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We are LIVE! Talking AMD, Zoho, Micron, Lattice, Pelosi Taiwan Visit and Amazon – The Six Five Webcast
by Daniel Newman | August 9, 2022

Leading global tech analysts Patrick Moorhead of Moor Insights & Strategy and Daniel Newman of Futurum Research are front and center on The Six Five analyzing the tech industry’s biggest news each and every week and also conducting interviews with tech industry “insiders” on a regular basis.

On this week’s show we will be talking:

  1. AMD Earnings
  2. Zoho Days 2022
  3. Micron First to Market with 232 Layer NAND
  4. Lattice Earnings
  5. Amazon 2021 Sustainability Report
  6. Nancy Pelosi Visits Taiwan

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

Watch the episode here:

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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Patrick Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy, and we are here for another Six Five Podcast. It is Friday. Daniel, you and I have been on the road most of the week, but here, favorite time of the week, favorite time of the day, two besties pontificating and analyzing the biggest things in tech. How are you my friend?

Daniel Newman: Well, good morning. It’s been a busy week for the Six Five, but yeah, we do a lot of different kinds of shows. The platform has grown rapidly over the last couple of years. We go on the road, we go to big events and we do content in the booth. We’re providing our analysis everywhere. This week took us up and over from Austin, Texas to Yorktown and Albany, New York. And we are back, but we’ve done a whole bunch of Six Five this week. Some that you will see soon, some that you will see later, but the good news, Pat, is they get to see this right now.

Patrick Moorhead: Exactly. And here we are. If it’s your first time, the Six FivePodcast, we cover six topics around five to 10 minutes each, a little bit of news, but more analysis. So strap your helmet on. We are about to dive in and we have some pretty great topics for you. Today, we have AMD earnings. We’re going to be talking Zoho analyst conference. We’re going to be talking Micron, the world’s first 232-layer NAND. We’re going to talk on Amazon sustainability report 2021. And Nancy, which Nancy could we be talking about? We’re going to be talking Nancy going to Taiwan.

Daniel Newman: I came up with that title. It felt kind of like Mr. Smith Goes to Washington, classic movie that everybody’s seen if you basically took a civics class of any type. Civics class, whoa, aging myself. I don’t think we call it that anymore. And civility or normalcy, that is out the window in an era of social media, Mr. Moorhead.

Patrick Moorhead: That’s right. So let’s dive into some AMD earnings action. But before that, I just want to remind you that this show is for information and entertainment purposes only. Don’t take any of this as investment advice. Let’s dive in.

AMD. What can we say, Daniel? I’m going to call an audible on that one. I mean, they had an absolute stunning quarter. They had a slight beat on the top. They had a slight beat on the bottom. They held guidance annually for 2022, but they lowered Q3 primarily on the backs of uncertainty of the PC market. They lost between five and 7% after hours. They gained a little bit on opening day. The next day, I think it was pretty much a complete overreaction to short term phenomena.

And quite frankly, people aren’t taking the long look of AMD who still has a lot of upside opportunity. First off, you have the GPU opportunity on the consumer and the data center side. And I think as a comparison, you can look to NVIDIA and what they’ve done on that. You now have AMD in the IPU market through the acquisition of Pensando and Xilinx. And then you have an entire business through the acquisition of Xilinx. And then you have, in the future, the combination of AMD and Xilinx technologies, particularly in the AI space.

Now, I can’t invest in AMD, and of course, I don’t recommend investments, but I am very bullish on the long term future of AMD. I mean, heck, let’s talk short term, let’s talk second quarter, right? Data center revenue up 83%. None of that increase is due to Xilinx. All 83% was driven by… Funny. I almost said the Opteron. Driven by EPYC. Op Inc up just 2.3X. We’re not talking percentages when we talk about AMD, we’re talking about X, orders of magnitude. Client business, these are CPUs and APUs. 25% growth, again, moderate, because we had a moderated quarter out there in the market driven by Ryzen notebooks. Operating income only up 25%. Not bad. 25% of revenue, 25% increase in Op Inc.

Gaming up 32%, really about consoles. Gaming cards were down. I got to tell you, I’d really like to see what the long term future is for AMD in PC gaming. I know they have the right people in there, people like Frank Azor in their running that piece, but if I look at the growth that NVIDIA’s had, really eclipses what AMD has been able to do. Embedded brand new segment. I mean, AMD did some embedded, but not a lot, up 2000%. And again, this is a 100% the inclusion of Xilinx. I’m not going to go batty or crazy over the percent because it was driven by Xilinx.

So final comment here, I really do appreciate the new AMD. The old AMD was kind of like each quarter it was different thing, but not every business unit was hitting on all cylinders. But with data center, client, gaming, and the new embedded, now with Xilinx, short term, the company is hitting on all cylinders and I think this is one of these companies that the best is yet to come.

Daniel Newman: Yeah. It’s been a bit of a weird week in the market. I think what happened with AMD was after Intel’s relatively tough, really tough quarter, that’s probably the right word, people kind of maybe overestimated how much of the market shifted over to AMD and maybe didn’t fully appreciate that the slowing demand for the PC was real.

Now, in the data center, the results for AMD were pretty remarkable. The company has got things going in the right direction. Very hard to not appreciate the growth and the success that the company is having. The acquisition strategy seems to be pulling it along in the right direction with Pensando, like you said, with IPUs, that’s a very important space. The Xilinx business, we’re seeing a real stunning growth and demand for FPGAs, and we’ll talk about that more when we get to Lattice in a little bit, because they had a remarkably good quarter. So I think that was a little bit of what happened.

Now, I do love how in AMD’s press releases, they break things out on a YOY basis. So we all have seen that AMD’s sort of PE ratio got a little bit heavy. In fact, at times at 80, 100 plus. And when you see Intel at sub 10, you’re kind of saying, “That’s the market betting on AMD having a very bright future and not so much for other companies.” But then you see like a Qualcomm still at 12 and you’re going, “Well, maybe we’re a little over our skis on these valuations.” NVIDIA suffers a similar fate, so at times, the expectations on a quarter basis are so big that a great result isn’t good enough. And I think that’s what we kind of had happen here.

I mean, you look at just some of these numbers, and I like in the release, they really break this out. But YOY, you saw revenue up 70%, profit up 93%, margin went up this quarter, operating income up 115%, and net income up 119%. So you hit on the head, Pat, where there was weakness. This is cyclical. Anybody that’s out there that doesn’t believe we saw multiple years of PC sales pulled forward is naive. Now, that’s not to say that the hybrid work trends won’t continue to see a higher volume of PC sales than maybe before, but at some point, everybody has 1, 2, 3 PCs, and there’s no more PCs to sell. Then you’ve got cycles, and you just got to wait for the refresh cycles to come through. But that number should remain higher potentially if the workforce doesn’t contract significantly.

The only other thing I’ll say is that in the data center, the company’s strong. Where I’m kind of watching out for AMD and Intel, respectively has just been the momentum for, sorry, for Arm. There’s a lot of interest in Arm right now. That hasn’t changed. You’re seeing the cloud hyperscalers making big investments, Ampere, you’ve heard updates from Microsoft, Google, Amazon. And I think we’re going to start seeing more data on that soon, on how much that actually represents. And as that data becomes available, we’re going to have to understand that’s going to create market share shifts for both AMD and Intel. However, AMD is clearly executing well. Even though they’re a couple quarters behind on their newest products, they’re still getting it out faster than their competitor in Intel, which the Sapphire Rapids delay was probably the number one reason for the shortfall this quarter. So great quarter for AMD, momentum continues to be good.

And by the way, you had a great little appearance on CNBC. We’ll put that in the show notes. Pat, I got to throw my buddy here a little bit of lob of praise. So everybody that wants to kind of get the quick take instead of listening to me garbling on for four minutes, check out Pat’s CNBC segment. So that’s it.

Patrick Moorhead: No, I appreciate that. And Daniel, just a little bit of a boomerang, AMD did have an Arm based design about 10 years ago, and they were building kind of their IO that could work both with x86 and an Arm core. AMD abandoned that for various reasons. I believe that they did that because of focused resources. I don’t think that there’s going to be a lot of pressure for Arm in the data center. There’s nothing magical about the Arm instruction set compared to x86. You just need to put the time and the energy to focus on low power versus performance.

I think both Apple and Amazon have showed that you can have your cake and eat it too, and you could find the right IO to connect to an Arm based CPU. I can’t imagine the amount of cost it would take to create a new custom Arm core, but I could see AMD in the future maybe taking a Neoverse core and putting it into their IO structure if they couldn’t hit the power capabilities. It would take a hit on profitability, but if the market does start to move and there’s a preference for Arm based core… AMD’s a very pragmatic company. With Xilinx, all of Xilinx’s SOCs that they have in the data center have an Arm compute core on them. And in the Q&A, in the deal when AMD bought Xilinx, CEO, Lisa Su said, she’s agnostic on ISA so there we go.

Next up, a very different type of topic here. Now, why it’s called Zoho Day when it’s two to three days, I don’t know. But Daniel, what happened at their analyst conference here in Austin, Texas?

Daniel Newman: Yeah. So what’s that now? Not this week, but last week we had so much hit the wire last week with our Earnings Palooza that we had to back this one out a week, but I don’t think it was that time sensitive. But you and I in Austin, thank you Zoho, had the opportunity to attend Zoho Day and get an update. Now, Zoho, for those that are unfamiliar, is a high growth basically business application suite. Zoho One is what it’s most appropriately titled as, but it has somewhere around 50 different applications that companies, and I would say it was historically SMB, but it’s grown to be really more SME and now even a little more ME, and that was one of the big takeaways is the company, because it’s been with its customer for many years now, are starting to go up market as it diversifies its offering.

So we’re talking about having ERP and CRM and project management and having Zoho meetings, having analytics, AI, embedded, collaboration, marketing, stack, this is really the full turnkey offering for that sort of mid-size company. Can work for very small, and now, as I suggested, it also can work for very large. We heard from the CEO, we heard from the founders, we heard from the executives. And the company I thought did a nice job of giving a little bit of an under the hood look. As you know, Zoho’s a private company. Private companies don’t have to disclose anything, so we didn’t get necessarily the specifics of the revenue the specifics of the revenue that we could actually do any comparison, but we did get some interesting growth comparisons as you’re flashing up here on the screen right now, for those not on the visual podcast and watching, where Zoho was basically able to show that it was growing very quickly, specifically against some of the other competitors in this space. It looked at Atlassian, Freshworks, HubSpot, Microsoft, Oracle, Salesforce. It was interesting, Pat, because I remember I raised my hand and said, “Can we share this?” And they said, “Absolutely.”

And so, usually, that kind of stuff surprises me. The company has been able to show some consistent growth in its revenue. It’s saying over 35%, which is impressive. It’s growing more along with the newer IPOs and newer companies. And it’s outpacing the growth, at least as it provided in its comparisons. Now, Pat, you and I have not validated this data. So I want to say we’re using their data right now. But based upon the reviews of earnings that we have done, I can speak for Salesforce and Oracle, these are pretty, pretty right on about overall revenue growth. But I think Oracle would raise its hand a little bit in debate if you got into NetSuite, which is probably more the direct comparison, and that’s been growing closer to 30% continuously over the last several quarters that I’ve analyzed.

But I guess, Zoho, there was so much content, a couple things I’ll point out. One is really interesting debate, can’t say much specifically about it, about why the company has decided to remain private. Company does a lot of things in ESG, has a very strong stance on privacy, and their CEO basically shared with us that, yes, that’s been a consideration that going public has been something the company has looked at, obviously a high-growth subscription-based service would make for an attractive public company. But due to how the company wants to prioritize itself, it has opted not to take that route and I’ll just touch on one other thing. This is really a global company. They shared some data. I mean, this company has, I believe it’s more than a dozen offices distribute around the world. They have a pretty significant customer growth rate, a low churn rate in terms of its customers. And really it does set itself out to be easy to use.

And so, again, private companies, Pat, always create a little bit more of a challenge for us to try to really provide our analysis on their performance. In terms of the solution set, though, we all know that there’s only 500 Fortune 500 companies. And so, while so many technology companies build their products to support that group and the group that is near-sized to that group, Zoho really feels different in the fact that really it was purpose-built to serve that small and mid-market, it’s growing up and becoming bigger, and as always, it’s always enjoyable to hear from the company. But without more actual revenue data, it’s hard to say exactly how well the company is doing.

Patrick Moorhead: Good assessment, Daniel. Yeah. Zoho is a very interesting anomaly in the world of SaaS applications, right? It has a very good growth, but it has zero aspirations of going public. And it’s funny when you step back and listen to the key leadership talk about why it doesn’t want to, it’s very clear. I mean, it says it will have to do things that it wouldn’t want to do because they know they would have to satisfy shareholders.

The only thing I want to point out though, is that the company’s strategy that it laid out close to a decade ago, ironically, is the strategy that all of the biggest B2B ecosystems are headed down, whether it’s Google, Microsoft, or Salesforce. And that’s this notion of a full stack approach that goes all the way from hardware, the infrastructure to those SaaS applications at the very end and everything in between. Now, Salesforce won’t ever get there on their own, unless they would buy an infrastructure company as they’re leveraging Azure and AWS for their infrastructure.

But when I look at Google and Microsoft, that says this is exactly what they’re doing and striving for. This is an interesting thing. Microsoft doesn’t actually have a consistent infrastructure that sits on with its SaaS apps. Office 365 is in a different infrastructure as is Teams, and its video properties because it was built up, there’s some history there, and they had different teams working on it. So I guess, as I’m backing into this, maybe only Zoho and Google have a consistent infrastructure that it’s sitting upon. And why does that matter? Other than just having a bullet point, is you have one throat to choke, right? If you own every part of the stack, you can optimize your experience, right? If you have some challenges on the software side, you can make it up on the hardware side. If you have challenges on the hardware side, you can make it up on the software side, and you can look your customers straight in the eye and say, “Yes, I know exactly what’s going on here. And this is why I think I could deliver you a better experience.”

So very similar, Daniel shared with you some of the things that were public. But Daniel and I both saw NDA slides. We saw 13 years of registrations. We saw eight years of paid customers. We saw nine years of revenue growth. We saw monthly churn. We saw geo revenue diversity. I can’t share any of it with you, but I just want to tell you that it is impressive. The one thing though, Daniel, and I’ll reiterate that we don’t have the actual dollar number. And I don’t know why that matters. Maybe it should, maybe it doesn’t, but we are very inquisitive people.

So, overall, a good conference. I got to talk to number one, I got to talk to the CEO like you did, and got to talk to most of the executive staff there. The access was great. You could just bump… Sridhar wasn’t in the country, unfortunately, but that was the only senior executive that I wanted to talk to face-to-face that I didn’t get to talk to. Good job, Zoho. Keep up the good work. And by the way, Zoho has been part of the Six Five Summit for a couple years, and be sure to check that out.

Daniel Newman: Appreciate the partnership.

Patrick Moorhead: Absolutely. Okay. Let’s move to the next topic. Again, we are going all over the place. We’re going from semi earnings to B2B SaaS to 232-layer NAND that Micron brought out, world’s first, which I think they deserve a little bit more than a golf clap.

Daniel Newman: Well, let me get my notebook out. I got to take notes here. This is a learning experience for me as well.

Patrick Moorhead: Ah, nah, nah. No. Okay. First of all, NAND is high performance storage. And that can be in a smartphone, that can be in a PC, or that can be in a data center. Right? And, Daniel, I know you’re going to talk a little bit more about why this even matters at big picture in the growth opportunity. But what happens is the more layers that you can stack on top of each other in storage, the higher the density. So, essentially, what the company did is put almost 2X the density inside the same amount of space on the piece of silicon. And that’s nearly twice the density of Samsung. And that’s nearly twice the density of Kioxia. Not that someday those folks will get there, but being first does count for more.

I had a great conversation with head of the group, Jeremy Werner. I always like to say Werner because they speak German. But anyways, had a great conversation with Jeremy about how this is going to roll out into PCs and into the data center. Also had a great conversation with one of their end customers in the data center, Bill Cerreta from Pure Storage. And as you know, Pure is one of the only companies that takes raw storage and turns that into storage devices inside of the data center. And they do some really cool stuff with software to improve the reliability, let’s say on QLC memory to make it operate as reliably as DLC and SLC. So that’s single layer, dual layer, and quad. But they have this software wizardry and I urge you to check out the YouTube video that I did with these two folks. But congratulations to Micron. They’re really on a roll, first to DDR5 and getting that product [inaudible] first now to 232-layer NAND and storage. Great job.

Daniel Newman: Yeah. I, first of all, really enjoyed your article on Forbes and your interview. I’d spend half of my free time consuming content that you create without me. A little bit of jealousy. But what else can I do, my friend? I was actually reading through this, though, and I highlighted something because I thought it was great. So for all of our audience, we understand some of you are extremely technical, some of you are on the business end, some of you are here to learn.

So I thought Werner made a great analogy, and you talked about in your article, where you talked about thinking about memory and thinking about the 232-layer NAND like real estate. And so, in a dense metropolitan area, you can’t build wider, think about the large wafer. You have to build vertically, think about stacking, which is becoming an increasingly important trend. So in downtown area, in that highly dense, in New York City, you don’t build out, you build up. A little bit like 232-layer NAND, he thinks of it like a skyscraper. Creates more density [inaudible] layer, 3D NAND is basically enabling Micron to scale and build more efficient skyscrapers. I thought that was great. I mean, like I said, Pat, I read your writing, and then I just copy/paste to make great analysis.

Patrick Moorhead: Some days you’re so gracious and some days you’re not. I do hit up some of your research, I’ll admit.

Daniel Newman: It’s a Friday. I’m feeling good. And, frankly, like I said, I admit when I’m in the learning mode. We were sitting in those quantum briefings this week and I felt like a student in grad school again. And I felt like a student taking a class that I didn’t know a lot about in grad school. And we’re considered two of the foremost thinkers in quantum as analysts, and this stuff is hard. Well, some of this semiconductor stuff is hard too. Just take a tour of a large semiconductor plant and actually look around at the equipment, the lithography, all the things that are happening, and you’re going, “Holy cow. This is so complex.” What was it, Pat? We’re aiming laser beams and stuff. I mean, this stuff is amazing. And the beauty of it is in the end, it’s all about usability.

And so, what Micron is really doing is enabling the compute and data center or the future to be able to keep up with data and storage innovation and make sure that computing can keep up. And that’s really what’s happening here. And to your point, Micron’s been very on the front end, they’re very innovative, and they understand their role in this particular space. And these breakthroughs are really important. But in the end, they’re really important because when you’re serving up these applications, you have all this data you need to access in order to do meaningful work in these applications, storage and memory are an incredibly important part of that. And Micron, to your point, is continuing to move this forward. I will end there because I think I’ve hopefully broken this down to the layman a little bit here, but great job to Micron.

Patrick Moorhead: Let’s move to another semiconductor story here. Lattice earnings, the leader in market share in high-volume, low-power FPGAs.

Daniel Newman: Yeah. If I knew how to throw up a slide, somehow after all this time, I’m still terrible at it, but Lattice does give some good slide. They give great slide at their earnings. In this particular quarter, the company did it again. Their one slide, the results highlight… Pat, I’m just going to call a little bit of this out. Because, in the market, when right now we’re in this bubble where I say it’s alpha versus beta, we’ve heard our friend, Chamath Palihapitiya say on the All-In Podcast, Lattice is in a stage of alpha, made a lot of great decisions, so congratulations to Jim Anderson and his team made a lot of great decisions, so congratulations to Jim Anderson and his team to basically focus the business on key secular, focused on edge, focused on automotive, focused on data center and it’s starting to bear fruit for the company. So you saw 28% on you your growth, 69% margin, which [inaudible] 700 basic points of expansion and huge growth in its earnings per share, 68% for those of you that can’t see the screen.

But what was really great is, as expected, the markets they were in our high growth that are going to be resilient and robust through any sort of comparative contraction, continue to grow. 35% year over year in their compute column, communication compute, so that’s what we talked about there. And then of course their industrial and automotive business, the harden edge and the automobiles also saw 30%. Surprising that we saw a small, but 1% contraction and consumer. You shouldn’t be surprised. Just listen to what we talked about when we talked about AMD and Intel, that particular space is taking its lumps right now. It also gave the company some solid growth over their previous period when we did see all the acceleration into areas like consumer and PC.

In fact, what I think is most interesting about the company is it’s been very aggressive in its innovation. It’s got the small FPGA platform. It’s moved up into mid-market, it’s got an O-RAM solution. It’s got security and bio solutions to help companies protect their data centers. They’ve made some good inorganic acquisitions, small, but meaningful in areas like AI to expand the business. And frankly, the company has proven the FPGAs are having a moment.
So Pat, you’ve heard me say this a few times on our different pods, semiconductors are having a moment. Well, FPGAs are also having a moment. That’s why I think we feel good about AMD and Xilinx. And I think that’s also why we feel really good about Lattice is FPGAs are proving that they can be done. They can be affordable. They can provide a layer and level of flexibility and that companies are increasingly adopting them.

And just so everyone knows, in case you don’t follow Lattice, we don’t talk about them as often as some of the other bigger semiconductor companies, but we do talk about them somewhat regularly. This is a company that’s products and solutions are in alongside many of those bigger names. They’re in alongside an AMD or an Intel and a data center. They’re in alongside an NVIDIA. They’re in alongside, so this isn’t an or thing. This isn’t some small semiconductor trying to grab market share from the big semi companies. This is a company that has very specific purpose-built solutions in these industries that we mentioned, and they’re getting a lot of momentum, a lot of growth and they’ve been able to really hold up well throughout the pandemic.

Patrick Moorhead: Wow. You actually did leave me a lot of content.

Daniel Newman: I did, right?

Patrick Moorhead: For sure. So, one thing I want to point out if you’re an investor and you’re looking for long term play and listen, I’m not an investor. I don’t give investment advice, but look at this curve. Look at the steady progress. And here’s the irony, all this had to do with a major change in product direction and product velocity. What Jim Anderson and his team did is, they completely changed the target markets that they went after. They still service some of the consumer markets, but they really took a hard right, very similar to Marvel on more B2B type of opportunities. And we can debate whether automotive is consumer or commercial, but you get the idea. And changing investment, increasing velocity, you very rarely see curves like this.

Now it’s great and all to talk about what happened today and what happened yesterday, but let’s hit tomorrow. You had talked a little bit about getting into the mid-range. They haven’t launched their product yet, but what they did say on their earnings call is that in Q4, they are going to have an event to talk about this and you can see the graph up there. It’s essentially doubling their TAM. And this is going right at the heart of what Intel and now AMD, FPGAs provide. But there’s a big difference here. AMD and Intel FPGA, they’re really focused on using the FPGA as a way to create data center SOCs. And they’re also focused on the highest performance FPGAs, not bringing new solutions out in the mid-range. What Avant is a brand new product in the mid-range of FPGA. So in the marketplace, you’re going to have AMD and Intel with older designs and older manufacturing versus Avant, which is the newer design with newer manufacturing.

Now what Xilinx and AMD have going for them is, typically when you build in an FPGA, if it’s in a single board computer or something like that, very rarely do people have the motivation to change. But I believe that Avant will win many of the new designs, because quite frankly, it’s going to have a cost performance and power advantage. It’s me speculating right now. But why else would Lattice be investing so much to get in here?

The only thing I don’t 100% agree with you on, Daniel, is it’s competing with other FPGAs only. I believe that with these packs, with these software packs, Jim and his team are actually going against controllers, okay? And that’s just a fancy way of saying low level arm processors, and ASICs for, let’s say machine learning. I do think at some point by making it easier for OEMs and ODMs, they are going to have to, and they will start going head on against other types of silicon, not GBU’s. That’s not going to happen, but more against ASICs and controllers.

Daniel Newman: So just quick, you hit that on the head. I guess I’m not correcting myself, but I do want to just say, of course there’s always overlap. There’s always going to be overlap. I just mean that for people that are a little bit less familiar with a Lattice, this isn’t the kind of company where you’re basically saying, “Oh, NVIDIA is so good, Lattice doesn’t have a chance.” They’re very aware of where they fit the market. And they’ve been able to capitalize very well on the fact that they understand their purpose. They understand where FPGAs make a lot of sense, and they’ve been able to enter the market, definitely going to have some competition. And by the way, bigger competition is inevitable. The bigger you get, the more, your products find their way into markets. The more the bigger competition is going to look for ways to capitalize on that market. So good points. I appreciate that circle back here, Pat. And I know we got to keep moving.

Patrick Moorhead: Yeah. Let’s dive into the next topic, which is Amazon’s 2021 Sustainability Report. I have a report that, well, sorry, not my sustainability report. I have an analysis on the report that’s going to drop probably in the next couple days. I’ve really spent a lot of time on it. And we’re an interesting time right now related to all of this environmental, and that’s what I’m going to focus on is the environmental piece. A lot of things are going on right now. The environmental debate rages. We’ve got heat waves on at least two continents. And we have the EU being held hostage by Russia because essentially EU essentially handed over to Russia, their energy policy. So I would say environmental and energy debate absolutely rages on.

But I think companies are trying to be part of the solution out there and try to have a leadership role, if nothing else, to maybe consume less energy when they’re doing what they’re doing. Companies like Amazon get a lot more scrutiny for its sustainability reports because quite frankly, it’s marketplace success. It has a ton of data centers with AWS. They’re the number one IS provider. They’re the number e-tailer and they’re one of the largest grocery sellers out there in the United States with Whole Foods. They have hundreds of distribution centers. They have fleets of delivery trucks and planes.

So net net, and I think some of the focus, Daniel, has been this 18% increase in carbon. And I know some people are like oh, my gosh, that’s just terrible, right? But then it’s like, well, let’s actually see what did Amazon do in 2021 in compared to that 18%? Well, let me read off a few things that I found out, first of all. Almost doubled their workforce, adding 750,000 workers. Doubled its package fulfillment network. Increased package delivery, 500% and increased usage of AWS by 40%. So I don’t know.

I’m not a mathematician, Daniel, but when I compare orders of magnitude five X, two X, four X, and compare that to 18% to carbon footprint, the companies, this isn’t an official term, it’s my term, carbon efficiency actually looks incredible. And listen, the company’s not done there. They outlined things that they’re going to be doing over the next, gosh, 10 years to bring those numbers down, even farther. So net net, orders of magnitude growth in the company, 18% increase in carbon footprint. I call that a win.

Daniel Newman: Yeah. You hit it on the head. There’s a lot to digest. We’ll put a link in the show note to your article. I also link to it in an MarketWatch piece where I did talk about its recent release. We went up and have been following, I mean we didn’t go up, but we followed up in Chicago, the Rivian rollout of some of the electric vehicles for delivery. This is a company that has to balance the reality of staggering revenue growth, staggering shipment volume increases, and somehow being able to manage the expectations for doing ESG. We’ve all seen the company’s efforts to increase awareness, it’s climate pledge to move things forward, which is brought in some of the world’s most important and largest companies to participate in their ambitions to lower the carbon footprint over the next couple of decades.

And so I’m not going to sit here and scrutinize Amazon for not being able to, on the fly, increase revenue. There was a note in one of the articles that read something like, in ’19, they’re up 40% since ’19. Well, the revenue in ’19 was $290 billion and their revenue in ’21 was well over $400 billion and it’s only growing. You’ve doubled or coming on doubling your revenue and you’ve increased your carbon by about 18%. It means you’ve actually done quite a bit to reduce based upon the revenue and volume acceleration. We like to sit on our couches and have stuff delivered to us. Well that doesn’t happen without planes, trains, containers, ships, automobiles, scooters, whatever it is that these packages are coming to our door, so it there’s work to be done.

And so things like the electric vehicles are a path forward. But when we’re ordering all this stuff that gets manufactured in China, here’s a policy issue. Well, we manufacture a lot of our stuff not here. Well, could we lower our carbon footprint if we didn’t do everything as an import? That might help.

But the reality is that’s probably not going to happen anytime soon. So what we have to understand is that the process of elimination of carbon emissions is going to take some time. The company’s going to be able to do it by improving the footprint of their facilities, by improving the modalities to get packages to people’s doors, electrification will matter. But of course, all those batteries are going to have to go somewhere. We still got to issue that we’ve got to solve for there in the long run. But I actually appreciate the fact that A, I don’t think there’s a requirement for companies to put these out, these sustainability reports. The fact that Amazon didn’t really try to mask the result should be seen as a somewhat positive. I think they’re owning the result. They own that this type of growth does not come with an easy path to becoming carbon negative in terms of output.

Come with an easy path to becoming carbon negative in terms of output. So hopefully for every other company on the planet that doubles revenue, they can do it with half the emissions and then we’ll get there. But long and short, Pat, interesting report, good info, fast growth company, work to be done, but it seems like a lot of work is being done and some credit should be given for the amount of growth and the small amount of additional emission, because like I said, this is not an overnight process.

Patrick Moorhead: Good analysis, Daniel. I think we are lock step on this topic. Let’s move to the next topic. Normally we’re talking about companies and things that are happening, but we really thought it was important this week to talk about a very important topic related to tech. And that is that Nancy Pelosi visits Taiwan. So why does this have anything to do with tech, Daniel, and why are we even talking about this?

Daniel Newman: Oh, boy. Well, I mean, you and I spent some time in Albany this week. We were meeting with semiconductor research leadership with IBM. But the state of New York is very invested. We’ve got a new 52 billion Chips Act that’s going to have another few hundred billion dollars dedicated to research. And all this stuff ties together. Why did the Chips Act becomes so interesting and popular? Well, turns out 99.9% of our leading edge chip capacity is in Asia now, and the vast majority of it is in Taiwan. I think Taiwan accounted for in 2021 50% of all semiconductor manufacturing revenue. We saw our output in the United States in 1990 drop from 37% to less than 10%. And so it’s become a bit of a political issue considering, Pat, nothing we do including this podcast could happen without chips.

So I know everyone wants to say software eats the world, but you and I like to say semiconductors eat the world because you can’t run software on air. So you’re right, we’re not a policy show, but this particular moment had people in a bit of an uproar. So we’ve got this sort of balancing issue going on right now. So there is the diplomacy challenge with Taiwan because China still considers Taiwan part of China. And the U.S. knows the importance of Taiwan and its role as an independent nation, a sovereign nation, and so we have to kind of balance this deal of deciding our own foreign policy, letting our relationship with China dictate our foreign policy, because obviously we have a lot of things going to and from China and we depend on China for a lot of different things.

But just this morning, Pat, up in my Twitter feed shows up a China announces sanctions against Nancy Pelosi following Taiwan visit. That’s in my Twitter feed this morning. Xi Jinping is doing military exercises around Taiwan right now because China considered Nancy’s visit to be a conflict of our diplomacy and our relationship with Taiwan, and it is raising the military profile right now. So I guess it comes down to, Pat, talking about something that’s very important, and that’s A, does the United States dictate its own foreign policy, or is this going to be dictated by China? Clearly the decision for Pelosi to visit showed that we’re going to dictate our own, which is something I feel a little bit positive about. But then I wonder who really is the right representative to be there? Because what I can’t figure out is what the value equation is of sending her, especially if the chips and the semiconductors are the most important negotiating point between our diplomatic relations that are going on with China and Taiwan at this point.

But Pat, long and short of it is all of the stuff that we like to use, the laptops, the cell phones, the data center and servers, I mean, of course we manufacture more lagging edge, more 14 plus outside of Taiwan, but we’ve become hyper dependent on Taiwan. And if China decides to have a moment with Taiwan, similar to the moment we saw Russia have with Ukraine, we have a bigger problem on our hands, because our dependency on China and Taiwan is exponentially higher than our dependency on Russia and Ukraine, and you saw the outpour of economic damage that that caused. So it’s a big deal. It’s a big moment. Are we sending the right person? Do we have the right strategy? How does the Chips Act get us off of this dependency on Taiwan? It won’t be immediate. But the long term, Pat, is that this is going to be a continued on challenge that people want to put their head in the sand and say doesn’t exist. But at any point it could be extremely damaging to our economy.

Patrick Moorhead: I don’t know where to start. I’m going to start right here. Third in succession after the president is Nancy Pelosi. So you have Biden, Harris and then Nancy Pelosi. Biden certainly wouldn’t make the trip because that would probably be too strong of a signal to send. I don’t think anybody wants Harris to go anywhere and represent the country, because quite frankly, I don’t think she even has a grasp on the Chips Act or economics that go into it. So that’s one of the things I think that’s important. But this does beg the question, what would the U.S. be willing to go to war over? Are we willing to go to war over a Chinese invasion or shooting missiles that actually hit land in Taiwan or not?

But getting back to the technology point of it. So there is still leading edge fabbing going on inside of the U.S. Intel has Intel 7 here in the US. and Micron has leading edge memory fabs. But the challenge is the future where it looks like TSMC and Samsung have the lead. And as technologists, we have to ask the question is, is it smart or is it just way too risky to have the longest poll in the tent to deliver an end product be something that is fab in countries that missiles are literally flying over the land? North Korea is popping off missiles over South Korea. And now you have China popping off missiles over Taiwan into the South China Sea. It’s just too much risk. And if anything, it just puts a big exclamation point on the Chips Act and why we have to bring more of this leading edge manufacturing and manufacturing for more analog devices that doesn’t require leading edge, but does require specialty type of processes and technologies.

And I’ll go even a step further and say stopping at chips doesn’t solve much. Stopping it at chips, because most of what we build in our critical infrastructure has a lot of its genesis in China. Final manufacturing, a lot of it is done in China. Now, the military is a little bit different. But I’m talking about banking, I’m talking about healthcare and I’m talking about telecommunications. Why do you think China basically banned U.S. companies from operating in Chinese critical infrastructure? But we still keep propping up China and doing business as U.S. companies with critical infrastructure with China. And I think now’s the time where I think the U.S. Government and states need to pass some sort of law or regulation, again, similar to China, not picking on China here, just doing exactly what China does to us, which is having all critical infrastructure all the way from chips to final assembly done outside of China or in a country that we feel safe around, like Mexico.

I think that would be a great place. We can’t afford to do that in the United States. We could very much protect Mexico if somebody tried to invade it. The other thing I’d like to see, Daniel, is China has a rule that you can’t own more than 49% of a company if you open up in China. So if you and I wanted to open up a place in China, 51% of that has to be owned by a China entity. Chinese companies can open up in the U.S. with reckless abandoned. They don’t need an investor. They can also buy land, which they have in Texas next to military sites without any oversight at all. Listen, I don’t like bureaucracy. I don’t like government overstepping. But let’s just get smart about this. How can we not view this as a threat?

Daniel Newman: Yeah. You hit it on the head, Pat. We’re not 100% aligned here, but I think we’ve got a lot of common vision here for what needs to be done. It’s a fascinating topic. There isn’t necessarily a right or wrong answer, but we’re going to see how this plays out over the next few years.

Patrick Moorhead: All right, Daniel. Good show. Appreciate that. I know you’ve got a lot of stuff due today. You’re a busy guy. You got to pop out of here.

Daniel Newman: As are you, my friend.

Patrick Moorhead: I know I only have one keynote, and three podcasts and two advisories. That’s my day today.

Daniel Newman: Yeah, you are not busy. That’s a light day for Pat. But for me, much busier. So hey, great show.

Patrick Moorhead: Hope you enjoyed the show, everybody. If you liked what you heard or saw, please hit that subscribe button. And if there are things you didn’t like about the show, you can get those to Daniel. If you like what you heard, please tell me on Twitter. So with that, we’d like to wish you a great weekend to all our fans out here. And man, we bumped into a fan in Albany yesterday and it was amazing. Really warmed my heart. So thanks, everybody. You can all be fans. We want to hear from you. Take care.

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