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We are LIVE! Talking HPE, Apple, Qualcomm, Slack, Zoom, Micron, Chips Act – The Six Five Webcast
by Daniel Newman | July 7, 2022

On this episode of The Six Five Webcast hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The six handpicked topics for this week are:

  1. The HPE Discover Event
  2. Apple Continues to Use Qualcomm Modems
  3. Slack Huddles
  4. Micron Earnings and Embedded Announcements
  5. Zooms App SDK
  6. Chips Act in Focus

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

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

Transcript:

Daniel Newman: Hey, everybody. Welcome back to another episode of “The Six Five” podcast. It’s the weekly show and we are back. Well, at least I’m back in Austin, and my friend here, Mr. Moorhead, podding with me from an undisclosed bunker in Ocala, Florida, in case anybody wants to know where he is. But I’m not giving any more information than that. It’s actually on Woodward…. No, I’m kidding. I have no idea what street it’s actually on. Happy Friday. Welcome back. It’s our show. You’re looking good. What’s going on?

Patrick Moorhead: Well, A, I’m feeling good. Feel like I’ve traveled three straight months, a lot with you, lately. Same places, between doing the Summit and doing our real job and kind of moving my kids around the country. But no, I have a few weeks of no travel and I’m super excited about that. But yes, this is a horse sticking out of this here, and you can probably see the horses. I’m in horse country in Ocala, Florida, and here to watch my wife and daughters ride. They do hunter jumpers. I am missing one of the competitions right now, but listen, I love this. I love the audience and feel a commitment to do this every week.

Daniel Newman: Hey, it’s what we’re here for. We promised to all of you out there that we would bring you the best of the best of analysis in tech. And remember, that’s what “The Six Five” is, it’s six topics, approximately five minutes each, but often seven or eight because Pat and I just have so much to say, but “The Six Five” is all about analysis. We take the news and we tell you what it means and we hope you enjoy that.

As a quick disclaimer, ahead of the show, the show is for information and entertainment purposes only. And while we will be talking about publicly traded companies, please do not take anything we say on this show as investment advice. Nobody these days is giving good investment advice unless they said to sell in November.

So Pat, it was a big week, though. We actually were together a couple of times this week yet again. We’re going to cover HPE. We’re going to talk about Apple Qualcomm, talk about Slack, Micron Zoom, and we’ll end talking about something that’s on the mind of everybody in the tech space, the CHIPS Act.

We went to HPE Discover together, not actually as being together, but in the same place. And then we also visited Dell together this week as well to do some Six Five on the road, which will be coming soon, so keep your eye out for those. We’re going to be talking about services. But let’s dive in, Mr. Moorhead. And as you know, if I start, that means you got to take the first topic, HPE Discover.

Patrick Moorhead: That’s right, baby. First time in a few years that HPE Discover was in person. And I got to tell you, overall, I thought it was a very good event. And I look at events from two vectors. So first of all, did I learn something new about the company that gives me a different point of view about it? Check, and I’ll talk about that later. And secondly, was it an efficient use of my analysts’ time? When you really think about it, Daniel, we get paid by the hour and the only thing we can’t duplicate is time so efficiency and effectiveness is high. I’ll start off by giving the AR team and the comms leadership some kudos. Jenna Blatt and Randy did a great job putting this program together.

Daniel Newman: Don’t forget Jenn Temple, because she grinds with the team, even though she is the chief.

Patrick Moorhead: She did too, but where do I stop? Do I thank Antonio too?

Daniel Newman: Yes, I was going to do that, so no.

Patrick Moorhead: Okay. You’re going to do that. But from an informational purposes, so there has been a little bit of a cloud of uncertainty about HP out there that I would say extends in the industry, but also in the investment community. Quite frankly, HPE strategy involves a lot of software and a lot of as a service. And if you look back five or six years ago at HPE software, it wasn’t a very pretty look. I totally understood the skepticism. We get closer in than others do, and I had been optimistic about it. And I have to tell you, HPE is a different company right now. I gave them credit for the strategy, but I couldn’t give them credit for the execution, and the execution on GreenLake has been incredible.

It’s funny, this isn’t a fluke. HPE has been ahead of the curve on many different thought leadership ideas. The question was, how could they execute and benefit from it? They were the first ones talking about the hybrid cloud. They were the first ones really leaning into the Edge. And they went all in on, as a service with GreenLake. And here we are, they are racking up the customer count, which I think last time we looked was 65,000, which is absolutely incredible.

But also what’s more impressive, or as impressive to me, is the amount of services. And it’s funny, there are 70 GreenLake services out there, and there’s so many, you couldn’t fit it on one slide. Kind of reminded me of how AWS rolls out things. When they’re trying to show a show of force, they put a ton of things on the slide so you can barely see them, and that’s the point. And I have to give people like Flynn Maloy some credit on the marketing side for that.

From an announcement standpoint, three announcements stood out for me. First of all, is data fabric. I’ve been talking about the challenges to multi-cloud and hybrid cloud, and that was the fact that you had to have a consistent data and security networking fabric. Otherwise, you can’t very easily work with multiple clouds. Private cloud, and I won’t talk a lot about that because that’s the article that you wrote about, but basically your own VM container and bare metal that also connects with public cloud services. Great momentum here.

And although it’s kind of dangerous for an industry analyst to pick a leader in a certain space, I think the way to credibly do it is have a point in time. And I can definitively tell you, I believe that HPE is the leader right now in on-prem cloud-like services. But we’re first inning in a nine-inning game and companies like Dell Tech and Cisco and Lenovo are not resting at all. They’re racing right now to deliver as many as a service capabilities as they can.

Daniel Newman: Yeah, you hit a lot of good points there, Pat. And because there were so many products rolled out and services rolled out, I think it’s better to kind of take a macro view on what happened. There were some cool things outside of GreenLake. The Ampere ProLiant launch is interesting, going in on ARM, trying to be a bit oof a leader of bellwether there, of course not across all the industry, but across the OEM space.

I asked Antonio a question in the analyst Q and A, and basically, to your point, it was about competition and where he’s feeling pressure from. And it was interesting because I was expecting a very different answer than I got because effectively, you mentioned Lenovo and Dell and Cisco Plus and many others that are coming into this space, but we’d be remiss to not give credit to the hyperscale players that are all building offerings to address the hybrid cloud and multi-cloud evolution. And of course companies like HPE are both a partner, but also a somewhat potential victim of their success. Antonio’s answer was basically we listened to our customers, and whether that was just being smooth and not wanting to acknowledge that he feels pressure, which a good CEO probably would, but I got a sense of real self-esteem that he truly believes that their transformation and migration and their service offerings are credible.

I talked this week to “The Register” about kind of a comparative between Lenovo and HPE and what TruScale’s doing versus GreenLake, and I think the answer is in software. The answer is really in the fact that HPE has made mega investments in the GreenLake central, in the whole control playing layer to offer its current customers the ability to have a cloud-like experience really have that on-prem cloud-like experience. They use the term, or Flynn, you mentioned Flynn, who’s done a great job, that kind of bring the cloud to you mentality, they’re doing that.

And so, as I look across, and basically the average competitor right now, and I haven’t done this exact math, probably has somewhere between five and 20 services that they’re offering in their current private or on-prem cloud. GreenLake has 70. The portfolio looks more like an AWS or an Azure in terms of all the optionality that they’re giving to customers, and there’s a lot to like about that. This is the bet the company has made.

The one other thing I’ll say is they don’t have the fallback, which I think has served as a really great motivator. These other companies really all have these really significant pots of gold that they fall back on. And that doesn’t mean they won’t be successful. They probably will be, but HP had no other option. From 2019, that timeline when Antonio initially announced that everything was going to move to as a service, that’s been the focus of the company. If they don’t succeed here, there’s a risk the company doesn’t succeed. That’s great motivation for success.

Patrick Moorhead: Death is always an amazing motivator.

Daniel Newman: It’s an amazing motivator, Pat. Antonio, to your credit, and I hope you’re listening, I know you do sometimes, and we’ve always enjoyed having you on the show, you did a deserved victory lap when you were able to say that you accomplished, mission accomplished. You should have held a banner up. Would’ve been very presidential. But at the same time, the work starts here because now you’ve got the 70 services. Now it’s about getting adoption, gaining momentum and growing because as you grow the recurring revenue, the other revenues do slow a little bit in terms of those CapEx revenues, and everybody wants growth.

Great show, strong event, well put on by the team. Pat, let’s move on to the next topic. Let’s talk about Apple and Qualcomm. We haven’t had this topic in a while.

Patrick Moorhead: I know. I love talking about Apple and Qualcomm.

Daniel Newman: It’s a really funny thing. I call them strange bedfellows. I don’t know what else to call it, but these are two companies that… well, in fairness, Qualcomm was essentially on defense for the better part of five years… longer than five, but the five were very tenuous, let’s just put it that way, between the FTC, China, Korea, Japan, every other FTC on the planet going after them for their business model. Of course, you had the Huawei and the Samsungs kind of piling on during that period of time. You had U.S. regulators. You had Broadcom trying to acquire the company. And you had Apple basically deploying massive resources and propaganda campaigns to make it appear that Qualcomm was somehow trying to harm Apple’s horribly sad and 80 something percent margins on their iPhones by selling them at 20…

Patrick Moorhead: I feel so bad for Apple.

Daniel Newman: What was it? The $20 a phone that they have to pay for being able to use all of Qualcomm’s intellectual property that they spend decades developing?

Anyhow, Pat, you and I actually, this is a victory lap moment for you and I, I believe. I would like to call this out. I think you said it in your tweet. I just want to say it publicly right now. We said, I think when Apple successfully moved off of Intel, as M1 matured for their max, I think people thought this was a parallel to what was going to happen at Qualcomm. The Street rated them down, basically thought that losing Apple’s business was going to devastate the company.

Meanwhile, Qualcomm has diversified its business. It’s grown as the penultimate company in the premium chip space for Android devices. Android is growing, they’re getting tons and tons of design wins. And at the same time diversifying into auto and IOT and into RF front end and other new business ventures. Of course still have their licensing unit.

And now we’re getting down to a single digit dependence on Apple if, for some reason, Apple was to pull away, but here’s the thing, Apple can’t leave because you and I called this out, the RF front end 5G systems are too complicated. When they bought Intel’s Infinian business unit everybody thought, “Well, there it goes.” But remember, Intel was having a horrid time trying to match the quality of the Qualcomm devices before 5G. And so they acquired this team for basically parts at the time, it was like a billion dollars, which in Apple world has turned Tim Cook over and just dumped the change out of his pockets. It was not a big acquisition. And the talent came in has not so far been able to achieve what it’s been able to achieve on the PC side or on the Mac side.

Now it looks like Qualcomm is going to continue to be a strange bedfellow to Apple for at least another year, and that came out from a pretty well known analyst that covers Apple very closely. I’d like to say the name is Ming-Chi Kuo. He’s with TF International. And he basically said for the all of the second half, it’s likely Qualcomm’s going to be doing a hundred percent share. This is a really good thing for Qualcomm. It got a little bump in the market, but of course the market sucks right now so even great news doesn’t make anybody particularly happy.

I’m going to end on kind of one thing and pass this over to you, Pat. But essentially I think it’s going to be longer than 23. This is my bet right now. And again, it’s my opinion. I’m not putting it in, written in stone, and I’m not, by the way, doubting that Apple can’t spend money and get there, but there is so much complexity in doing 5G between all the relationships, the systems, the validations, I think Apple took on a little more than it could chew here, and its full vertical integration desires may end up taking a few even years longer than they think before they’re going to be able to fully separate themselves from Qualcomm, if ever.

Patrick Moorhead: Yeah. We called it. 5G systems are difficult. By a system I mean the front end and in the back end. How about that, Daniel? Digital, the digital and the analog side. And that’s really what the game has become. There are a lot of very strong analog folks like Skyworks and Broadcom and Corvo on the OEM side, though it takes a little bit more time to integrate 5G because it’s more complex in the way that it operates. We called this. We were right.

Here’s what I can’t believe though. It has been three years since Apple bought the Intel modem assets. Now what I’ve heard back channel is they completely started over. They didn’t leverage any of the designs, which by the way, I find that hard to imagine because when you have a 5G system, you have to be backward compatible. And I highly doubt that they redid 4G, 3G and 2G interaction, but it’s hard.

Modems… what’s the right way to say this? There’s less people doing modems. I think there’s five people left and there’s really only four analog folks out there for smartphones left. But how many CPU folks are there? There’s a ton of them out there. I’m going to say it, modems are a lot harder than a CPU. And others might say, “Hey, but Apple has been doing all this stuff on Bluetooth and making wifi better,” and they have, but here’s the thing, that is a walk in the park compared to the 5G modem part.

The biggest mindblower for me is, okay, 5G is hard. Put a low band data modem in your iPads, right to start. It de-complicates the issue. My gosh, Intel had this functionality three years ago. Intel’s challenge was millimeter wave. They had this capability that many years ago. It could be also an integration challenge, which is, in the end, Apple needs to integrate 5G into the SOC itself. I don’t know exactly what the problem is, but this is an issue. There’s only three companies that have been able to integrate 5G into their SOC and Apple is not one of them. They have a separate modem and obviously all the RF that goes along with it.

Now, bigger picture. It’s funny, all this elation about Qualcomm in the stock, congratulations, but here’s the thing, Qualcomm’s CEO, Cristiano Amon is making this company Apple proof and essentially baking into his financial and his commitments that Apple’s maybe a 20% in the following year and then 0% after that. I think that’s great.

I can imagine Tim Cook calling Cristiano saying, “Hey, are you not going to sell to us or something?” Very interesting way to deal, but this is the way you have to deal with Apple. What did Broadcom do when Apple threatened to go to somebody else on wifi and Bluetooth? They put the entire unit on the block to sell. Do you remember that? Hock Tan’s a fricking genius when it comes to negotiation. That is hardball. Like, “Okay, Apple. You don’t want to do a long term agreement with me. I’m going to sell this thing.”

That is the way you have to deal with Apple. You cannot capitulate the Apple. All the vendors, all the suppliers of Apple’s listening to this, you cannot capitulate. You have to bake in that they will steal your IP, steal your people and try to put you in the grave. Look at Imagination. It’s a shell of itself right now, right? I don’t know if you remember, Daniel, Imagination was their core IP provider for graphics. Apple says, “No, we’re moving away from you.” Imagination sues Apple and then Imagination has to basically bend over and take one for the team and essentially give away free IP or cheap IP.

I’m going to leave you just one final comment, Daniel, and I know you’ve got a hot date.

Daniel Newman: Just keep rolling, buddy.

Patrick Moorhead: No, the Supreme Court decided to not listen to Apple’s bid to revive the Qualcomm patent challenges.

Daniel Newman: They lost bad.

Patrick Moorhead: It’s dead. That is a dead thing, but I fully expect Apple to be in intellectual property, terrorist mode when 6G comes out.

Daniel Newman: Right on, man. We could have a whole show on this one. We know it. Crushed it. Let’s rock and roll onto something a little more, some of these are going to be a little quicker. This next one’s going to be about Zoom. You wrote a really interesting Forbes piece about some of the things they’re doing around the platform and the connectivity. Let’s start there.

Patrick Moorhead: Yeah. Essentially, big picture, a lot of these SAS companies are looking at full stacks as one of the ways to success. We have a full stack from Microsoft, full stack from Google and Salesforce is trying to build a full stack too. And part of this is messaging, and it’s messaging, not just for the capability of messaging, but it’s messaging also for the data that it can mine and use to improve experiences and get insights into what people are doing.

One of the missing pieces that you and I both talked about is, “Hey, where’s the video element of this?” There is a lot of integration with Zoom, but there’s also integration with AWS and what it’s doing on the video front. Well, Slack came out at their Frontiers conference with this idea of Huddles. And Huddles isn’t a, I don’t see as a full time, trying to remove a Zoom or something like that, but essentially it’s like a being around the water cooler, right? Want a quick meeting? Boom, we have a Huddle. I’ve got video. We can talk back and forth. I think it’s a good toe in the water to a full collaboration solution in the future that I think you and I are both expecting.

Daniel Newman: Yeah. I think you hit it on the head. You went actually so fast I wasn’t ready on that one, but that was good. Long and short is this. I’ve been very outspoken when I’ve been talking with Salesforce about the fact that Slack’s integration needs to be deeper. The company needs to build something that looks, feels, acts like its own iteration of Teams, because that’s sticky.

We’ll talk about Zoom a little bit later, but the biggest weakness and risk for Zoom has been the fact that it’s not Microsoft. Because people actually like using Zoom. I would argue in many cases they like Zoom more than Teams as a standalone product, but Teams has all the integration. Salesforce has the opportunity to do that as well. And that’s been kind of like a missing link. When are they going to make this $27 billion acquisition part of a ecosystem for work or an operating system for work? Or I believe that’s what Marc Benioff called it, essentially it’s going to be, the future of work is going to be Slack and Salesforce together. And it’s going to be the center of how you operate.

Long and short, Pat, is these are little baby steps. You’re getting baby steps. I think they’re making progress. As an analyst I’d like to see more progress coming from Slack into the Salesforce ecosystem. But I will also admit I’ve never done an integration that big. It’s hard. You may speak more to it having been part of strategy during some acquisitions, but there is a lot of complexity to making an acquisition work. Company like Salesforce is profitable, it’s growing. And sometimes it is hard, especially in a market like now to explain the amount of investment required to actually make an integration like this happen. Don’t bet against Salesforce. I will not bet against them, though. I do think they’ll do okay here, but I think we’re probably a year or two out yet from seeing a fully integrated product to compete with Microsoft Teams.

Pat, let’s go to the next topic. Micron had, we’re going to kind of do a double-double here on Micron because the company had earnings and the company also had some news this week. Here’s the long and short of the Micron result. The numbers themself had growth. They had 38% growth on earnings, sales growth of 16%, stock went down. You heard me say this earlier, I’m going to say it again. The market sucks. Okay? The market is extraordinarily bearish on all fronts. Commodities are down. Inflation is high. Oil and gas is high. Equities are down almost across the board. Company valuations are down. Assets like homes are losing value. There’s really not a lot of good in the markets, just to be very clear. Microns results are actually very good.

The growth of revenue, but here’s the long and short, Sanjay Mehrotra came out and basically said the forecast for smartphones was wrong. We had a 5% growth forecast in 2022. He’s now predicting a 5% decline in smartphone sales. How do they know that? Well, they sell core memory that’s critical to building a smartphone and they’re seeing the order flow. They’re seeing the revenue flow, and therefore effectively their guidance went down. Their guidance is going down because they expect less.

And then, Pat, on the other end, the PC guidance is even weaker. I think he was showing for a 10% decline. The pandemic pulled forward a ton of purchasing for PCs, a ton of purchasing for smartphones and devices. And now with $7 gas and outrageously high grocery prices, people are maybe not going to buy that phone they plan to buy right now.

I said this a while ago, I’m going to do a victory lap real quickly and I’m going to hand this over to you, I said the consumer discretionary will be the first of the tech areas to fall. I still think enterprise spend is going to be more robust. We’ll see if I’m right. I’m not saying there won’t be some cuts and some intelligent strategic moves in those areas, but consumers that were spending money like drunken sailors on new tech and buying multiple laptops and upgrading their phone every six months because they were getting stimulus money and free checks and their crypto was worth a fortune and their 401ks were out of control and their homes were worth unbelievable amounts of money, and by the way, they hadn’t been to work in a year, that money’s gone.

The credit bubble is looming and booming and it’s going to be more complex. Sanjay just basically shot a cannon out for the first time that says some of these numbers are going to be bad. And really for tech, this is the first wave outside of some just bad performing companies where the outlooks are starting to look really a little bit at risk.

Patrick Moorhead: Yeah. Listen, consumer is down, smartphones and PCs. And boy, this is one of the first looks at it. There has been talk about where the market goes. Consumer, I think we saw in everybody’s numbers, overall consumer was low when you looked at HP and what Dell were doing in the PC space. Going to be interesting to see what happens on the smartphone space. But the stimmy checks are likely been consumed and there’s not a whole lot of money left and consumers, like you said, are very sensitive to their viewpoint. And I think when we look at consumers’ biggest fears right now in at least the political polls, it’s inflation, it’s the economy, dummy, right? And we’ve said that for like 50 years. Consumers are concerned. They’re pulling, they’re starting to pull back a little, at least on high priced, white goods and electronics so no surprise. And Micron is caught into it.

The great thing, though, that came out the Micron earnings was that their demand for data center just keeps going strong. And if you look at what’s happening, at least from a product point of view, they’re stellar.

The next thing I want to talk about is some embedded announcements they did. Micron’s the number one memory provider to automotive, primarily based on their quality and performance, but it’s very cool. They have the first with ASIL D on their automotive DDR5 and they’re sampling just a ridiculously sized 1.5 terabyte micro SD piece of silicon. That is absolutely gigantic. And typically between sampling and production, varying on the market between six months and a year, but you can imagine increasing the density by two, 4X to essentially store all that information that you and I are always talking about. Listen, challenging Micron short term future with consumer. I’m very bullish on the company on a long term basis, primarily based on its leadership in DDR5, but also the scaling that it’s providing out there.

Daniel Newman: Yeah. There’s a lot there and I’d like to do a boomerang, but I’m actually going to keep us going because the day is going to get away from us, Pat. So we got a couple more topics. Next one I think is, you wrote a really nice piece about Zoom and some of the work they’re doing on platform. Let’s talk about that, their new app SDK.

Patrick Moorhead: Yeah. It’s interesting. Zoom, it got famous, it got brought to the party because it was very slimmed down, very focused video solution. Oh, and by the way, it’s all cloud. You weren’t relying on enterprise admins who might not have the bandwidth or the quality of service in place to make it happen. How many times have you heard, Daniel, “Gosh, I’m just going to use Zoom. It’s just so easy.” Right?

Video also got super popular when COVID hit because it was basically the only way we could communicate with each other, but that’s not the whole future. Right? As a company, if you look at, back to my earlier comment of stacks or everything, what stack is Zoom going to be part of? They’re not going to be part of Google’s, Microsoft’s and in the future likely not Salesforce’s.

Daniel Newman: Amazon.

Patrick Moorhead: Yeah, Amazon. They have to build it. Amazon has their own API and they also have Chime, which by the way, my hunch is that Huddles is based, backend is on Chime. I don’t know that for certain, but we’ll see. Essentially this SDK was to build applications around Zoom, to be able to collaborate, things like whiteboarding. Zoom cranked out a hundred applications closely with developers, but this is about opening it up to the developer ecosystem. I think this is a good move. I think this is the second step in the platformization of the company. I must have hit a nerve. I used that and the product manager for app SDK retweeted me and liked my article on LinkedIn so I must have hit a nerve somewhere.

Daniel Newman: Oh yeah. Well, you know what? This is the difference between whether or not this company succeeds or fails is going to be whether it can become a platform company. Otherwise it’s a feature company. And as I said, the trend during COVID was that features went public and they went big and now everybody’s resetting and saying, “Is this a company or is this just a feature?”

Zoom, Eric Yuan is brilliant. He’s not the first, this isn’t his first rodeo. You remember he founded WebEx back in the day? The guy knows his stuff and he knew what an experience needed to look like and he built that. But the challenge now is you’re, and again, this was what we said about Slack. I’ll say it about Zoom. Teams set the bar for building what would be considered a really, a platform for remote work or for hybrid work or whatever. What are we settling on? I don’t know.

Tom Siebel, from C3.ai, said, “Nobody’s going to work remotely.” So there’s still a pretty big continuum of what’s going to actually happen. But the idea is we are asynchronous. We do, almost as a globally, as a society, prefer to chat and then prefer to quickly move to a video if we need to get more in depth.

But Zoom has a tremendous platform for the video itself, but it has to be extensible. It’s got to get to the contact center. It’s got to get connected to productivity apps. It’s got to get connected to CRM and ERP. And if it doesn’t do that, it’s going to lose the enterprise. And we will see this over the next six to 12 months when we see if the net sales expansion continues to grow or shrink, are they expanding their business and if customers, or their large customers renew. A lot of customers threw a lot of money at Zoom early in the pandemic because they had to do it to be able to function. Now that people are out and traveling again, do they keep those licenses at that price and at that level?

We’ll go onto the last topic here, Pat. Let’s talk a little bit about the CHIPS Act. This is something I think near and dear to both of our hearts, not thinking we need to give the background on the Act. If you haven’t heard about it, long and short is the government has, basically Senate and the House has passed, but has not been able to reconcile and get through to law, a $52 billion spend to basically increase manufacturing, but also R&D, innovation and ecosystem for chips to create more resilience in the supply chain. That’s the long and short. The long and short of it is we identified during the pandemic that we are hyper dependent. We’ve moved from 37% to less than 12% of all chips being produced here. And on top of that, we’re at 0% on the leading Edge. Zero. We don’t produce any of the leading Edge chips.

Effectively if Xi Jinping in China decided tomorrow to pull a Putin on Taiwan, we would literally just stop all availability of leading Edge chips. So you’re talking about the phones and the computers and the servers and all this stuff would basically be crushed. Companies like Intel have made multi, nearly a hundred billion plus in commitment to build super fads here in the U.S. But that was based upon the sending semiconductor CHIPS Act passing. And at this point Intel’s pulling back, stalling construction because they’re not getting the support from the government. But we got 120 companies or so over the last few weeks that have signed, this is everyone from Google and Microsoft and Amazon and Qualcomm and Intel, all basically pressing government to pass this legislation and put it into law so we can get going.

You’re talking about two years before the first fab, and that’s ambitious, would be up and running. And again, it’s going to take time for that supply. You got to bring the right expertise, the right engineering, the right equipment. We have shortages on equipment, shortages on substrate, we have shortage, so, so much here, Pat, to go wrong and yet we can’t pass this law. We cannot get our leadership, and by the way, it’s bipartisan. It is freaking crazy that we are still stuck in this position. This is a problem for national security. This is a problem for our supply chain. This is a problem of risk for our global technology leadership.

I don’t want to say much more because I want to leave a little bit in this for you, Pat, but I wrote an op-ed on MarketWatch about it, and I’ll put it in the show notes of disgusting that we cannot pass this. We are so messed up as a country right now. We can’t even pass things we all agree upon because we can’t stop putting garbage into our bills that are slowing it down because, by the way, everybody, that’s why it’s not passing because we got a bunch of politicians with personal agendas that are shoving total crap into this bill. And we have a few politicians that are standing up against it for all their own wrong reasons. And now nothing is getting done. Pat, over to you.

Patrick Moorhead: Daniel, 20 years ago when I worked with analysts such as us now, and I heard them, I don’t know, what seemed like a bunch of negativity. I’m just thinking, “I hope I don’t get negative like them.” Right? And now here I am, I’m old and I have experience and stuff like this really pisses me off. The common sense crew has left from Washington. There’s a few people who get it. They’re lumping all, like you said, they’re putting a lot of the woke fat into this bill, which is keeping it from getting passed. And I guess you have to expect that, but do we have to? And then you have other people who are looking at this as like some stimmy check, right?

This is our long term investment to the future and sovereignty of this company. And it needs to be up there with U.S. defense, which, by the way, rarely if ever gets cut, unless, I don’t know, a president like Obama comes in, but typically a president is maxed in there for eight years so the person who comes in after them typically bounces that up, or we get into a conflict where we realize that we should not have underinvested.

Daniel, I’m considering taking a more active stance on this. It’s just a matter of time. I thought that all of the dollars that were being paid to lobbyists would’ve been able to get this thing over this. Daniel, we should get all the relevant CEOs into a room and have a discussion on this to highlight this.

Daniel Newman: We could call it the U.S. Semiconductor Leadership Round Table. I love the idea. I think in fact…

It’s a brilliant idea.

Patrick Moorhead: We should try to do it in August, maybe even sooner, but I think a lot of vacations right now. But if this thing doesn’t pass by this fall, watch out. This is going to be a mess for the election this fall, which is already going to be a mess because everything’s a mess.

All right. I’m going to end there, Pat, because geez, what a great note. But you know what? You get it, I get it. We get it. Most of you get it out there and we appreciate you for that. So great show, Pat, another great week. Going to be a little slower the next few weeks. We’ll have to keep an eye on news to see if there’s enough to talk about. I’m sure we’ll find something to pod about, but hit that subscribe button, join our community. We love having you here. Hit us up on Twitter @patrickmoorhead with all the bad and find me for all the good. We want to thank you for being part of our community, but for now, for this week, I got to say goodbye. Adios, we’ll see you later.

Daniel Newman: Have a great week, everybody.

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio