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We are LIVE! talking IBM, SAP, Qualcomm, Lattice, NVIDIA, and Cisco – The Six Five Webcast
by Daniel Newman | November 30, 2021

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. IBM Quantum Summit
  2. The SAP TechEd Event
  3. Qualcomm Investor Day
  4. Lattice Acquires Mirametrix
  5. Latest NVIDIA Earnings Report
  6. Cisco Earnings

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:

Patrick Moorhead: Hi, this is Pat Moorhead with more insights and strategy and we are here for another Six Five Podcast. And I am here with my amazing co-host, jet setting, back and forth the Spain Daniel Newman. How are you my friend?

Daniel Newman: I’m doing good. Long week last week, New York, transcontinental back here this week. Pat, and you and I are doing some jet setting. Las Vegas, Kona, which everybody seems to be super jealous about until you remind them that we’re leaving and red eyeing in on Tuesday morning, and then red eyeing back on Thursday evening and you’re like, “Oh, that’s not that awesome.” But I’m looking good. I’m not feeling too jet lagged. A little tired, but all is well.

Patrick Moorhead: No, that’s good. Yeah, it was a great weekend. We got a great show, but for those of you who are joining us for the first time, we cover six topics around five minutes each. Not a lot of news, just enough for contacts, but we really like to get into the meaning of it.

And we will be talking about publicly traded companies so don’t take anything we say as invest some advice, because this is for educational and hopefully entertainment purposes only.

So Daniel let’s jump right in. We’ve got IBM, we’ve got SAP, we’ve got Qualcomm, we’ve got Lattice, we’ve got NVIDIA and we have Cisco. So let’s dive into topic number one.

As you know, there is a huge battle going on in quantum. It’s early. Some people say it’s going to hit impact in five years, some people say 10, some people say 20. All I know is there’s a ton of investment going into this and IBM is making some really big moves.

They had a huge announcement at their Quantum Summit, which was pretty exciting. So I would say the highlight here is IBM rolled out 127 cubit quantum computer. And it is the first quantum computer with more than a 100 high quality cubits. And as you know, it’s not just about the number of cubits, it’s about the quality of it. And by the way, we’re doing a lot of research on this. Paul, our principal analyst of quantum and space, we’re still getting underneath this. So I’m going to try not to make too many claims here, but 127 qubits does put it beyond reach of today’s classical computers’ ability to simulate that and we did see that. I believe they were doing a fusion ion or maybe it was a lithium ion simulation where running it on quantum took seven minutes and I think running it on conventional took about seven years, so that was pretty cool.

The other thing that IBM did is they rolled out a new measurement, which added this idea of speed, scale, quality, and speed, which by the way, at the outset looks very rational. I get that, particularly the new speed, but I really wish they hadn’t rolled this out within 18 months of rolling out quantum volume. Because if you remember, first it was all about qubits and then it was all about quantum volume and now at least according to IBM and it’s hard to disagree with them, is adding this idea of speed and that’s gate speed. So pretty good stuff. We’re doing a lot more research on this to see if we can take bigger shots at it. But I think the big picture is IBM is moving up and to the right increasing capabilities. IBM happens to have one of the bigger development communities out there and they have more logos associated with their quantum name than any other company right now.

Daniel Newman: It was an impressive announcement. The company is basically on a trajectory of announcing a new processor almost on an annual basis. They had the Falcon in 20, I believe it was 19. They had the Hummingbird in 2020 and now this is the Eagle processor. Of course, for those of you that follow the basics of quantum, IBM builds on a super conducting platform as opposed to a lot of what we talk about ion trapping. Often when we talk about, say Honeywell or say IonQ, we talk about ion trapping, which seem to be the two most popular methods right now for building out quantum.

This increased number really is all about being able to drive and accelerate applications that we are familiar with, but haven’t become overly familiar with in a quantum format, such as machine learning, modeling molecules for drug compounds, and creating drug compound creation. So we’re seeing that happen very quickly.

I thought overall, Pat, that this was an important announcement that because of the academic and importance of research and showing that the company is continuing to move forward, when you are hearing so many announcements from the entire field of quantum about advancements. I also do like hearing more about the practical relationship that’s going to take place between quantum and classical. While you did mention specifically that this is an example where quantum will outperform, we’ve all come to a relatively strong consensus that the optimized outputs will come when classical and quantum computing are working harmoniously so that quantum is working on solving the problems it’s most well designed to solve and concurrently, on the other side, the classical computing continues to do what it’s most well designed to do.

So this was a pretty strong announcement and, Pat, by the way, you and I will be doing a series of Six Five videos with the IBM team around the quantum summit to dive deeper into IBM’s advancements, customer examples and then a little bit further into recent search in the academic side, which I think are the three major components that are being worked on from IBM. An important set of announcements as we continue forward over the next decade of quantum advancement.

Patrick Moorhead: Yeah. I’m super looking forward to that and I believe that they’ll also have some customers on there, which I’m looking super forward to.

Super forward, not just looking forward to super forward, baby. It is Monday and we are alive. I’m on my third coffee and probably my fifth shot of caffeine, so it is super excited. So, hey, let’s jump to the next topic. SAP had its developer conference lovingly referred to as TechEd. Danny, you want to kick this one off?

Daniel Newman: Yeah, absolutely. So back again, SAP TechEd, still virtual. We weren’t able to be there, but hopefully very soon. And this year’s event was focused on a lot of things. It’s a big conference, but for SAP, I thought this was an event that really was diving into closing skills gaps and making it easier to do business with SAP. So the company had a series of new tools and integrations announced it had a series of no-code, low-code and pro-code solutions for SAP AppGyver and SAP Business Technology Platform. It had composable enterprise solutions that it talked about across the ERP Suite, SAP Integration Suite, SAP HANA cloud, SAP IBM for supply chain. There was a few examples. It announced some embedded AI capabilities for various functions designed to simplify processes across the organization. And then of course the company continues to use this event as a platform to talk about learning and educational courses, to help students all the way up to professionals in the workplace to better understand SAP, because of course, if you’re not familiar and I’m betting many of you that watch our show are SAP, it’s an ecosystem. And understanding how to use it is a strong proposition for creating value and economic value and of course, job opportunities for people.

There was a lot of things that happened at this event, Pat, but I think when you have a broad event like this, what I always like to do is say what are a couple of the things that really drove my attention? And so a few weeks ago, when SAP had their most recent earnings, we talked a little bit about SAP and RISE with SAP, which is their new program that’s all about making it easier to do business and easier to move your SAP instances to the cloud.

If you followed SAP for a while, that’s what most of the criticism of the company has come around is whether or not the company is moving quickly enough to the cloud and our company’s adopting the platform. We know that in order to move SAPs prem to cloud solutions, really the process is a full on lift and shift. So it’s not as easy as some companies. And this is also opened SAP up to some risk for companies to use this as a moment to maybe move onto other platforms. With RISE, they’re building a whole set of solutions to make it easier for companies needs to move over to cloud.

Now, this isn’t what TechEd was all about, but some of the things that they announced at TechEd, specifically the business technology platform, along with their acquisition of AppGyver, which are all about the company’s next generation of no-code and low-code to make it easier for companies to be able to do business. And that was an underpinning of my analysis of the event was that the announcements that the company made were heavily leaning towards saying SAP wants to be easier to work with, whether that’s through partnerships, whether that’s through simplification and low-code and no-code, whether that’s through simplified billing and streamlined workflows, but they understand the importance and the fact that a lot of risk profile that’s been created through being a little bit of a more challenging lift to the cloud and also for developing applications.

So this event to me was heavy on the business technology platform, heavy on AppGyver, AppGyver. I think it’s Gyver, Pat, but I actually haven’t heard it out loud or heard it a few different ways. So I want to make sure I’m saying that right. But the SAP TechEd event was really about streamlining processes, making the citizen developer be able to help build SAP’s value within the enterprise and making it easier to do business with SAP for companies that have invested in the platform.

Patrick Moorhead: Yeah, I think you nailed it. And listen, I’ve been super skeptical of SAP over the years. I think I might have been tainted a little bit by using it back at AMD back in 2001 or, or something like that. So not the Ferris comparison, but I’m slowly warming up to what the company is doing, particularly around the cloud. It’s a company that knew what it wasn’t going to be great at. And that was to stand up its own IAS, very similar to a Salesforce or a Slack or a Zoom and focused on its core competency, which was, and I know it’s more than ERP company, but that’s really where the rubber meets the road.

What I liked about these announcements and Daniel, I think you nailed it was hitting on that simplicity. SAP has had a reputation for being hard to work with and that’s primarily because it was an on-prem play, a software play back in the early 2000s. And I remember even being where I worked at AMD, we always had to put a rapper around everything SAP to make it easier for end-users and developers.

But the company has really transformed itself over the last 20 years. And I think particularly in the last year, as I become to warm up to the company that are doing things dramatically different, whether that’s RISE to help customers get into the cloud in a more simple way, whether it’s acquiring SaaS companies like Ariba that I know you used, Daniel, and I used as a company because of a lot of our clients are on that and it’s nice to get paid through that service. But now for this it’s low-code and no-code.

And quite frankly, if you have an ecosystem, if you’re a company, you have to have low-code and no-code because of the drought of programmers. And we’ve heard this, this is not just an SAP thing. This is Microsoft, this is AWS with Honeycode, this is Power Platform, this is anybody with an ecosystem, even Salesforce. So I like what I’m seeing from SAP and Daniel and I are warming up to the company as we move forward here. So in a very-

Daniel Newman: And if I could do a quick boomerang because we’re going pretty quick. But the one thing I do want to say is we are not by any means saying that this is like a sudden correction. I like that you mentioned the friction, Pat, I like that you mentioned the reputation. But what I do see as a genuine effort. I’ve seen genuine growth in cloud, which means the company not just accepting. Remember the Microsoft transition, where they went from talking about moving to cloud to under [inaudible] they really did it. And there was a little bit of a side step and almost a step back that had to happen.

The other thing is I’ve listened to this company for years talk about low-code, no code and simplifying processes and it had felt a little bit empty. And now I think what we is a genuine effort, a genuine advancement in the product and the technology to build a more robust stable ecosystem to keep customers onboarded and to make that migration to cloud. So apologize for that, Pat. I know we don’t love the boomerangs, but I just wanted to reiterate that we’re not sitting here saying it’s perfect. We’re just saying that the progress is becoming notable and visible.

Patrick Moorhead: Yeah, Daniel. Listen, boomerangs aren’t always bad. I mean, let’s just really have honest conversation here, but I think it’s fair to really put where we’re coming from. And quite frankly, for the last decade, I hadn’t had anything nice to say about SAP, but directionally, they seem to be focus on many of the right things particularly that their users are looking for. And I got to do a lot of more research on them. I don’t know if they’re making any money when they’re… Well, any incremental money when their software is sitting in the public cloud, but that’s a similar problem that many other companies I have.

So let’s move on to the next topic. Qualcomm had its investor day, which Daniel you were there and fortunately I could not make it, but it looked like a phenomenal event. I did watch the whole event over videos and the way that I would like to summarize this is they really showcased their diversification beyond the smartphone modem, growth and resilience. Those were my headlines. And even though Dan, you and I have been chatting about Qualcomm’s transformation beyond the modem for a long time, I don’t think a lot of investors really got it.

So what Qualcomm did a few quarters ago is they broke the numbers out. So they showed what Qualcomm calls IoT, automotive and their RF business. But what we saw was a double click into those businesses that I thought was super important. I’ll leave some of that oxygen for you because I won’t do the drill down in that.

But what Qualcomm did show that was amazing, I like to call it Apple proof, meaning what they showed is that over time, their reliance on Apple gets down onto low single digits by the end of fiscal year ’24. And my hope is that blows up all, all the memes that are out there that somehow they’re completely tied to Apple and whether it’s automotive, whether it’s RF, whether it’s the five different sub-segments inside of IoT, the company is doing that. And if you look back, if you go back maybe six or seven years, this was a major issue that investors had with the company so much so that they didn’t believe the company. They chose Broadcom over Qualcomm. Okay, if you remember that the vote was going in there at the last minute, Trump came in and essentially saved the company, but investors were literally going to sell this company to Broadcom because it didn’t necessarily trust.

And Qualcomm is finally getting its day in the market. Their stock is soaring, saw some really great growth. And it’s good to see there’s a lot of execution though, between now and then Daniel that they’re going to have to do. Qualcomm is writing some pretty large checks, and I mean that in the figurative way. $30 billion auto backlog up from another $10 billion and some other giant numbers in RF and IoT.

Daniel Newman: Yeah, Pat. You mentioned a lot of good things. And I think my most popular tweet from the Investor Day was the one where I shared exactly what you zeroed in on, which is the Apple proof. The market had been extraordinarily punitive towards Qualcomm when the Apple stuff came down. And as Apple has launched its 5G, there’s been an expectation that Apple would eventually completely migrate off of Qualcomm’s technology and that would somehow be devastating to Qualcomm. And I think being able to come out and basically saying, “Yeah, it’s a number, but it’s not that big,” is really something that investors are going to take note of. And by the way, the market absolutely roared behind Qualcomm during Investor Day. So this company’s a company that’s had a couple weeks of absolute terror in a good way between its earnings, which were blowout results. And then now Investor Day where the company put some additional context behind these numbers.

The other sub-story, Pat, that you acknowledge slightly when you mentioned the automotive backlog hitting $13 billion, there was an announcement this week of BMW making a significant commitment to the Qualcomm Snapdragon Ride and basically their whole platform, which is the telematics, infotainment and of course ADAS that’s going to be supported by the finalization of the acquisition. That was a huge win BMW group for Qualcomm’s whole end to end integrated automotive stack, but it’s really been about their adjacent businesses as a whole. Everyone has looked at this as a handset company and an IP company. A company that sells its innovation to everyone else to use, and a company that makes chips for handsets. The chips for handsets part has been what’s valued the company and that’s why that Apple thing has always been such a big deal. But what a lot of people be on that and the licensing haven’t realized is this company has now created two plus, I’ll call it two plus businesses that are generating billions of dollars per year that have nothing to do with their handset and licensing under QCT.

You mentioned automotive, which by the way, is just going to miss a billion in actual revenue, but with a $13 billion pipeline, that’s why I called it two plus. But then you’ve got IoT, which is now over a $5 billion annual business for the company. It’s grown 67% this year. And then you’ve got the RF front-end business, which is an extremely difficult business to do and to replicate. They’ve instantly on the mobile-end, come in overtaken Broadcom, which you mentioned, Pat, growing 76% from $2.4 billion in fiscal year ’20 to $4.2 billion in fiscal year ’21 with some triple digit growth quarters.

And Pat, I just want to say this because we like to ring our bell when we occasionally get it. But just seven days before Qualcomm’s valuation was about $160 billion market cap. I wrote an article on MarketWatch, and I said, this company will be of the next companies to hit $200 billion and hit mega cap status. Well, I believe, Pat, that it was like seven days after I wrote the article, the stock went up $30 a share, and it actually did hit about $203 billion last week on Wednesday when we were at Investor Day.

So sometimes, Pat, we get it right, sometimes we get lucky, but this case, I think we were a little bit of both. But yeah, what a great week for Qualcomm. The company has to feel great, but to your point, big checks being written, and now that they’ve gotten that zoom boom evaluation, it’s going to be up to them to back it up because people are not going to be satisfied if the growth alters or slows in any way.

Patrick Moorhead: Yeah, it’s exactly right. And if I can do a loop back on in the automotive, they did fantastic on there. I had a lot of questions on, hey, does this mean Intel’s getting kicked out? The answer is no. Qualcomm won year ’25 and maybe beyond that, but Intel is very much still a partner at BMW and so those are always the things that… The questions I always ask, because okay, you got to win which model year? It is it exclusive for that year? How many years and what driving level? But regardless of any answer on that, by the way it is ’25 model year. It’s a big win for them. And adding that to the GM win just makes it even bigger. And quite frankly, from a monetary point of view, I think the GM win is going to be bigger than the BMW just because the volumes are so much higher there. But congratulations to the company.

Let’s dive into another chip play Lattice. And Lattice acquired Mirametrix. So let me give a little background on this first. So first of all, there’s a continuum of computing chips. You can have CPU, you can have GPU, you can have FPGA and you can have an ASIC. And at one end, degree of difficulty to program is ASIC and the easiest to program, which is a CPU. But the challenge is, is you also have a sliding scale of battery life and how much energy. ASIC is the most energy efficient, CPU is the least energy efficient.

And Lattice in order to improve their time to market and really shrink that time for developers, is they’ve created stacks like sensAI. So you had sensAI plus one of Lattice’s FPGAs and you can essentially put that into vision systems. You can put into audio systems, you can put that into robots and not have to do that typical, heavy, heavy lifting. And you can shave years off program ability compared to a fixed function ASIC.

And this Lattice’s acquisition of Mirametrix is another step in that direction. And essentially, so first of all, Mirametrix is a software company that leverages AI and right now they’re really focused on presence. A good example of that is on many Lenovo computers you have of a Mirametrix solution that by the way, is running on the CPU and takes a bunch of battery life to be able to wake the system when it comes in, offers the ability if somebody is shoulder surfing, that’s not your face, but running that on an FPGA, takes it from watts to milliwatts, okay, and that’s a huge deal.

The other benefit of running this is if you are a PC maker and you want to have Intel, AMD, Qualcomm, and maybe in the future NVIDIA, Samsung or MediaTek, you only need one software solution stack with a [inaudible] FPGA to limit the amount of development that you actually have to do. And guess what? Another benefit of the FPGA, if you want to reprogram it and have that connected your camera to do some other things, or maybe even add a larger FPGA and do some tricks with your camera, you can. And instead of having three to four different solutions that you have to develop and support and improve, you only have one. So hats off to Lattice. They keep moving the ball down the court and reducing the amount of programmability it takes to do cool stuff with AI.

Daniel Newman: Yeah, Pat. This was a solid acquisition. Fits the direction that Lattice is trying to go in terms of being able to offer some very intelligent features that a lot of people don’t realize Lattice works very closely in a company with many of the larger, more well-known semiconductors to offer very specific security and capability features. In this case, I thought you had a great example in your Forbes article, but just talking about, I think you mentioned here shoulder surfing, talking about the fact that we really haven’t fully found the value in how we can use attention, everything from like a collaboration application to where, we want to better understand what are people really looking at when they’re watching a conference. When a web conference’s online, Pat, and we all know that people turn on their machines and walk away and this can give the capability for these software programs to better understand attention and focus.

The other thing of course is security and safety. We know that visual hacking is one of the biggest risk factors for many people. We all think that it’s sophisticated people breaking into level five government agencies using raspberry pies like we saw in Mr. Robot, but the reality is they tend to be taking things written on sticky notes that we keep on our laptop or things that they’re able to see over our shoulders and that’s how information becomes disseminated, especially in crowded public areas. And as mobility returns, risk profile for data theft becomes a bigger issue. So being able to instantly see, hey, this person’s looking away. Even as short as, hey, I’m turning my shoulder to the right to talk to the person sitting next to me, that person sitting on your other side could be staring at your screen. But when eyes go off the screen for more than three seconds, it might darken the screen and it’s a more capable and competent technology than some of those visors is 3M Technology and stuff that people have to install and often don’t use effectively.

So interesting acquisition, Pat. I don’t know what the price was for it, but I feel it’s probably very synergistic for Lattice and it’s going to be something we’ll hear more about in the near future.

Patrick Moorhead: Excellent. So let’s roll into another chip play here. NVIDIA had their earnings and my goodness, NVIDIA is just on a roll here.

Daniel Newman: Yeah. It’s hard to believe that just quarter after quarter, you’re just talking about record, after record, after record breaking result, Pat. On the top line, they beat a 50% growth. They well exceeded the growth that was expected by the 7.1 versus 6.8.

On the earning side, they came in just above another 60% growth, Pat. You had record results in multiple categories for the company. $3.2 billion in gaming. It had at an extremely strong data center result as well, $2.9 billion. That was 55% in the data center, 42% for the gaming. We’ve seen data center quickly catch up to that gaming category, but both have been extraordinarily strong. If I had to give one, only because it’s like all good, good, good with NVIDIA, probably the only thing that I saw that was a little bit of a pause for me was just that it automotive, like when we saw so much momentum coming out of Qualcomm. We mentioned that is that automotive it’s up 8% annual, let down 11% sequentially, but seemingly it stalled out. I mean, you’re talking about these businesses that have gone data center from a billion, almost 3 billion in the matter of four or five quarters. And of course you got the Mellanox acquisition in there, but NVIDIA, which was one of the original announced its newest Hyperion 8 DRIVE Platform, 2024 autonomous vehicles into the space, but yet down, or growing very slowly. You’re only talking about 135 million.

Now one of the big numbers of interest or big topics of interest that came out of earnings was a huge focal point for the companies, this Omniverse Platform that it’s building to be able to support the Metaverse. We talked a little bit about that with GTC, so I don’t want to spend a lot of time on it, but trying to better understand how the company’s going to be able to monetize this through being able to charge for things like its avatar services, things like being able to charge for its data replication, it’s simulation services. And he did go into that pretty extensively in the company’s Q&A, which is interesting. I did have a piece on MarketWatch on this and how exactly the company is going to likely monetize. And so we’ll put that in the show notes.

But overall Pat, there’s really not a lot that investors or people that are following NVIDIA can criticize about this company. It’s really just it’s growth, it’s growth, it’s growth and it’s been explosive. And the company was $200 a share after it’s split at the end of its last quarter and I believe it’s trading close to $350, just over one quarter later. So I mean that the terror that NVIDIA is on has been extraordinary. Credit to Jensen and his team. And they’re right on the front of all of these key trends, so you got to feel bullish for the long sentiment that despite headwinds, despite chip shortages, despite the fact that it has had so much growth in such a short period of time, more growth in its near future. It’s hard to imagine any other direction.

Patrick Moorhead: Yeah. I feel like the only, if you can call it a blemish would be auto and it just hasn’t moved that much, like you said. Qualcomm came in and took a lot of that dashboard share and let’s just be honest that the whole self-driving thing hasn’t taken like anybody thought it was, because NVIDIA certainly has enough design wins to fill up an entire page, but it just seemingly doesn’t appear as if it’s turning into big time revenue.

Something noticed that I thought was really interesting in the CFO notes was that there was almost a boiler plate disclosure that that said, hey, even though our CMP cards are focused on blockchain mining, GPU cards that aren’t limited can do this mining as well. And that to me got me thinking, okay, is the gaming market truly moving at this pace? And you can see from what I showed in that fourth quarter of ’20, it was a $1.5 billion business and Q3 of ’22, it’s a $3.2 billion business. Is that all gaming or is it a combination of crypto mining plus gaming?

So I feel like investors have bought into AI and essentially believing NVIDIA owns everything in the data center for a long time, buying into gaming and not believing that AMD is doing anything there. So writing a lot of checks and I don’t think it’s coming from NVIDIA actually writing those checks, I just think its massive investor expectation. And Daniel you nailed this. I think you wrote a MarketWatch article that talked about potentially a trillion dollar company here, so kudos to you.

Daniel Newman: Yeah. I wrote that about a year and a half, maybe about 15, 16 months ago. It was right upon the announcement of Arm, which is ironic as I thought that Arm deal was going to be fairly critical. And despite the fact Pat that the arm deal has somewhat stalled, recent additional probes that are going to come out of the UK were announced. You have a number of other hurdles for it to overcome. And the timeline, I mean, can you imagine Pat, if the NVIDIA deal to acquire Arm passes, I think the trillion dollar is a sure thing. Because it accelerated from under half a billion or half a trillion to almost 800, during a time when this has all been uncertain. So yeah, it’s a crazy set of circumstances, Pat. And congratulations, like I said, I mean on these results. All we can ask is how long can this continue? How long can a growth like this-

Patrick Moorhead: I know.

Daniel Newman: … continue? But we’ve said the same thing for AMD for a while too. We’re like, it’s got to slow down and it just hasn’t.

Patrick Moorhead: It’s funny though, it’s a different thing.

Daniel Newman: Totally is.

Patrick Moorhead: I mean, AMD has relatively small market share, NVIDIA has monster market share. That gaming number is not share shift with AMD. It’s taking advantage of market growth. In fact, AMD is gaining share in GPU, but there are probably 1% market share in the data center to NVIDIA’s 99% share in the data center. And that’s the biggest difference. And if I were to say on the gaming side, NVIDIA has a much higher share of what I call premium gaming cards, AMD has a higher mid-range and low end. It’s going to get interesting when Intel gets into this game to see what happens to all this growth. Heck it could even grow the market even further because a company like Intel can, even if it only offers 10% or 5% of what the market needs, that’s going to be an extra 5% to 10% that the market couldn’t hit because of all supply chain challenges.

So Daniel, let’s move to another earnings. Cisco had their earnings. And let me some of the highlights here. I think the biggest one and this is very similar to what they did the prior quarter. Product orders were up 33%. Product revenue was up 11%. Now it’s interesting a company that wants to lean into services and subscriptions leading with product orders. But I think you lead with what your biggest strength was here.

Overall revenue was up 8%. Gap EPS up 37. Non Gap plus eight. ARR, a good, I would say proxy for services. And as a service up 10%. 20 billion to up to 22 billion. Every regions grew. 13 out of 25 countries grew 25%. All product and service groups except hybrid work, which was kind of weird at first, but then it’s like, okay, it was a hard comp to a year before, but in the end, what really weighed on the stock was a soft guide. The company stuck to their annual guidance, but their quarterly guidance was weak and they got punished for that. Company talked about supply chain challenges. I’m hearing from multiple people about supply chain challenges. Nothing new, except that it’s kind of new for Cisco. But if your product orders are up 33%, you’re likely going to have these challenges. That reminds me very much of the crazy quarters in the PC market when it was up 40%, 45% and everybody was a stockout.

Daniel Newman: Yeah, it was a interesting quarter, Pat. I like how you said they led with the hardware revenue growth this quarter, but I guess sometimes companies have to look at what went well and lean into that when they’re announcing earnings. And sometimes the most long term strategic things don’t always pan out in every single quarter. You look at the revenue buckets, the highlights and stuff like that, you’ve got some of the areas of big growth, like the internet for the future growth was tremendous. You looked at which is all about the scale out for service providers, that was great. You look at things like hybrid work and it was down, showed it down for 7%, I believe is and a decline, which is interesting with WebEx, but at the same time, you are looking at with a return to work in mobility upcoming up that that had to slow, especially on an annualized basis because a year ago, our mobility was much less and companies were making much bigger investments. And sometimes people can’t see that.

Another area that was interesting was subscription revenue as an overall percentage of services. You saw in the quarter as overall, it was actually the product subscription revenue was up, but as an overall revenue, because the revenue was up, it actually went down a little bit. So we want to see that’s because the hardware and the order growth on infrastructure went up and while the revenue for subscriptions grew, it didn’t grow as fast as the rest of the business grew. So it actually now shows that it’s down a little bit. And that’s something that everybody is really zeroing in on is can the company pivot to ARR? Can it pivot to subscription revenue?Can it move off of licensing to more subscription types of revenue? And so all these factors are sort of working in… They’re magnetic polar in a way where they work against each other at times. So you actually have a good result in one area and it hurts another area.

Pat, this is a suitcase though, where I believe the guidance was like 2 cents. It was actually in range where the top end of guidance for this quarter came in at something like 80 to 82 and the street was looking for 82. I believe that’s what I have in front of me here. And so they basically penalized the company as if it was going to… It had made some really soft guidance. It basically said we’re going to be right about there. And I think everybody just wants to see growth faster.

I mean, for a company like Cisco and 8% year on year growth is good. I mean, now we’re seeing consecutive growth quarters, we’re seeing some success in the right areas. And I think the market just as a whole, has to start mentally adjusting for the fact that we are going to return to a more normal mobility power.

The last few weeks as I’ve gotten out and been traveling to events again, this feels like pre COVID to me. And I know that nobody really recognized that there’s a possibility we’d ever go back to traveling and being at event but we are seemingly going back. People are going back to offices. Took me two hours to get from Manhattan to JFK Airport on a Wednesday evening, which just goes to 15 miles. People are out, people are moving, events are happening, restaurants are full. And that means that some of the things that we’re being invested in that we’re heavily related to COVID are going to slow down. And it means that we’re going to start to see buying cycles change a little bit again.

Companies have poured money into tech and new know they might have to pour money into different parts of the tech stack now that were neglected somewhat during like infrastructure and stuff that’s going to go in the data center. So Cisco will be a bellwether for this. That’s what the company is. With such a diverse portfolio, that’s what we’re going to see. But like I said, I feel largely the company had a good result and I’m sure that punitive nature of wall street had less to do with the company’s results and more to do with the just completely unreasonable expectations that most people seem to have now for investments and returns.

Patrick Moorhead: Yeah. Good analysis, Daniel. The final thing I wanted to add, first time I’ve seen service provider up in a long time and that’s part of this internet of the future. So when the Hyperscalers became a big part of service provider and they started doing their own switches and routers and things like that, it looked like Cisco was just going to get completely pushed out of that market. And to their credit, what they did is they did co-designs with hyperscalers and Tier 2 hyperscalers to help create this Silicon one and a set of routers and switches and things like that, that are co-designed by the hyperscalers and the Tier 2.

So hats off. It looks like that’s starting to pay off. Now, you got a good comp of course because revenue wasn’t rocking it, but it’s really, really good to see a company’s plan come together. So Daniel, guess what? We are at the end of this. Gosh, we’ve got a lot of travel coming up. Let me see, AWS re:Invent coming up then Qualcomm and Kona, and then off to CES after Christmas.

Daniel Newman: Absolutely, Pat. It’s going to be a whirlwind. 2022 is starting to feel like 2019, I had hoped. I’ll be clear, I’m very happy to see our world gaining some sanctity and normalcy in that people are getting healthier and that we are solving this global pandemic and the challenges that it created. But Pat, I did enjoy traveling a little bit less. And so I am a little bit stressed about this, but at the same time, it’s going to be so great to see so many people, many of you that watch our show and I’m going to be looking forward to elbow bumps, knocks, shaking, hands, whatever it is that we all decide is good enough and safe enough for the rest of us, Pat, but yeah. What a weekend, by the way. Happy holidays if Thanksgiving is part of your slate of celebrated holidays each year. I just want to say happy Thanksgiving to y’all.

Patrick Moorhead: Yeah. And thanks for tuning in this morning. Usually we do this on Friday, but we moved it to a Monday because of Daniel.

Daniel Newman: Travel, travel, travel.

Patrick Moorhead: Daniel travel. But it’s great to be on the pod again and see you in a week or maybe two. Thanks for tuning in and have an amazing week.

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