow to get to multi because obviously this goes back to the cloud denier era.
And you and I have talked about this quite a bit. There was a period of time where the growth was so fast that people actually believe that every workload would be in the public cloud. And we’re finding out that’s just not going to be the case. And so AWS is doing a good job of building a diversified portfolio. So I want to talk about one more thing Pat because I know you love this topic because I want to talk about sustainability. Sustainability is not only near and dear to your heart Pat, but it’s near and dear to the hearts of most organizations. And it’s worth noting for this everybody out there that I care about sustainability through the lens of economical, meaningful and measurable. So we had a problem over the last couple of years where greenwashing became prevalent. A lot of architect share a lot of talking about green for the sake of using it to drive business momentum.
But what I like about what the company’s done with their water positive announcement and also what the company is doing with their homegrown silicon is they’re actually building technology that meaningfully reduces the utilization of power in the data center, which is going to be massive with the growth of compute. And they’re trying to do something meaningful to the world, which we just left Las Vegas Pat, and by the way, there’s a lake drying up there and it’s a pretty significant problem. We got all these great hotels but we might not have water.
So AWS is doing a lot of things well, it was a great event, high energy, you and I, you couldn’t help but smile seeing all the geeks running around because like the event, like we said, 75% geeks and 25% want to be geeks. So great event Pat, we could talk a lot more about it, but we have five more topics so I’ll pass the baton back over to you.
Patrick Moorhead: Yeah, let’s jump into some earnings extravaganza. And again, we cover earnings because it’s ground truth for what’s actually happening and companies can lie less and market less. I say lie less with, I’m just joking of course. But market less has to be closer to ground truth than marketing because of all the fun SEC implications. So let’s dive in, put your helmet on everybody. We’re going to crank through four earnings here. Marvell.
Daniel Newman: I think it’s five, but yeah.
Patrick Moorhead: You’re right. Five, I can’t count. Appreciate that.
Daniel Newman: All right, it’s hard. So Marvell suffered a similar fate to AMD, Intel and NVIDIA in the sense that the company growth slowed this quarter by the way, not terrible, but actually record revenue but just not fast enough for this street and their desire for the company’s growth. They came in over $1.5 billion, 27% year on year growth, but came up a little short from what the street had hoped for the company. And then their guidance also came up a little bit short.
I’m going to say this again, I’m going to say this now, I’m going to say it again. I’ve been saying it for a while. Marvell has had an amazing couple of years and of course some of what happened in the pandemic fueled its growth pull forward, but the inventory issues did not escape any company. And despite the fact that Marvell is well positioned with minimum exposure to the consumer business, thanks to Matt Murphy’s leadership and the turn of the company to be more focused on the segments like cloud 5G, enterprise, automotive, they still aren’t completely able to escape the fact that companies did stock up and they stocked up and now they’re burning off inventory with slowing demand.
We’re seeing the inflation number turn this week. We heard from the Fed. This could be a good news, but this is that inflection point, this is that moment. And for Matt Murphy, it was the time in his team, the time to guide down temporarily, get the streets expectations tempered and then hit the reset button. But I want to be clear, I mean record revenue, 32% growth in data infrastructure still guiding to 32% growth. This is not a company in my opinion that anybody really should be worried about. This is a byproduct of the overall broader market conditions. I mean a couple more stats, Pat, 52% year on year enterprise network growth, carrier infrastructure up 26%, automotive and industrial revenue up 26% for the quarter.
So again, a lot of things going well for the company, but this is the conditions that the market are facing right now. Everybody wants guiding up, can’t always guide up. Sometimes you do have to reset, and this has been a quarter for a lot of tech companies to reset. Semiconductors not in Vogue, but you know what? You can’t run any of this software on air. That’s why we like what AWS is doing. That’s why I like what Marvell is doing and I think this is more of a blip than a long term problem for a company that’s doing most things right.. And by the way, we’ll be there next week for their industry analyst day. We’ll hear more.
Patrick Moorhead: Yeah, Dan, I was going to say we’re going to be able to get underneath this because, and I had a little bit of a challenge trying to simplify this because when I see all the infrastructure plays like Cisco, HPE, Lenovo crushing it on enterprise and then I see Marvell going down, I still can’t completely foot that yet. And maybe it has something to do with inventory that the infrastructure OEMs we’re sitting on. I need to go and do a little bit more work on this before I weigh in on that.
But what I do want to stand back and remind everybody that in five years their stock has gone up 89% and that includes the doldrums of this year. The stock went as high as $88 before the big crash of 2022. And I think that is a testament, first of all to the superior leadership capabilities of Matt Murphy and his team, but also some pretty decisive actions shedding 90% of its consumer play, acquiring two to three companies, not only just to listen, I mean padding is the wrong word, but to add short term revenue buying companies like Inphi that has its set for the next five years, moving from copper to light.
So I like what the company does. I like its focus. I like that it’s hanging in there and hanging in there, not in a point of weakness, but up there competing head to head with companies like Intel, NVIDIA, Broadcom, and now AMD with its Pensando play. And some of the ways that its FPGAs are competing in this same space in 5G. So looking forward more. Dan, you and I have one on ones that are set up that I’m looking. It’s been about six months since we touched base, well I’ve touched base with Mat, but overall a really good play.
Let’s move into HPE earnings. What can I say? They absolutely crushed it. Okay. And you know something good is going to happen when in the subhead or the heading of the press release, it says the word records, okay. They beat on the top line, second highest quarter revenue ever. They met earnings expectation, revenue overall was up 12% in constant currency. But I think even more impressive is what the company is trying to do. And it’s as a service areas which was up 33% for the quarter in constant currency and ARR up 25%.
Those are freaking great numbers, but hey, let’s talk just product sales, compute up 22% at this incredible margin around 15%. That doesn’t mean that they’re growing by going after some of the low end business that some of the other vendors in this space go after. They did it with what they call value, which is high margin business. So growing at the top line with an obnoxiously awesome margin, I absolutely love it. Edge came back. I mean, here’s the thing, edge has been a little bit off. And by the way, a very easy explanation. People were huddled inside of their homes and they weren’t going to the edge, they weren’t going to theaters, they weren’t going to retail, they weren’t going to banks, they weren’t going to stadiums.
But most of the world is back baby except for China. And the Aruba folks saw 23% growth on that. Probably the only blemish that I think needs a little bit of explanation is HPC off 11% in constant currency. And it’s like, well wait a second straight quarter all about one thing. It’s about frontier supercomputer that they cannot recognize revenue for that until the DOE says, yep, up and running. A hundred percent. We’re good to go. I have a feeling we’re going to have a monster, one monster quarter. It’s probably going to be 40%-50%, but we’ll see. That’s it. Good stuff. Congratulations, Antonio, to you and your team.
I feel like it’s very safe to say that the strategy is working and I’d like to see the company continue this for the next two or three quarters so it doesn’t look like an outlier. Final note, sorry Dan. Every one of these record breaking numbers also were included shutting down Russia and Belarus, which for HPE. Oh and yeah, it’s a big deal. I mean it is not a rounding number.
Daniel Newman: Pat, look, I got to do a victory lap here. I don’t normally get things right, but when I do get things right, I really get them right. And so I actually wrote a market watch op-ed piece a week before talking about the return of old traditional legacy IT and yes, I’m sorry, HPE, IBM, Cisco, Dell, anyone that feels that we’re being critical, I’m not being critical. What I’m really saying is that, well, for the past few years we’ve had this sort of, everything’s going to go to public cloud, everything’s going to be SaaS, everything’s going to be these kind of new cool snowflakes and everything pen and we’re going to put all our infrastructure in the cloud and we’re going to do everything. This was just proof. Okay, so what happens when the economy shifts? It has labor tightens, you have inflation high, you’ve got interest rates rising, you’ve got the markets down is companies go into a strategic hibernation in terms of massive CapEx projects and also lift and shift transformational projects like moving their entire, I don’t know, ERP system to the cloud.
So what that means is that legacy infrastructure and existing software that’s been implemented in the company becomes more important. And keys technology partners like those I named become critical. Now add another layer. Three or four years ago when Antonio Neri said, Hey, we’re going to do everything as a service on-prem, all of a sudden they actually added a layer of intrigue for all those companies now that need to get more from their resources that say, hey, you can stay on-Prem, but you can benefit from a cloud operating model at the same time. And you can scale your business, get things done that you need. Whether that’s data, networking, security, and you could do it all with us, with a company like HPE.
So GreenLake has been growing nicely for a long time, but you’re talking about a billion in annual recurring revenue. Not a huge number yet. It actually is a huge number. It’s just not a huge number comparatively to the size of the company that’s $30 plus billion in revenue. But the corner is being turned. We’ve seen Dell, Cisco, IBM, and so many others moving to this really strong hybrid and on-prem cloud, these subscription services, these things that basically enable companies to scale, grow and meet transformational needs with only moving that 10% to 20% of key enterprise workloads that are going into the public cloud.
Well, beneficiaries are companies like HPE. And HPE was first to really go all in on this. They’ve come up with a very comprehensive set of services to address everything from not just compute but also the data services, security services, edge services. And so they’ve been very ambitious and so we’re starting to see that come to fruition and this particular market condition is actually favorable for HPE and it should be good for the company as we come out of it and it should see the business grow faster.
So you kind of hit all the segments. I wanted to hit the macros. We both had a chance to talk to Antonio Neri, we’ve both been cheering this on and it was good to see some numbers. You said something Pat very salient and that is it can’t be one and done meaning this was the first what I would say, really good overall quarter I’ve seen from HPE. They’ve had moments in parts of the business over the past several quarters. This was a good overall quarter. A few more of these and maybe the public interest will really start to see some acceleration. Clearly the customer interest already.
Patrick Moorhead: Good stuff. Hey, let’s go into another infrastructure darling here a darling that keeps fricking delivering time and time and time again. Remember infrastructure’s boring, right? Low growth, holy crap.
Daniel Newman: Well it doesn’t have to be so Pure Storage. Our friend Charlie Giancarlo, CEO of Pure Storage just said to me on a making markets episode, that external market condition doesn’t matter to him as much because there’s so much market share for him to get. And I say-
Patrick Moorhead: That’s so baller. I love that.
Daniel Newman: Yeah. And like I said, that was very verbatim but that was effectively what he said is look, if we were out. It doesn’t matter the market. If we do what we do, we will continue to grow and they’re doing what they’re doing and they’re continuing to grow 26% year on your growth to 2.75 billion, Pat. Great little at a glance mean that you shared, I re-shared your share of Steve’s share. Steve McDowell storage analyst at Moor Insights & Strategy came out with a good piece. Like I said, sometimes borrowing is the best. It’s just faster. And at a glance, kind of running this down, big energy savings company’s got a good economical sustainability story is up to 80% of what the customer’s seen. They’ve gone to 11,000 customers. And Pat that number, customer obsessed is the word of the day for Pure Storage.
This is a customer obsessed company. Never seen a company post their net promoter score. Never seen an infrastructure company spend so much effort to share their net promoter score on their earnings. 85.2, it’s in the top 1% of B2B companies. It’s not even close Pat, I think we’re a 90 at future term research because I made that up. But in all serious, it’s just not a common behavior trait of B2B companies to be this customer obsessed. And they have done that extremely well. They’re seeing their margin go up, they’re seeing their subscriptions up 30% Pat.
Storage, you could say it’s boring but it’s necessary. And the company is doing it right, doing it in the cloud. They’re doing the infrastructure, making it as a service, focusing on customers. Economical sustainability. I’m repeating myself now, sorry, it’s kind of straightforward. But Charlie and team congrats. This is a good result based on good work that’s been done over the last several years and I don’t see it changing direction, Pat.
Patrick Moorhead: Yeah. I kind of view this as the Tesla of this storage industry. Everybody thought that Pure was doing so well because it was primarily a flash play and flash means it’s basically hardware and oh, when everybody else gets flash, everybody else is going to come and they’re going to wipe out Pure. Well, what happened was very interesting. In fact, it’s not a hardware play. I view Pure as a software play. Yes it does have a very revolutionary architecture, particularly when it came out. But it’s seemingly always one step ahead of the competition. First of all, from an architectural basis. Why is Pure so good at ESG? Well I wrote an article about this. Architecturally what they use, it’s more of a bladed architecture that when you need a new capability, you don’t throw out the entire array. You put in a new new blade, 97% of Pure Storage arrays are still in service.
Think about that for a second. Upgrade your software, you upgrade the modules, you don’t rip and replace and throw out the old version. You tag that up with as a service. And yes, this is the real deal. This is not greenwashing at all. Because essentially you, you’re lowering your costs or you’re having eye bleeding performance for what you want to do for the likes of the largest hyperscalers out there. Yes, believe it or not, they can’t talk about it a lot. A lot of the largest hyperscalers are using Pure Storage as opposed to using their own home built or homegrown storage arrays. It truly is a success story. And I think it’s also in another way, it’s also kind of an Apple play which says nobody can make money in hardware. Well actually you can if you are chronically and constantly, first of all change the game coming in.
Like Apple, Pure was not the first storage array provider. In fact it was like the 27th. Apple was not the first smartphone provider, it was the 27th. What they did is they came in with something that was radically different. It was more software defined and then service defined than the hardware. Don’t get me wrong, the hardware’s hot and the hardware’s sexy, especially the upgradable architecture. But in the end they keep moving forward because of their software, not because of their hardware. Great job Giancarlo and team. We need to get him on The Six Five investment show. Don’t we?
Daniel Newman: We do. He was a great guest. I’m making markets in a Six Five on earnings. It’s going to be a highlight of our 2023 Pat. We’re going to be breaking this out. We’re going to be bringing the CEOs in because better together, the interviews are just better together. I get pretty darn good interview, so do you. But I think together this could be great.
Patrick Moorhead: Well, first of all, I think we are better and secondly, I have a lot more fun than doing it alone and there’s a lot of value to that. Dan, when you’re my age in 20 years you you’ll understand that.
Daniel Newman: It’s not that bad. It’s like 18. Anyway, keep on there.
Patrick Moorhead: By 18 and age 13 years in true age. So no, let’s go to the next one. Speaking of very profitable infrastructure companies, let’s talk about Dell Tech. I mean these guys, I thought they were just going to completely lay an egg because the PC market. But they came out, they crushed profits by 43%, met on revenue, pretty light outlook, which hit them. The outlook was 16% lower than one before. Now let’s just stand back a second. 20% stock appreciation in one month. Bank of America just upped them to 55 bucks.
I think a lot of it has to do with infrastructure, less about PCs, more about infrastructure. Seventh consecutive quarter of growth, 30 ISG launches in 30 weeks. Sam grow Cotton company on the marketing side, our busy busy folks over there, backlog did reduce. And I think unlike some of the other companies that we’ve talked to like Cisco and HPE, there seems to be a little bit more of a burn off and less fill of the backlog than the other two vendors. PC market basically reflected the crappy PC market. Revenue is off 17%, profit point of view, though Dell was insulated because it hits the highest margin segments and prioritizes that, whether it’s the commercial market, gaming and workstations. So in all a really good quarter, I mean the supply chain folks who will never get mentioned here, I think deserve a tremendous amount of credit.
Daniel Newman: First of all, it was a lot of fun having Dell on The Six Five. The Six Five in the booths that we did with Dell. Got a fun. So thanks guys for doing that. This is a little bit past time now. It’s been a bit about a week, week and a half. This was a little bit before Thanksgiving. I got to tell you though Pat, I was blown away. You said something like, I thought it was going to be terrible.
Patrick Moorhead: Yeah, wipe out.
Daniel Newman: I really did. And what I stand by the fact that I didn’t think infrastructure would be bad. I just thought PC would be terrible. And if you actually look at how the company was able to manage its operating margin, this company just has a way of managing its supply chain, its operations and delivers profitability to its investors and shareholders. And you’ve got to love that because you know this is a company that in good time and in bad time, it’s going to figure it out. It continues to do that. It did it this quarter.
As I said Pat, you mentioned, and it was really important, they play in the right space in the PCs that despite the fact that the numbers are slowing and they’re probably never going to return to the volumes that we saw during the pandemic maybe ever. They play at that premium tier. And the margin difference between that and those that are pumping out volumes of Chromebooks, it’s a big difference. And that is reflected in the numbers that the company has. Company also has really done a good job with its infrastructure business. The infrastructure business continues to deliver. It’s delivering growth. It’s delivering profit. We talk about that slide where it’s like we’re number one. We’re number one at what Pat? Yeah, we’re number one at everything.
Patrick Moorhead: I know, by the way, I’m looking at that slide right now, I love that.
Daniel Newman: Yeah, I mean servers and storage and just you name it across the board, the company knows how to perform, execute, sell, and deliver to its shareholders. This was a good quarter for the company, but like I said, the PC business was down, therefore revenue was down, therefore they guided down. So it was kind of one of those where you’re like, look, all this is really, really good. But at the same time you can’t come out and say we’re going to guide up. And we can’t say the company grew in every area, but I think they’re in the right spaces. They’re playing in hybrid cloud, they’re playing in as a service, they’re playing in to this security space. And I think in the long run, this is a company you can feel really good about. We know it’s in the middle of this finalizing this spinoff of VMware.
It’s about to probably about to be done very, very soon. So it’s continued connectivity to the public cloud and how they’re going to handle that long term without VMware is something I continue to watch. But overall, I like the business path, I like the result. And you really can’t argue with a company that is dealing in a market that everybody thinks is garbage right now. I’m just saying in PCs. And they actually showed the ability to be very resilient, deliver profit, and always keep the shareholders in focus, which is kind of the MO of Michael Dell and Jeff Clark.
Patrick Moorhead: Daniel Newman, good analysis. Let’s jump onto our final topic here and that is Salesforce earnings and Bret Taylor’s departure from the company.
Daniel Newman: I want to talk about the Taylor News. It totally clouded the whole earnings results. The earnings of the company are what they are. It actually beat and it gave a positive year guidance and it didn’t matter much because when your CEO or co CEO departs, that’s always going to be seen as really negative. Bret Taylor was a good partner to Mark Benioff, but I said this on CNBC, say it again. Bret Taylor is not Mark Benioff. Bret Taylor did a nice job as a second. He was a guy that Mark Benioff had identified as a possible CEO of the future. Mark has wanted to do more things politically, he’s wanted to do more things in the community. And so there’s always been a little speculation that he’s been trying to find this. It would happen with Keith Block. But let’s say that this video has been played once before.
Mark Benioff brought in Keith Block and it did not work out either. Now the question is this Mark Benioff thing? The stock was the second worst performer on the Dow. It was down 40%. Now it’s down more. Not necessarily because of bad results, just because SaaS is out of vogue. And when you’re the CEO or the longtime founder of a company and the performance starts to wean a little bit, oftentimes you’ll see that person kind of come back into the picture more. Just like Larry Ellison will always be Oracle, Mark Benioff will always be Salesforce and he can put anyone else in that role. But as long as he’s in the company in any capacity, he’s always going to be the number one guy.
And so for someone like Bret Taylor who was an entrepreneur, a founder who came into the company through an acquisition who meteorically Rose into the company and got to the top, he probably realized that he was the co CEO. But that was as far as it was ever really going to go. So maybe a partnership between someone like Larry and Safra can work. I don’t know if the partnership with Mark works. Now, mark clearly liked him.
Couple of pieces of speculation I’ll touch on is one is there was some speculation that the launches were a little light at Dreamforce and that kind of created a little bit of pressure on Bret given the overall market conditions. There were also obviously what Bret said himself, that he wants to go back and explore his next entrepreneurial run, the inorganic acquisitions of Salesforce. While I do believe they will pay off long term, have not necessarily fully been realized. That’s MuleSoft, that’s Tableau. That’s Slack. And of course Quip is the company that Bret came in with, certainly has not realized its full potential yet. So there’s still a lot opportunity to take all these pieces.
This house of brands that have been acquired by Salesforce and putting them all together to make the most meaningful company, the “digital headquarters”. Microsoft Teams is been in a relentless competitor to Salesforce. And Salesforce as whole, Salesforce plus Slack has a lot of work to be done if it’s going to be a meaningful competitor. So while the company’s earnings were actually pretty good, I mean the growth has slowed, it’s like the same speed as IBM now. So this is not a hyper growth company anymore. This is a company that’s a very robust enterprise software and part of most large enterprises and even midsize enterprises sales organization and has expanded into service and platforms and marketing and more.
But I think right now I’m going to pass the baton over to you Pat. The Bret thing will not be a long term problem for the company. I wish Bret Taylor, good luck. I hope we will be seeing him soon. Somewhere else where we’ve talked to him, Mark will step back in. Like I said, there’s movies been played before this record, this song, we’ve heard it, we’ll see it, Mark will get it back running again and now we got the company has to figure out how to grow it even faster.
Patrick Moorhead: Investors want to see 20% to 25% growth out of a quarterly growth from a company like Salesforce. And that’s actually what they delivered for a long time. And they came in at 14%, which by the way, I want to reinforce met expectations. And if I look at just the years, I mean they nail it on the revenue side where they typically shine is on the profit side and they beat on profits by 14.5%, which again you go look and you look historically is very well aligned with what they did before.
So part of this is a market challenge. Their forecast was very light and they also had the double witching of Bret living. And listen, the talking point out of the company was that Bret wants to go back and hit his entrepreneurial roots. I do believe this and I understand this, trust me, I slogged it out for over 20 years in Fortune 100 tech companies. And there’s just something special about going in and doing a startup, doing something smaller and going for stratospheric growth.
Daniel Newman: Couldn’t agree more.
Patrick Moorhead: I’m going to be very consistent too. If you look at my other analysis, I would like to see how the company can drive organic growth in there. Acquisitions are strategically important. I think at least one out of the three acquisitions is absolutely paying off. I’m also very happy to see some of the lift from customer 360. That was I think the real standout that came out from the earnings announcement. So dialing back, Salesforce is a required asset or acquired service in some way, shape or form if you are in the enterprise. It’s building its stack to compete better with the Google’s, the Microsoft’s of the world. Heck we’ve even seen Zoom building their own stack and not referring to a vertical stack but more of an end to end stack that goes all the way from messaging all the way to the back end with core services that are more operational.
So I am looking forward to the companies have an analyst event coming up in two weeks. I am going to be checking in, I’m going to be there with bells and I’m going to be spending a lot more time digging into what the company can provide, how it’s unique and be weighing in on what changes I think it needs to make. So Daniel buddy, it was great to see you. We got through this. Even with your hotel connectivity, you’re probably the type of guy that didn’t spend the extra five bucks to get the added performance. Because I know you’re a belt tightener.
Daniel Newman: You know me so well buddy. You know me well. You know what’s funny is I don’t even think there was an option in this hotel because I have the status with Marriott. I get it free. I just don’t think it was there. But it’s weird is I’m looking at the speed, it’s like it’s 15 up and down. There’s no reason a stream like this should have had any issues. It’s been stable. And I just want to point out, you sounded great the entire show. I didn’t have one skip of you at any point. I think for our viewers, that’s really what matters. Because I mean Pat, in the end, it’s not about what’s in it for you, but what is in it for you. And I’m glad we were able to answer that question here today. It’s always better together. But as long as we can hear Pat, The Six Five shows will always rage on.
Patrick Moorhead: Man. What a close. I was going to try to work in a succession, me and myself, but you just took it man. You stormed the fricking gates and you win. You win this show. Dan.
Daniel Newman: Even with my bad connection, I won the show.
Patrick Moorhead: I know. So you can be back sometimes this weekend we can hang out and be besties and not talk business.
Daniel Newman: Yeah, let’s do that. I’ll be back Sunday night before we leave again Monday morning to be at Marvell with The Six Five doing our thing at the Avant launch. Oh not Marvell, Lattice Semiconductor, the Avant launch then Marvell for the industry analyst day. I mean, when you love what you do and you do it with the people that you love, is it even really business? And that’s what I’d ask, not just you buddy, but everyone out there that’s part of our Six Five community.
Patrick Moorhead: I don’t know. In a way we’ve kind of turned our businesses into our hobby. I mean we freaking love it. So I love it. Do you love it?
Daniel Newman: I love it man. I love it. And I love everyone out there.
Patrick Moorhead: I got to get off and I need to call my dad real quick.
Daniel Newman: You do need to call your dad.
Patrick Moorhead: Yeah. Do you need to call your dad?
Daniel Newman: You should probably call your dad. If you haven’t watched succession then you don’t get this. But if you have, I hope you find it as funny as we do.
Patrick Moorhead: Sorry, I’m going to stop cracking myself up. But hey, I just want to thank everybody for tuning in to the show. I thought it was a pretty good one. Had a lot of fun. We are remote. Check out all The Six Five of On the Roads and In the Booths, we did at AWS Reinvent. We did it with Amazon, IBM, Dell, and MongoDB. Check them out. I think you’ll like them and give us some feedback. No, actually we don’t want any of your feedback. We just do whatever we want. No, I’m just kidding. Hit that subscribe button folks. Take care. Have a good weekend and love you all. See you besties.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
