On this week’s episode of The Six Five, hosts Daniel Newman and Patrick Moorhead get together to discuss:
- Amazon Earnings
- Qualcomm Earnings
- Google Earnings
- AMD Earnings
- Apple Earnings
- Samsung Galaxy Unpacked
For a deeper look into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Transcript:
Patrick Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy, and we’re here for another Six Five Podcast. I am broadcasting from an undisclosed location in Redmond, Washington. It’s early. It’s almost 6:00 AM, but I’m here with my bestie, Daniel Newman, CEO of the Futurum Group. Daniel, how you doing this morning? A little bit of a different background you have there.
Daniel Newman: Yeah. I’m also in an undisclosed location, never to be disclosed into the future, but I’ve settled in, and when I say settled in, I mean, this is the cleanest spot. I’m amidst of massive boxes, but I’ve finally moved, and for anyone that’s been following this story because it is top news because everything I do is top news, I moved to Austin, what, 19 months, 20 months ago. I was supposed to move into this house 12, 13 months ago, but you want to know what a bad supply chain looks like combined with a bad builder. You’ll find my house now. The product ended up being okay, but let’s just say a year late, but good to be here. It’s good to be here with you, buddy.
Patrick Moorhead: Yeah, it’s great to be here too. Literally, this is the highlight of my week. Even though it’s early, I mean, this allows us and hopefully the listeners enjoy this as well, but we do have a great show today, and if it’s your first time on the show, the Six Five, we talk six topics five to 10 minutes each. We talk a little bit of news but it’s mostly analysis, and we also talk earnings, which is really the topic of today. A reminder, don’t take anything we say as investment advice. Consult and expert because we are industry analysts, not equity analysts or authorized to give investment advice.
So we have a good show today. A lot of earnings, like I said. We’re talking Amazon, Qualcomm, Google, AMD, Apple, Samsung. Pretty much the tech markets are a little bit in turmoil maybe at the exception of a couple companies. It is funny out with a rocking dividend, but we’re not going to talk about them because they really don’t do a whole lot of B2B, but let’s dive in. We are talking Amazon. I’m going to call your number, Dan. What’s going on over at the company?
Daniel Newman: Yeah. Let’s talk about Amazon. I mean, let me just preamble on one thing before I go specifically into Amazon because you said tech is in turmoil, and here’s the weirdest thing, Pat. For the last 16 months or so since basically November, was that 14 months ago of 2021, the tech markets have been falling precipitously, yet earnings over the next first few quarters into 2022 are actually really good.
Now, what happened effectively and then my thesis on this is that the markets actually were waiting for things to break. They knew that the inflation was too high. They knew that growth had happened too fast, and they knew that this pullback in labor and everything was going to happen. So I’m going to give you a silver linings because a lot of these earnings we’re going to talk about today are going to be pretty bad, but the silver linings, in my opinion, is the Fed.
You saw this week they slowed down the rate hike increases, which has been really what’s been putting all the pressure on growth assets in tech companies, but when they start to see the break, when all these layoffs are happening, when you see earnings are getting hit, when you see inflation numbers going down, this is actually going to become a buying signal. Again, we’re not giving investment advice, but if you actually look at tech, a lot of double digit gains in tech, even though some of them fell a little after this quarter week’s results, but they were going up, and then these companies were announcing layoffs, things were going up. As companies were announcing weaker than expected sales, their stocks were going up.
Patrick Moorhead: Well, I know actually the NASDAQ over the past month is up 17%.
Daniel Newman: Right, and all I’m saying is yet we all knew it was shit, I mean, we knew that it was actually going to be bad and yet the markets are going up. Then last year at the same time when things were really good, you and I were like, “What’s going on? Good earnings and the stocks were falling.” So Amazon basically came out with better than expected revenue numbers. In my take, that has to do with a couple things.
I’m only going to talk about commerce a little bit, and then I want to talk more about AWS because I think that’s really where we tend to have a lot of focus, Pat, but the revenue beat, somewhat significantly, and I remember this company did 150 billion dollars in revenue in one quarter. Pretty good number, but it’s growth slowed down. I think it’s one of its slowest growth quarters ever, if not slowest ever in high single digits, which they also posted this lower earnings number, but let’s be candid. With the Rivian factors and stuff, it is extremely hard to discern how Amazon reports EPS. So I’m going to stay away from that part, but the revenue numbers were really interesting because they were up and they were actually better than everyone expected, but the guide was down and they guided to a mid single digit growth next quarter, which is unprecedented for Amazon.
Patrick Moorhead: Are you talking Amazon or AWS?
Daniel Newman: I’m talking Amazon right now. Well, we’ll get to AWS because they were a little better than that, but the Amazon was, they’re guiding towards about a 48% growth, which is just unheard of for this company and that’s their overall number. Now, the interesting thing is you’re still talking about them doing something like 125 billion dollars in the next quarter. So the demand for their e-commerce and their products and their services is still really substantial, but we do have slowing demand.
Now, we got to look at the external macro factors here is household balance sheets have been in incredibly good shape all the way through this pandemic, all the free money that went out. People were propped up, the strong labor market, and then the asset bubble. People had more access to capital than ever before. So what’s happening now is you’re starting to see with interest rates rise, with inflation numbers high, home balance sheets got weaker. When home balance sheets get weaker, people spend less on non-commodity items on discretionary. So that’s going to obviously hit Amazon and its core e-commerce business.
A couple other areas though that were good for Amazon was their advertising business, which is really interesting. I know Google’s under a lot of pressure with their ad business right now, regulatory and, of course, what Microsoft is doing. We’ll talk more about that later, but they grew almost 20% on advertising. With Google’s numbers on advertising itself being single digit growth this quarter, that means Amazon’s actually gaining share in advertising, which has a lot to do with targeting the commerce and the buyer rather than through a more traditional search modality. So that number looked really good.
The only other number that I want to bring up, and I’m going to just touch on it and hand it to you so you have something here to talk about, Pat, is the AWS number. Google and Azure were both in that low 30% range and Amazon’s AWS came in at 20. So I had a lot of inquiries from the press and the media, and I just think it’s really important to basically say the size of the AWS business in the law of large numbers, if you look at the actual revenue growth when you’re growing at 20% on their business, there’s 21.4 billion dollar business right now on a quarterly that’s tracking to almost 85 billion dollars, is immense.
As we have seen enterprises pullbacks load spending looking for, I’ve talked a lot about deflationary tech, maximizing their current investments, meaning some workloads maybe not going to the cloud as fast as they are, that’s going to put some pressure on AWS, but the size of that business is immense, and growing 20% in what’s considered to be a horrible economy is still pretty good. They’re going to have their work to do as they try to take that to a hundred billion dollar annual business, but I think it’s being a little overblown and 20% growth in business of this size with that level of profitability is still a pretty great result.
Patrick Moorhead: Yeah, and just to put stuff in perspective, so overall, I mean, they missed on the guide by 1.6% on revenue. Where they got clobbered was on profit. They guided to almost a 45% lower operating margin. I think that’s where a lot of this reaction is coming from. I got a lot of inquiry as well on that AWS number. It was interesting, I talked on the call and Andy Jassy dist the competitors, which he said, “We’re the only one who actually has a true cloud number.”
Now, there’s a certain element of truth to that, but there’s also a certain element of I don’t know what. I mean, what is true is that Amazon’s percentage of cloud is very heavily tilted IAS, where Google is a combination of IAS plus Google Workspace, and then even Microsoft and their numbers, the Azure number is not straight Azure. It also includes services to its own PaaS services like Dynamics 365. So totally get that.
With that said, it makes sense for me that the others would be about 10% clip higher on growth and Amazon is not at that 20%. I guess what I’m expecting as well as we get into the Dells, the HPEs, and the Ciscos, I would expect them to decline because those are the closest competitors with IAS, which is on-prem.
It is interesting. Andy, also, I know the guy don’t, but Andy made the comment about how customers, he can totally see how they would be pulling back a little bit. Amazon internally is pulling back as well. Maybe they wouldn’t crunch numbers as long, right? That was an example that he used, but I think the best thing that he did on the call was talk about innovation and how he has these big bets that some come through, some don’t or which I thought was very, very solid and very, very true.
There’s nothing wrong with Amazon. It is entirely based on the economy. I think they would be doing better if they sold a higher percentage of let’s say food because people are not going to stop buying food, right? Grocery stores are not declining. People have to eat. They’re not going to make their own food and they’re not going to starve. So this is just showing the tilting and the mix to more heart goods, things like that.
So Dan, let’s move into Qualcomm, and I’m going to call my own number on this one. Qualcomm had what I consider something that I think everybody expected. The market is down for smartphones between 15% and 20%, and Qualcomm is down by even a little bit less than that. So they missed on the revenue side, but they beat on the EPS side, but it’s really the guide that matters in the future that was down around 7% on the revenue side and 7% on EPS.
No question here that this is 100% the macro market. If you also look at I would say their biggest strategic element, which is their diversification, automotive and IoT are still looking really, really good. IoT took a little bit of a hit, and what I’m hearing is that is primarily an inventory adjustment out there on the consumer side where people are buying less items with Bluetooth as an example, low, low energy Bluetooth, but automotive is fricking rocking. When you look at that number, I think it was up almost 50%. So chewing into that. What is the number now, Daniel? 11 billion dollars?
Daniel Newman: Their pipeline?
Patrick Moorhead: Yeah.
Daniel Newman: 30.
Patrick Moorhead: Oh, sorry, 30.
Daniel Newman: Yeah, and NVIDIA’s 11. Yeah, I remember it was an 11 billion dollar growth I think in one quarter, but yeah, that was a number that was thrown around, Pat, 11.
Patrick Moorhead: Yeah. Anyways, I’m not concerned at all about the quarter. I mean, it’s basically tracking to what the market is doing and we got to be honest, I mean, Android is losing a little bit of share in premium to Apple. So that number is actually a little bit more than that, but inventory and handsets had a lot to do with the quarter and they’re modulating opex as you would expect.
Daniel Newman: Yeah, I think it was a fairly straightforward and expected set of results. We both had the opportunity to talk to CEO Cristiano Amon and appreciated him and both Akash, their CFO’s time yesterday to run us through some things. The read between the lines is this inventory drawdowns taking longer than everyone expected. I think it was going to be a quarter, then it’s two, and now it’s looking like it’s actually going to be about a three quarter drawdown.
These are some of those macro effects to the economy that you and I are talking about. You’re seeing it now. What it means is weaker demand. I mean, I had some interesting questions from the press about why certain semiconductor companies like Silicon Labs had really good performance in retail this quarter and then why are the client numbers so bad from everyone. I mean, because AMD, which had a good quarter, and we’ll talk about that, their client numbers were really rough around devices. I mean, it all had to do with how the channels and how their inventory got loaded up. During the pandemic when things were scarce, everybody bought everything they could get.
So when supply became available, they loaded up on supply, and then when the demand cutoff, happened somewhat precipitously, they got stuck with a lot of inventory. So now they’re all burning through inventory. So you may even see some better numbers from some device makers and OEMs on all sides because they’re able to draw down inventory. So you got to watch the inventory numbers against the sales numbers to see if in fact how sales are going versus how backlog is being managed and being fulfilled.
For Qualcomm, I mean, their story on handsets has been that they’re aware that it’s a very important part of their business, but diversifying is more important. Almost 60% growth in automotive, although a small part of their business, is very indicative that 30 billion dollar pipeline is ramping. So when we were at that automotive investor day, Pat, you and I were in New York, you could sense the energy moving in that direction.
By the way, the automotive industry hasn’t been hit the same way devices and PCs because they’ve never gotten to a point where their supply is caught up. I mean, you can still see car dealerships that have lacking inventory. So the IoT business slowed down a little bit and, of course, the way they’re embedding the RFFE into all the numbers now as opposed to tracking that separately is an area to watch.
Pat, one other area I think you and I will really be keeping an eye on over the next year is going to be the PC business, which they have embedded in the IoT business, which I asked them about, and I think that’s going to be a number that sooner than later we’re going to want to see more call out and more specifics on, but they’ve got some very interesting technology through the Nuvia acquisition, a company you advised closely, a company that we’re all eager to see what comes from, but I think there’s a big bet going on there too as a part of their diversification strategy. It’s going to be a tough market to enter, but Qualcomm’s strength in mobile could very well be an enabler for them to have some strength in that business in time, but you hit a lot of it on the head. So let’s keep rocking and rolling, buddy.
Patrick Moorhead: Yeah, let’s move forward here, and just a note on inventory, it’s always important, when it comes to chip makers, to contemplate there’s two elements of inventory. There’s the chip inventory and then there’s the device inventory. When you have the device makers, the PC makers, the phone makers, whatever makers, IoT makers, because there was so much over supply, they have to not only burn through that, but they have to burn through the chip supply that they were sitting on because some of them were double ordering as well to get through some of the soft periods. So let’s move on to Google, Dan. What’s going on over there?
Daniel Newman: So this one I’ve spent a little bit more time with, Pat. I joined Bloomberg yesterday and new hosts, by the way, on technology.
Patrick Moorhead: Oh, wow.
Daniel Newman: Yeah. After a long time, Emily Chang moved on, and now you have Carolyn Hyde and Ed Ludlow. It’s different. Back to the old days of two hosts on different coasts. Hey, look at that, hosts on different coasts. I like that. Yeah, I’m going to use that one, but no, it was really pretty much a miss across the board for Alphabet, missed on earnings, missed on revenue, missed on YouTube, missed on cloud. Oh, they saved a little bit on traffic acquisition costs. So 1% growth for Google, 1% growth.
Now, again, you can look at this two ways, 1% growth over what was record growth numbers that happened all the way throughout the pandemic to a slowing period where they’re flattening or you can look at it as, “The world is ending. Alphabet’s growth has slowed down.” So look, advertising I don’t think is as much you and I’s sweet spot, but what I’ll say is you got to look at the macro environment. I still think Google’s above the fold. It’s one of the most important search engines for any company that’s looking to drive traffic into their various commerce platforms.
So I don’t see it as a huge, huge problem, but I think in times, a weaker economy is always going to pull back on advertising. So there is some preference moving around. Google is under a bit of scrutiny with the FTC and that’s going to continue to be the case. I think it’s interesting timing now with ChatGBT, OpenAI and, of course, Apple and Amazon all growing in advertising if Google’s really as big of a problem, but Lina Khan needs a win somewhere, so maybe this is the one she thinks she can get. So far not so good for her.
Overall, Pat, I think a couple of subplots is the macro’s going to be tough. The company’s doing layoffs right now. Again, it’s important perspective though is they’re laying off about 12,000 people, but I still think they’re up significantly from a year ago. So they are laying some people off, they’re looking to reduce some costs, they’re trying to pull back on some real estate. So they’re doing the opex thing. Right now, the street wants to hear companies pulling back, spending less. So those are important things and I don’t think that’s going to change any time soon.
I want to flip over a little bit though to Google Cloud. So narrowing losses and 32% growth. So is that enough? That’s a big question. So the big bets, Thomas Kurian and team, is that Google Cloud has to be a big part of its future and the growth rate is good but they’re still not showing profitability. I think they’re committed though, Pat. I think they’re committed to not making money until they hit an economy of scale where they can truly compete. I don’t think Google gets into the cloud business to be a distant third to Microsoft and Amazon. They’re going to keep going and growing until they hit that size and hit that scale, hit that capacity.
That’s where probably the last thing of notable is a lot of talk yesterday about Google’s AI plans. They’re changing the reporting. They’re going to start breaking out things like with DeepMind and the revenues and the business much more closely so people understand its AI strategy. Let’s be very clear. This has been driven by the recent moves by Microsoft, Microsoft’s investment in OpenAI, and its very, very aggressive implementations of ChatGPT-3 and the rest of OpenAI across its portfolio, and the expectations of doing that is going to force Google to come out of its somewhat hibernate state about what it’s going to do with AI, and we going to hear soon.
Pat, I think Google has some things up its sleeve. Google has been working for a long time to be the leader in AI. Its cloud business has been built a lot and functionally on the AI technologies and the data and the ML services that it offers. You see a lot of intelligence built into workspace to Google and, of course, amazing amounts of data in its search business. I think the company has more to offer, and I think for the world, giving OpenAI a challenger is going to be a good thing. I think we need challengers. Nobody can just run away with it now, but now that Microsoft’s gone all in, I think we’re going to see what Google’s got in its hand.
Patrick Moorhead: Yeah, Dan, if you recall the last three times we talked about OpenAI and ChatGTP or GPT, I always messed that up.
Daniel Newman: GPT.
Patrick Moorhead: GPT, I brought up Google and I absolutely knew that Google had something going on and, in fact, Sundar announced an event that’s going to be on the eighth next week to go through what they’re doing in search and beyond. One of the key quotes Sundar opened with was all about long-term investments in computer science, we’re well positioned to be in AI, it’s reached an inflection point, and we’re going to be there.
Yeah, that was an absolute reaction to what Microsoft is doing with OpenAI, but absolutely reinforces my prognosis that Google is working on something. They have been working on something. DeepMind has been out there forever, and we’re going to have to see on the eighth what they do.
On advertising, it is funny. I was surprised that advertised didn’t cray your last quarter. I couldn’t understand how that number was so good, and the only thing I can come up with were longer term ad buys. It took a little bit longer to turn the spigot off the marketing folks than it normally took.
Then finally, I don’t have much to add on the Google cloud part. I mean, the growth is really good. The narrowing of the loss is exceptional, and it was a good number. I’d love to see the breakout of IAS versus PaaS and SaaS, but that’s not going to happen. I was also happy to see Sundar talk. He’s been talking more about Google Cloud on the earnings call, which I think is important to enterprises to send the message that this is a business that is important to Google. If nothing else, it just shows that Google would be better off by having a much bigger B2B business than the B2C or advertising business. I mean, look at the numbers. Search, YouTube, network all down. The only thing up was Google Cloud. Sure, other bets was up, but I don’t even count that.
So the one final thing that I think could have some reverberations across the industry, again, we normally don’t talk about depreciation changes, but Google changed their server and network depreciation from I think five years to six years, and extending the investment. I’m wondering what impact that has to the chip makers coming forward.
It’s good stuff. Let’s move to another chip maker and that is AMD. So everybody was wondering what was AMD going to do after what happened to Intel. I was actually able to go on CNBC on Monday morning, give my prognosis before the earnings, and I am happy to say that I pretty much nailed it. The reason that AMD’s earnings were really good, a couple reasons here. First off, the company’s very diversified with their Xilinx acquisition, which if we recall, that was probably half of the thesis behind that. The other half beyond diversification was the ability to get more into AI.
If you look at the way that their business is laid out from a revenue perspective, this added about 25% at least to revenue, but it added a heck of a lot more related to operating income dollars. So it doing exactly what it was supposed to do, when they made the first overture to buy them, nobody thought that that was a requirement, but I think AMD is looking really, really smart right now.
I also think that AMD on the data center side is taking unit and revenue share. That business was up 42%, and the sweet spot, and we know from Intel that the enterprise data center, they’re dialing down the knobs on that at a quicker rate than the cloud, but AMD’s business there is 1.7 billion dollars client. The PC business is exactly, which you would’ve expected, down an eye-watering 51% year over year. A lot of inventory challenges here.
I think the good news is that AMD and Lisa Su is not going after headhunting related to unit share. I do expect them to gain revenue share this quarter, but I expect them to lose unit share. There’s a lot of debate out there as exactly what happens, and the wild card is these inventory pieces.
Gaming, you would expect down 7%, primarily driven by the softness in PC gaming and also a little bit to do with consoles. So all in all, a pretty good quarter for AMD, and I think there’s a lot of reasons why it’s doing better than a lot of the higher performance chip companies out there.
Daniel Newman: Yeah, Pat, you hit a lot of it here. AMD did have a remarkably better result than Intel, and I think that was where a lot of positivity came in. That has been a bit of the AMD situation for what the last part of couple of years now where that’s been how they’re been benchmarked. I mean, look, everything though that is going on in the economy resonated through in their numbers. The client business was really tough. They had a big benefit from Xilinx and being accretive, 1,800% growth in their part of their business because of that.
The data center number was a little bit of a surprise, but I don’t know if that was a surprise up or if Intel’s number was a surprise down to me because as I processed it, I really expected the Sapphire Rapids ramp to have given us a bit more surprise to the upside last quarter, and that came in way softer than I expected. Does that mean that these strong numbers from AMD had to do with AMD taking more share? Did it have to do with not fulfilling orders? I mean, what was the exact situation that led to AMD’s really relatively strong growth given that you saw hyperscaler numbers, they’re not particularly huge growth this quarter. So AMD getting a lot, is that enterprise spend?
Patrick Moorhead: Well, when you’re taking share, right? So AMD’s about 20% share to Intel’s 80. So market might go down, but you still have the opportunity to take share.
Daniel Newman: Well, and that’s you and I have always said. Market taking is something that’s always a bit more opportunistic when in tougher economies companies that are market takers have a little bit less stress to find growth. It’s like Dell every quarter with its infrastructure numbers. When you’re number one in every category, you are always seating tam if you’re not growing. That’s all that means. It’s very straightforward. Some of the numbers like in consoles, Pat, I believe they record console numbers at AMD this quarter. Did I read that right?
Patrick Moorhead: I don’t pay enough attention to that. I going to claim they don’t-
Daniel Newman: I think I saw that, I read that somewhere. So I’m going to double check that because I hate giving inaccuracies, but I think I saw something. There were some really strong numbers in consoles. I think overall though, Pat, it was a strong quarter, and AMD’s just doing a lot of things. I mean, that’s all it comes down to is they’re doing a lot of things right and they’re being opportunistic, which sometimes it’s one of the best ways a business builds a foundation is when someone opens a door for you, you run through it. Lisa Su and the team have been consistently doing that for the last several quarters. This was a good result.
Pat, you wrote a great article about Intel’s future this week on Forbes. I just want to say that anything we’re saying here is not indicative of the fact that we don’t think Intel has the chance to come back. Their four and three plan, IDM 2.0, if they can execute, I don’t call it at an end of days. You said the words before, 80% market share and servers still today, but when you are on top, the pressure is immense.
What needs to happen for Intel is, really, there’s no more talking about your plans. It’s just doing it. If they do it, they have every opportunity, they have all the right customers, they’ve got all the right channels, but they need to deliver. So we’ll be watching that really closely. So speaking of watching closely, Pat, I know you and I go back and forth on how much we want to talk about Apple.
Patrick Moorhead: Oh, are you the host this week?
Daniel Newman: Oh, oops, hold on. Go back. Take it in, Scotty.
Patrick Moorhead: So I want to close out AMD. I went and you brought up my Intel piece. It’s been read 577,000 times on Forbes. I had no idea that it would get that big. All I did is point out potential for Intel. Doesn’t make me an Intel lover or an AMD hater, but net net, what the company has done is, first of all, completely radical architectures. They were doing distributed before distributed was cool. They did it before Intel and they did it before NVIDIA.
The second thing is is they were able to leverage TSMC that’s just absolutely rocking out there, and their expenses are way low, right? I mean, they came a couple months of running out of cash and they cut a lot of people including me, high priced corporate executives, but none of this means that Intel can’t have a turnaround. Quite frankly, AMD can still succeed even if Intel does because they have Xilinx right now, but let us move to the next topic because I am the greatest show host out there. Let’s move to Apple.
Daniel Newman: That was so going in hot there, man. I had a great … You know that’s my thing too.
Patrick Moorhead: Sorry, man.
Daniel Newman: I’m the punch equip guy. I’m not-
Patrick Moorhead: All I wanted to do was do a victory lap on the amount of views that I got.
Daniel Newman: Dude, that is remarkable. Organic traffic, Pat.
Patrick Moorhead: There’s no promotion on that post.
Daniel Newman: I have written for Forbes for almost seven years, six years, and I don’t think I’ve had that much traffic in a month to all my posts together, and I write some really amazing stuff, by the way. If you do want the best commentary on what’s going on on earnings, check out my Market Watch columns because I’m breaking down everything and what all this means, and because I never missed a chance to beat my chest, but I like to beat your chest too. I hope that never gets recorded out of context. Anyway, so let’s talk about Apple.
Patrick Moorhead: You just get that.
Daniel Newman: Pat, Apple’s ales, they declined on a year over year basis. Is Tim Cook on the chopping block? Is this the Aetna? I’m kidding, I’m kidding. Sensational, right? Sensational.
Patrick Moorhead: It is fun to say, though, right?
Daniel Newman: They saw five and a half … Well, if he took my calls on earnings day, I wouldn’t be so upset about it. All the other CEOs call us. I mean-
Patrick Moorhead: Why doesn’t he call and write? What’s wrong about him?
Daniel Newman: Team Apple never calls, but they were down 5.5%. They missed by four billion dollars. Now, when you’re at 117 versus 121, I guess you could say that’s a small miss, but that’s substantial and it marks the first in a long, long time. I think it’s since the mid 20 teens was the last time they had a deceleration or a shrinking of revenue year on year. Their earnings also fell year on year.
iPhone revenue missed. Mac revenue missed. Other product revenue missed. Services revenue did beat just ever so slightly, and so did margin, by the way. So margin was okay. iPads were hot this quarter. Now, I have no idea what to attribute that to. Here’s what I would attribute to, bad analyst forecasting because not only did they hit it, they beat it by a ton. Where does that come from? I guess maybe iPads were a big Christmas present this year, a big holiday gift. You know what I mean? That’s the only thing I can attribute it to, but otherwise, it was a total stinker.
Now, let’s just be candid. I think the quarter before they were a lot better than everyone had expected. So they came into last quarter warning that this was going to be weak in their earning. I think no one believed them because the quarter before they warned. I think it’s like you said Pat about you Google, you were just surprised it took this long to get bad. The difficulties of the economy are actually finally starting to show, and that’s where I started this whole conversation about something had to break.
Candidly, as much as I like to sometimes pick on Apple, I don’t know that this is anything really to do with Apple. China, of course, is always going to be a factor in the fact that China has not completely opened up. Shopping has not returned to normal. By the way, doesn’t only affect Apple, but it disproportionately affects Apple. Getting back to that particular market in full strength will be a big help to the company.
Let me talk about what Apple has going for it, Pat, and that’s going to be on services and advertising. Apple has shut down the advertising market to companies like Facebook and Meta. That’s what I said earlier. I think I said yesterday to Bloomberg, I said, “Yeah, it’s great that their policy, they’re going after Google,” I said, “but really, who they need to be looking at right now is Apple.” I said, “Apple for two reasons. One is its app store stuff is the most of any anti-competitive practices in the market today that I’ve seen is Apple and its app store,” but what they did to advertising to basically knee chop its biggest competition, especially Meta, to me only shows that these moves towards content, these moves towards services, I just feel like there’s a wolf in sheep’s clothing here in terms of Apple and what it plans to do with advertising.
Cook alluded to it when he talked about the captive iPhone audience that’s going to be able to be delivered services to and the long-term opportunity that that creates because everybody looks at the iPhone number. iPhone number’s bad, Apple bad, Apple bad, Apple sell. That’s not Apple’s future. I mean, there’s always going to be iPhones and they already have such a strong position in that market, Pat, but those services and every dollar that it can add in terms of spend per user is going to be monumental, and the company just continues to turn the screws there.
So not a great result for Apple. I don’t think it’s necessarily indicative that Apple has any long-term worries that are going to be more substantial than whatever the macro environment puts on it, but I will say, Pat, that it’s fun to see them fall every once in a while because it felt like maybe they were above any pain where the rest of tech hasn’t been able to rise above, but long term, Apple is a bellwether and, ultimately, we always want the economy to do well.
Patrick Moorhead: Yeah, it’s funny, Tim Cook led with disruptions in its China factory where they were allowing their workers to get beat with metal poles, which just doesn’t seem very aligned with the brand, but the thing that I focused on here was that Mac number, off 29%. That I don’t think was unit-related because both Canalis and IDC had them down 1%. Then I see the deals they’re doing with Best Buy where they’re getting $100, $200, $300 off.
The two big consumer brands out there on the premium side are Apple and Surface. Surface was down 39, Mac was down 29%, and both these companies were taking just gigantic swings at prices. I am wondering if the huge price cuts will make an overall brand impact. I doubt if it’s in the short term, but if Apple keeps cutting prices on its Macs, it very well could see some brand dilution, which, by the way, if you look at the value of the entire company, brand is, I would say, its largest value.
Its products are good. In some areas they’re even better. I don’t give them a ton of credit on the Mac side. I do give them a ton of credit though on the watch side, and their AirPods are the best product out there, but when it comes to phones and Max, they’re really not that differentiated aside from maybe the benchmark performance that the Macs get today.
So interesting market, interesting to see Apple. Apple is never done. They’re never dead. Competitors don’t have Apple right where they want, but I am very intrigued though about what Microsoft has up its sleeve. Quite frankly, Google related to these LLMs and their capability, this is not an area that Apple is strong at, right? Apple is strong on the client side and they pretty much get zero respect for anything that’s done in the cloud.
So let’s move on to the final topic. Thank you for letting me, Dan, move this thing forward. I do appreciate that. Samsung Galaxy unpacked. I spent the first three days of the week in San Francisco just basking in all of the love that was there. Met with a ton of Samsung execs out of Korea, and that was the first time in, gosh, two and a half, three years that I’d spent an inordinate amount of time with them.
Two main themes here, new Samsung Galaxy S23 and the derivatives, and also a new ultra line of PCs. So what’s the one thing you can always expect at any premium smartphone launch? A focus on the camera and it’s important to end users. It’s one of the main purchase drivers. I’ll be honest for both vendors, Apple and Samsung, it’s been a little bit of a yawner for me, but this one got me really, really excited, the 200 megapixel sensor, the improved, in particularly, the AI algorithms.
What they did for analysts, certain analysts this round is they let us try the products before the event. It wasn’t some big mad rush afterwards when you’re having to fight with a bunch of YouTubers to get in and actually use it, but they had this really thoughtful three-story building in Downtown San Francisco where you were able to use the S23 in different lighting conditions, different focus conditions. Dan, it was freaky how good the algorithms are when you get even to 100x zoom and how it used to be pretty jagged and, by the way, miraculous, you could do 100x, but what happens now is AI comes in and then aligns all the pixels where it gets us closer to the DSLR capabilities.
The remastering capabilities, particularly when it’s coupled with that 200 megapixel sensor, is pretty wild. Remastering says, “Okay.” I took it three by four, 200 megapixel. You take a picture. If you want to make it look better, you press the Remaster button, you wait about 15 seconds and literally it’s applying all of these AI technique. So really, really cool there.
The second big announcement was the Samsung Galaxy Book3, and I’ve always asked, “Hey, is Samsung actually serious about the PC market?” It seems like they could do pretty well in it. A, they make a lot of the silicon themselves. They make the displays themselves and there is the ability to go in and take share and their channel strength, right? If you look at dishwashers, fricking fridges, TVs, they carry weight inside of retail, the Best Buys, the Costcos, the Dixons of the world out there. So that’s what they have going for, but I’m just wondering why they didn’t put the pedal to the metal, but the Ultra is a beautiful device. I’m told that I have one on its way. It looks, design wise, close to a MacBook Pro with Windows and an Intel processor.
Dan, the demos of this 2x amoled display were absolutely stunning, particularly for content. That was another one of these vignettes that they had in their experience center that I was pretty motivated about.
I want to end on what I think was the third biggest story coming out of this, and this was the trifecta of vendors that TM Roh put up there at the very literally at the end. Where do you put your most important things you want to talk about? You put them at the front and you put them in the end. So TM Roh brought Cristiano Amon and Hiroshi who runs Android for Google up on stage to announce an XR alignment, but what he did before that is he allowed Cristiano Amon three minutes.
Well, first of all, TM Roh said the Snapdragon processor was the absolute highest quality, most efficient processor out there, puts X as his future. You got to absolutely question that, but announced there was a specialized processor called the Snapdragon 8 Gen 2 for Galaxy. What I can surmise is it’s a frequency and probably a voltage boost on that, but what I would call a semi-custom processor, but they gave Cristiano Amon three minutes to talk about the processor, talk about the NPU, talk about the WiFi and the strategic alignment that the two companies have.
It was great to see what was announced I think in the fourth quarter of last year was the strategic alignment between the two companies, but this actually made it real, right? The Snapdragon 8 Gen 2 for Galaxy, that is the brand of the processor, plus the alignment on the future investments in XR with Google. So lot of words there. Hopefully I left you something there, Dan. You always manage to come up with something.
Daniel Newman: Well, you might have accomplished for the first time leaving me legitimately nothing to add. I guess the only thing I’ll say is read between the lines, people. The heads of Samsung coming up and basically saying, “Better with Qualcomm,” is probably the most clear signal I’ve ever seen that their future revolves around that partnership being deeper and that Exynos’ long-term future is definitely in jeopardy right now.
Apple, we talk a lot about. There’s a reason Apple hasn’t gone away from Qualcomm yet. There’s a reason Samsung’s leaning into Qualcomm. Sometimes this just gets it right and it gets the right fit for the market long term. So I didn’t attend Samsung Unpack, Pat, but I do continue to be impressed with the innovation. I use both an Apple and a Samsung device. I look forward to seeing the S23 land on my door and I look forward to playing with it, but no, I think that was a good way to wrap, Pat, and I think you hit it all on the head.
Patrick Moorhead: Hey, one final question for you is I was thinking about the ramifications of the downturn. You have some companies in China. You have the Google Pixel folks who are doing their own custom SOCs, and I’m just wondering how do you explain to senior management that you’re spending 200, 300, 400 million dollars on a custom SOC when Qualcomm will make you a specialized processor for the right terms? That seems like that would be upside for Qualcomm, I think upside for Intel and upside for AMD and maybe NVIDIA. Just a thought, but I don’t know if you have any thoughts on that, Dan.
Daniel Newman: You can go across every industry, Pat, and say that there’s a little bit of a desire to build homegrown silicon to be able to feed the machine, and I guess over time maybe lower opex and drive some differentiation, but at the same time, to your point is if it can be still function and act like that and you don’t actually have to do all the heavy lifting, which some of that you’ve seen what ARM does with its instruction sets and being able to enable that and say the cloud or companies, but, Pat, it’s a great question. If this Samsung thing really takes off and is a success, there’s going to be a lot of people answering that question to their bosses as to why they’re spending, like you said, hundreds of millions or billions of dollars to try to build something from scratch when they could have something unique built for them, but sometimes there’s a race to the top, Pat, and sometimes it’s a race to the bottom.
Patrick Moorhead: Yeah. Just from a volume standpoint, let’s put a 300 million dollar number and that’s not a grounds up CPU that would be more a 500, 750, but let’s just say a custom SOC 300 million, you’re doing a million units a year for that line, two million units for that line, you better be doing 20, 30, 50 to be able to make that payoff, and it’s not a one-time investment, it’s every time you want to open up that SOC, make some pretty big changes. That is what you’re going to be doing.
A lot of the expenses, not necessarily in design, but it’s in validation and test and getting down to the very end of it, but I think interestingly enough for the biggest chip makers, I think they should be going in and having discussions at the highest levels of the companies doing their own custom silicons saying, “Sure you want to do this? Maybe we can do something custom for you.”
I mean, heck, Marvel, AMD, and even Samsung have some pretty sophisticated custom capabilities. I’ve been surprised to see that, again, it’s really a frequency and a voltage difference, but that’s a big deal for even Qualcomm doing something a little bit different. Anyways, Dan, it was great to see you, buddy. Any final comment?
Daniel Newman: No, I was just saying your suggestion is maybe a Google or Microsoft-driven ChatGPT response. It’s a little bit like an ATM at 3:00 in the morning. When someone tries to do their ground up silicon, it should ask you the question, “Are you sure you want to do this?” like withdrawing money at 3:00 in the morning? Chances are the answer is no.
Patrick Moorhead: Made a lot of sense when the market was blowing and going, but you got to ask these questions. I know downturns on every big company I work for, all the stuff you thought was untouchable suddenly becomes touchable and ask questions. Dan, it was great to see you this morning. You’re in a new house. I need to come out and put some books up on your shelf back there, maybe some pretty flowers, but I’m spending the rest of the day in an undisclosed location in Redmond, Washington. Be back in Austin around midnight. Can you make sure all the ice is melted and I have a good entry way to come into?
Daniel Newman: I’ll call my guy.
Patrick Moorhead: Thanks. Call your dad too while you’re at it. Thanks, buddy. Want to thank everybody for tuning in. If you like what you heard, hit that subscribe button. If you have comments for Dan and I, you know where to find us on social media. We spend way too much time on there. We appreciate you. Have a great weekend. Take care.
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.
