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We are LIVE! Talking TECH EARNINGS by AMD, Lattice, Qualcomm, Luminar, SkyWorks, and Lenovo – The Six Five Webcast
by Daniel Newman | November 9, 2022

On this episode of The Six Five, leading global tech analysts Daniel Newman and Patrick Moorhead jump head first into the tech industry’s latest earnings reports to see who made a big splash and who belly-flopped.

On deck this week is:

  1. AMD Earnings
  2. Lattice Earnings
  3. Qualcomm Earnings
  4. Luminar Earnings
  5. Skyworks Earnings
  6. Lenovo

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.

Watch the episode here:

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

Transcript:

Daniel Newman: Hey everyone, welcome back to another episode of the Six Five Podcast. It’s Friday, it’s time. We are doing Earningspalooza 2-0, it’s the duo of 2-0 of Earningspalooza. Week two, at home, living my best life. And Patrick Moorhead, based on that under-bed lighting behind you makes me think you’re in a hotel room somewhere working harder than I am.

Patrick Moorhead: You can probably tell like JW Marriott, right? That’s what’s going on. But Dan, I’m losing my voice a little bit here, so I’ll be slugging some water and coffee. But no, this is week nine, on the road, coming to an end, and I’m thinking like, I’m running from third base into home, sliding head first. The question is, am I going to hit that home base or am I going to come up short? Because I don’t know if you’ve looked outside, but apparently we’re going to get some nasty weather in Austin. So I’m hoping that I can get out of Orlando here.

Daniel Newman: Yeah, I got some bad news for you. You’re going to spend the weekend there and we’re going to have to have our weekend meeting over video, but that’s okay because you know, you and Orlando have something in common, you Mickey Mousers. But in all serious, it’ll be good to have you back. I actually have to go back on the road next week after a only a brief trip this week out to the coast. But I did have one week in there, I think the week after, the week after the Grand Prix that I actually didn’t travel. Although somehow I ended up working more than when I do. So there’s no break, there’s no relaxation, there’s no down in this economy, or if it is down, all it means is make less, work more, be happy. They call it the law of diminishing returns Pat, and you know what, I don’t subscribe to that.

I subscribe to kicking ass, taking names, and trying to get explicit markers on all of our podcasts. So Pat, let’s do the disclaimers. So if this is a first time watching the Six Five podcast, it’s six topics for more than five minutes each. It was supposed to be five, but we’re very excitable. Just as a quick disclaimer, this show is for information and entertainment purposes only. And while we will be talking about the earnings of publicly traded companies and other things about these companies, please do not take anything we say as investment advice, as Pat likes to say, do the opposite. But that’s kind of advice. So don’t do that either. Just don’t take any advice from what we say. All right, Pat. So we got a busy show today. Like I said, it was Earningspalooza week two, we’re going to be talking AMD, Lattice Semiconductor, Qualcomm, Luminar, Skyworks and Lenova.

A lot of chips this week, a lot of chips and some infrastructure and you and I have had a opportunity to have some conversations with a lot of the top executives at these companies. So, we’re going to play CEO Whisperer this week and we’re going to give our best advice as to what has happened to some of these companies. But Pat, I don’t know, we’ve got stuff to do. You’re probably at an event. I’ve got a lot of napping to do the rest of the day. So let’s go ahead and get started. AMD, what’s going on?

Patrick Moorhead: Yeah, so AMD’s Q3, no surprises versus the restatement. But obviously the restatement was a surprise, which is directly attributed to the cruddy PC market. But, due to AMD’s diversified portfolio with newly acquired Xilinx hitting embedded markets and AMD blowing and going in the data center market, they cranked out a measly 29% increase in revenue all the way to $5.6 billion. And it’s amazing.

Daniel, I remember when I was at AMD wondering if we would ever be a $10 billion a year company. And here they’re cranking out big numbers like this. Gross margin was definitely lower, again, based on the PC inventory rebalancing and the decrease in demand. And it’s funny, during times like this, people put the exclamation point on cash. It cranked out a billion dollars in operating cash or $965 million. And it’s things that, you know, you can tell what time we’re in when people start talking about cash.

And you understand that because AMD might be taking a few write downs, but cash is cash, right? Funny money versus real money. So some of the big pluses, I talked a little bit about Data Center and Epic just completely blowing and going record revenue, 10th straight quarter, up 44%, 70 new instances just this quarter they doubled revenue for Epic. They’re shipping their next generation product, which is called Genoa. It’s interesting they talked about it, but they’re announcing it next week. And they did really well in Xilinx, FPGAs, and Pensando DPUs. It’s kind of the negatives though. Enterprise down, Data Center GPU down. I know it was a tough year on year compare because that Frontier super computer, but still, client down 40%, PC market sucks, PC demand, PC OEM industry, they lost $516 million in that division, which is pretty fugly. So, hey, PC gaming is down, but that’s okay.

AMD is in the Xbox and the Sony and therefore revenue is actually up in that. Discrete GPUs were down. You and I missed it yesterday, but AMD had its announcement for its RDNA 3 graphics cards. So, I’m probably going to go back and check this out. And let me finalize talking about their embedded results, which is really Xilinx, record aerospace, record defense, record automotive. And it’s a combination of classic FPGAs, and Daniel, this class of products that’s called an Adaptive SoC. Essentially, it’s an SoC with an FPGA on it and you’re finding these in just a ton in automotive and really no negatives.

And I’ll end by saying what a great affirmation that in times of trouble in the PC market, that these longer lasting, smoother business, not necessarily a rocket ship, it mutes the cycles, which I think AMD has always been, that’s always been a risk, or I would say at least for the last 25 years. So all in all, I mean no strategy change. I continue, I’m expecting that AMD could come and have 30% of the X City 6 market in servers by the end of this year. So good job to AMD market.

Daniel Newman: What number was that? Say that again.

Patrick Moorhead: I think that they could have 30% market share in X City 6 Data Center by the end of this year.

Daniel Newman: Absolutely staggering. It’s huge. You know, you gave a lot of good cover there. You did hit it right. And you and I did talk about AMD when they put out their earnings warning. And so this is kind of a double click here at this point because, like you said, there wasn’t much of a surprise. But here was the one surprise, was probably the contrasting viewpoints about the data center server market that you got from Intel versus what AMD showed, which is to your point of how this potential 30% market share is being arrived at. It comes down to there is still more demand and you can kind of look out if you zoom out a little bit at cloud, it sort of tells a little bit of a story about data center and you’re seeing kind of a slowing demand at AWS and Microsoft, but not slowing by exponential amounts.

It’s not going from we’re growing 40 to we’re losing 40. It’s going from as you’re growing 40 to 35. Well it seems like with AMD that they’re continuing to take share that they’re executing very well in that particular business line. They’re winning more SKUs with the right relationships across the OEM portfolio.

They’re winning with cloud partners. And effectively, this has gotten them into a position where the really bad temporary results that we’re going to see for PCs can be somewhat managed by stronger performance in other areas. The Xilinx business showed some strength here. Obviously that huge year over year growth was an accretive number that they were able to then add in on a year over year basis, but there was no misleading there about what was happening. Overall, we’ve got this… Oh Pat, good news. The chip shortage is over. We do not have shortage for chips anymore for PCs or GPUs or…

Patrick Moorhead: I don’t know man, there’s a lot of analog stuff I’m sure can get screwed up, you know, that goes into cars, but we’ll see.

Daniel Newman: Yeah, I just mean like the gaming chips, the phone chips, all the stuff that over-ordering has… You’re seeing it in the macro data now, you’re seeing it in inventory data, now you’re going to hear about it when we talk about Qualcomm. If you need a chip, if you a device, we’ve turned a corner there. And that’s why these PC numbers are so bad though right now is because everybody took huge, huge inventories from the likes of AMD and Intel. They stockpiled up the inventory, a lot of it came in one big glut, numbers went crazy on inventory. Now they’re not ordering. They’re temporarily not going to need to order until they burn off this inventory. So, that’s kind of what happened. But overall Pat, I’d say it was a pretty good result from AMD. I mean, like I said, with the exception that PCs are going to stink for a while, It just is what it is.

Let’s go to Lattice. Let’s talk about Lattice. First of all, I had the chance to go see Jim Anderson and his son this week. And so I tweeted something along the lines that said, “Just because you had great earnings doesn’t mean you have to be so humble.” But they are really some of the salt of the earth just best people. And I guess, you know, when you’re only doing a few bill or you’re in the billions, not in the hundreds of billions, maybe you stay humble until you get there. But, I also just say they do great earnings slides. I really do appreciate that about companies that put together very consolidated and valuable slides. We’ll share the link in my Lattice piece, but let’s just talk about the highlights. Pat 31%…

Patrick Moorhead: Hey Dan, what makes a good slide deck for earnings? Just for our listeners.

Daniel Newman: Oh, well, I mean first and foremost, I think it’s call outs on the most important data points and comparative data in terms of making it very clear. So on the left side of their slide, the three things that people care about, they have what’s called their highlights, revenue, margin, EPS. They have those data very clear and then a very clear indicator of how it compared on a year over year basis. Sounds crazy, but I can’t tell you how many times I’m reading these reports. It’s like brain damage to find this stuff. It’s easy. The only thing I really like that they do is they break out their different segments and then they have a couple of very clear highlights. So if you had to, it’s the cliff notes, this is all you looked at, you could get a really good assessment of what is going on in the business.

Revenue growth, margin growth, EPS growth, huge numbers, 31% year on revenue, 69% margin Pat, they expanded their margin by almost 600 bips, almost 6% margin expansion, which is just absolutely terrific. The street has to love it. Now, funny is they got a great gain afterwards and then gave all the gains back because this market sucks. But in the long run, you got to look at the company and the company’s expanding and its earnings per share up 71% on a year on year basis. And Pat, here’s what I really love about Lattice and why I called them out in my market watch piece this week. 6% of their business is exposed to consumer. That’s it, just six. So they’ve done, they’re kind of got that Marvelesque story going on where they’ve done an incredibly good job of finding value in the data center, in the IOT segment in automotive.

This has led to strong growth. Their industrial automotive growth at 45%, sequential 15, their cons in computing at 26%. And of course their consumer did fall 13%, but it was such a small part of their business that it really didn’t have much impact on the company. And Pat, I’ll just try to leave a little oxygen in the room. We’re going to be out at their event in December talking about their next product line launch. They’re still really just getting ramp from their last product line launch. So this is early days when you’re at the size that they’re at, and like I said, they’re tracing more towards a billion in revenue, a bad economy doesn’t break you. In fact, the companies that perform well in game market share and execute, and it seems that in this area, this low to mid market of FPGAs, Lattice is the game right now. And they’re doing an incredibly good job. It’s hard to not give them credit. So kudos to Jim and his son and the team,

Patrick Moorhead: Wow, I’m fighting for air here. No, what I’d like to do is talk a little bit about their different segments and like you, you do math and have an Excel spreadsheet. So you know when something is 50% of the mix and it grew 45%, you’re going to have a good quarter. And that’s exactly what the company did in industrial and in automotive. And a lot of [inaudible] and dashboard, which is really cool. And this is an area where I don’t think we have caught up in chips in automotive. And also on the call, Jim had talked about automation and robotics. So four big areas inside of that industrial, in automotive. And it’s also funny that “Hey, if you’ve never been in the PC market or if you’re expanding your presence in the PC market, you can still drive growth in that market.” In comms and computing, the company did just that.

They had new PC designs. For instance, in this new Lenovo notebook I have, there’s an FPGA that essentially intelligently knows to tell me when somebody’s looking over my shoulder. And they work with, they bought a company called Mirametrix, and that’s really just the start. Also, they’re part of the 5G build-out, on the edge, and who doesn’t love that? Their content doubled from 4G to 5G, which is a good thing. And finally, data center servers. More servers where essentially they’re a security chip that’s the first boot, first boot that enables the highest level of security. And yep, consumer, 6% of the mix down 13%. So what. Market sucks. Let’s move on.

So Dan, I am super-excited to go out there for this Avant launch. And you’re right, it’s just the beginning. Avant doubles their SAM, right? Their addressable market and they get right into the territory of Intel FPGAs and AMD FPGAs. And both of those companies are really looking at FPGA capabilities at the highest power SoCs. That is not what Avant is doing. Okay? Now you might say you could have a super high performance SoC and you have more power for the CPU because Avant is lower power. But anyways, you get the point. But tune in to the Six Five at the Avant launch event coming up. It’s on Monday, December 5th. The videos might be out on that day, they might be a day after, but tune into our tweets. Did I just do a promotion here?

Daniel Newman: Yeah, but that’s pretty common for you.

Patrick Moorhead: Ouch, Ouch, ouch.

Daniel Newman: Oh buddy. All right, so let’s move on to a big one for this week. You and I both had the chance to speak with Cristiano Amon on earnings day. CEO of Qualcomm. I think we had somewhat similar views, but you get to go first. So let’s see what you got.

Patrick Moorhead: No, I appreciate that. So backdrop is, smartphones are down. Shocking. The good news is that Qualcomm has diversified its portfolio with IOT, automotive and RF. Even with the smartphone market being in the tank, their revenue was up 22%, earnings were up 26%, EPS was up 23%. A very clean flow down in profits. Biggest thing for me was, it kind of got lost, like how the stock could be down yesterday, and I know the whole market was down, but it was kind of ridiculous. But they essentially announced that their percentage of getting the modems for Apple and a little bit of analog in there went from 20% to 100%.

So, I’m not an equities analyst, but sometimes I try to play one on TV, but when you update your spreadsheet on Qualcomm and that number goes up by 80% to the world’s second largest smartphone maker, the largest premium smartphone maker, wouldn’t the price go up? I don’t know, I’m just a neophyte here. So again, those were the pluses I saw. Some of the negative, I mean, mobile demand and OEM and ODM inventory bleed. Sound familiar Daniel, when we talk about AMD and Intel’s client business? So, I was super impressed with the explanation on demand and inventory and no crazy strategy changes and they’re sticking to their guns. It just makes sense. So I thought they had a great quarter.

Daniel Newman: Yeah, you hit on a lot of important things. We had to, like I said, not only did we talk to Cristiano, I did a Six Five, you had to split because you were, I think in the air or on stage, but I got to talk to Akash, the CFO as well, and got to kind of do the run through. Pat, record year, record revenue, record EPS, the guide is what kills everyone right now. Nobody cares what you did, everyone cares what you’re going to do. And I guess if there’s a truth that the market’s forward looking, then that’s why, that they were being penalized for that. But gosh, if you look at the execution across the year, Cristiano Amon come out saying he wanted to, he wanted diversify the business. So whilst QCT, which is really the chip making part of the business, was growing that handset business, it was also creating multiple billion dollar businesses that nobody really has in their spreadsheets. At least historically. I mean the RFFE business, which we’ll talk about more and we talk about Skyworks, that kind of leveled off a little bit.

But I mean, you got to remember what it got to. I mean it was nearly a billion a quarter run rate. I mean great business and also an incredibly difficult business. And that’s why that they, they’ve been so successful in it. The IOT business got $7 billion business for the company now. And by the way, diversification into industrial applications, so it takes some of the weight from the consumer and the handset off the company’s ability to perform long term or B2B. They’ve got an ACPC business that’s obviously causing some indigestion for some people out there. The arm lawsuit rings a bell in my mind. And Pat, by the way, I just want to put this out there since we haven’t really talked about that too much here on the show. I still think that this might have Apple fingerprints on it, the whole deal. There’s a little bit of, I’m just kind of trying to figure out why ARM would want to go after what could be a great revenue driver. If Nuvia is successful, it would be a lot of licenses, a lot of utilization. I just don’t know something, it’s on my mind. Where’s the pressure really coming from there?

But the PC business has done pretty well to this point, and they haven’t even really shown their best hand yet. We know with Nuvia, when they get that product into market, they’re going to try to redefine the PC category. So that’s a big opportunity there. The automotive business, they grew their pipeline by an NVIDIA pipeline in two months literally. And this is, by the way, the $11 billion INVIDIA pipeline is impressive, so let’s not like make it sound like that’s not good to $30 billion. So the earnings were good, but the outlook is more encouraging than what’s being led onto. All the negativity is the fact that these chip makers have to come out and say right now that this over inventory indexing that took place over the last few quarters due to the supply chain shortage is finally coming home to roost.

NVIDIA went through it, AMD went through it, Intel went through it, now Qualcomm’s going through it. But overall Pat, they’re thinking a quarter or two and then they’re going to turn the corner. And by the way, Metaverse full tilt with Meta. Now that company may be a mess right now, but they are going to be one of the first to build any scale in the Metaverse and Qualcomm got that business. And then one of my calls, Pat, is the premium tier is going to be super successful. Samsung is all in on Qualcomm. Samsung is the premium tier equal in devices. So lots of good things happening over at Qualcomm. They did guide the wrong way. I mean you can’t call it anything but that, and that’s what the street got upset about. But I think it’s a reset. I think their expectation is now to put the foot back on the gas.

Patrick Moorhead: Yeah. Hey Dan, did I tell you that Qualcomm is having a text summit in two weeks and the Six Five’s going to be there?

Daniel Newman: Ooh, can we do a promo please? I got to pull up my notes for the next topic anyway, so…

Patrick Moorhead: No, no, no. I’m super-excited about that. Hey, what’s your take… I was going to bring this up in Skyworks, but I want to bring this up now with you. Qualcomm announced that they were going to integrate RF into the other BUs, so we will not see a distinct RF number. They said they might bring it out time and time and again, every once in a while, my guess would be for investor days. But is this a sign of decline or slowing down or is this more simplicity? Because when you think about it, RF goes across everything, it’s handsets, it’s IOT devices hanging on the edge, it’s in PCs. What’s your take on that, Daniel?

Daniel Newman: Yeah, I think there’s a couple things going on. I think that their desire to be able to show discreet new business entries and then show success tends to have a period of time in which it’s meaningful and then a period of time when you hit maturity. And I think the way they’re kind of looking at it is the RF and the 5G and the front end and the handsets and the devices is really is all an integrated thing. And so at some point, I think we’ve hit the maturity end of growth perhaps, for this in this cycle. What I’m saying is you saw this quarter, they’ve been doing this growth across segments thing and 50% on handsets and 40% on automotive and 40% on IOT and then 4% on RO. If they’re not, they don’t believe that that number maybe is going to, if it’s hit that, because remember Pat, it was like 1000% for a long, it was like 100 then 50 and four… I don’t know if they’re kind of saying, let’s just kind of wrap it into the broader handset QCT number.

And of course it’s not just handset though cause it goes across automotive in other parts, but maybe they focus on the three bigger growth areas and don’t have that smaller number showing up every quarter. And plus, I don’t think most people understand what RFEE is. So when you talk about adjacencies, you talk about handsets, people get it. You talk about automotive, people get it, you talk about it, and they got this great mobile RFFE business and people are like, “What?” There’s more mobile RFFE, so that might be it. They’ve got some great IP there. It’s growing because that capability is what’s helping IOT, automotive, and handsets.

Patrick Moorhead: Yeah, they did one victory, one final victory lap, and a middle finger to Qorvo and Skyworks basically saying, “We’re number one in handset RF, see you later.” It’s like, let’s move on here.

Daniel Newman: What’s $4.3 billion in revenue? But like you said, it does really attach across the portfolio. So, we’re both just speculating as to what it might be. But I don’t think breaking out something if it’s not showing that kind of growth, especially because it isn’t that, like maybe in the next year when Nuvia chips start to hit, will they start breaking out PC? You know what I mean? So you can start to see that.

Patrick Moorhead: That IOT category is pretty wide definition of IOT.

Daniel Newman: For sure. But that’s sort of a market trend. It’s like cloud. What is cloud, Pat? Like every company’s definition of cloud is different. It’s economics and architecture. So all right, let’s jump in. You want to talk Luminar? Is Luminar next?

Patrick Moorhead: Yeah, yeah, let’s talk Luminar.

Daniel Newman: This one is a company you and I both really like. Very interested in the company. It’s early days, so let’s be very clear. The revenue guide for all of next year is $40 to $45 million. This is not a company that’s doing massive revenue. This is a company that’s all about building the technology moat and winning design relationships with key companies. And this quarter the company showed good growth in revenue, beat by a significant number over expectation. By the way, this is a company that is doing $40, $45 million revenue guides and is buying its own stock back. So it clearly sees that it has a long term opportunity that the company’s sitting on a good amount of cash, so it’s able to operate with a long term in mind. It’s still burning cash. And that’s probably what most people are concerned about is we’re in an economy right now where nobody likes a company that burns cash.

You can look at, by the way, one of my favorite companies that’s getting absolutely railroaded today, Draft Kings grew 130% revenue but guided a bigger loss next year. And it is getting freaking slaughtered today because right now nobody cares about growth if it doesn’t come with profits. So you got to have both. That’s going to be the longer ramp. But for companies that have enough cash to operate and know what they’re building and know that they’re differentiated, they’re not, I’m not selling one share. I’m not selling one share. Keep going, keep growing. Big thing for this quarter path with Luminar was they got that production unit with SAIC, the Rising Auto Unit is shipping in China. And so what we’re starting to see is Luminar’s technology, the technology that uses multi-sensing for these vehicles and has a, what we can say from our experience and our training, a better safety profile and more sophistication than single sensing our friend Elon is doing.

He’s not really our friend. I’d like it to be his friend. I think he’s really cool. If he wants to come on the show, I’d love to have him. And I think the multi-sensing is differentiated. But getting the cost to scale is going to be important, but getting these out in the market, getting Mercedes, Polestar, Volvo, SAIC, big wins for the company, getting production units, big win, winning in one of the world’s largest EV and smart car markets, China was a big win. So it was a good quarter overall for Austin and the gang over at Luminar.

Patrick Moorhead: Yeah, talk about a good earnings deck. I mean, they just crank it out. And like you said, and this is true, so Luminar not only does the assembly of the LiDAR system, but it also does all the semiconductors inside of it. And whether it’s manufacturing the devices or doing assembly, scale absolutely matters. And they just started production now. So my expectation when SAIC4, which by the way, China’s largest automaker, that gets out. Polestar comes out with Polestar 3, and Volvo brings out the EX90 I think on, gosh, like five days next week. I mean those numbers just have to go in the stratosphere. And one of the things, there’s four or five people that are in this market right now and I really think what sets, one of the biggest thing that sets Luminar apart is they’re actually shipping.

A lot of people have roadmaps and a lot of people are sampling, sampling devices, sampling full assemblies, but they’re so far out. So we’re going to see, I think not just the perceptual lead, but the financial lead make some of its biggest moves out there. So again, I’m super interested in what the future holds with them. I’m hearing we might have a trip down to visit their headquarters in Orlando, and it’s going to be awesome. I like going through factory tours, I like going through headquarters of startups, super fun. And I’m just waiting for Austin to maybe send me a test car to review. Think that’s going to happen?

Daniel Newman: I would hate to break it to you, but don’t come to my house and look at my driveway.

Patrick Moorhead: Okay. Yeah, no room, I get it. Once NVIDIA sent me an Audi A8L that had their silicon in the dashboard, it was so amazing. I thought they were kidding. Michael Lim’s like, “Hey, you want to do a review?” I’m like, “On what,” “An Audi A8”. I said, “Well you going to send me one?” He said “Yes.” So, good car.

Daniel Newman: Yeah, well we’ll have to see how that goes, but hey, we’re here. He knows where to find us. So let’s see about that. So, all right, so let’s talk more RF. Let’s talk more RF. Pat, let’s talk.

Patrick Moorhead: We’re going to talk analog baby. We’re going to talk about Skyworks and…

Daniel Newman: Talk about making stuff work.

Patrick Moorhead: Exactly, exactly. So Skyworks doesn’t do as much marketing and promotion as a lot of these other chip makers. So I thought it’d be helpful for our listeners just to get a little bit of a background. First of all, it’s all about analog, okay? Analog RF and also power. And if you know anything about analog, and I don’t, I’m not talking to you, I’m talking to the audience, you know that it’s black magic basically. Okay? There are less people who get RF and power analog devices than there are people who do graphics. And graphics is a black magic as well. 11,000 employees, 17 countries, they have their own manufacturing plants, Daniel, which people just completely gloss over. And in times of need, they had the silicon. In times of bust, they’re able to shift things around. And when you have your own manufacturing, there are tricks you can play with flow that truly allow you to differentiate yourself.

And by the way, if you look at the content in a Samsung mid-range phone, their content is actually going up between 4G and 5G. And if you look at a tear down, Daniel, they’re sitting right next to Qualcomm. And I’d argue in some of these phones, Skyworks has more RF content in the smartphone than Qualcomm does. So Qualcomm gets the message out more, but we can’t forget that there’s somebody else in this hunt. So how do they do, Pat? Let’s get to the earnings. Talking to myself, that’s scary. Record revenue. Record revenue. How about that? There are other companies that didn’t have record revenue in RF and great earnings diluted EPS of almost two bucks. So actually three bucks on a non-gap basis. And it was very clear and very simple what it took them to get there. So first of all, they managed China really well in comparison to their competitors.

They bled inventory down, they did the double take when they saw orders that were gigantic in China. And at least for the mid-range in China, that market is way down. And in fact, even premium market is down. So wait a second, why did Qualcomm do so well in premium? Well, they took out people like Media Tek, who were in there. So it was a compete on the digital side as opposed to the analog side that we’re talking about. So great performance, diversifying almost half of their revenue, around 40% is outside of smartphones. So I would say that they’re almost fully diversified. But anyways, I’ll kick it over to you buddy.

Daniel Newman: Well Pat, you hit it on the head. I mean look, Qualcomm’s doing really well. We’ve reiterated that and continue to, but so is Skyworks here. I mean, they’re numbers are good. Looking through the report, I don’t track them quite as closely as you do, but they’ve got key partnerships, making major launches, partnerships with companies like Amazon, companies like Vodafone, they’re doing stuff with some of those flagship units from companies like Google and Samsung. So they’re in the game and they’re in those right markets. And if you kind of look at the result, by the way the stock is screaming today. So people are very happy with the result from this quarter. They’re in the right markets where they’re getting, they’re hitting mobile, they’re hitting IOT, they’re hitting automotive, they’re hitting data center, they’re hitting infrastructure. So they’re playing across the right spaces, they’re impacting and dealing with a tough, complex technology that people need and need at scale.

So we’ve done a lot of victory laps for Qualcomm and their success in mobile RFFE. But Skyworks has a comprehensive RF offering and they’re winning it in a lot of different markets and that’s driving good results for the company. So, I think they’ll struggle to win the top of the market, I think Qualcomm will continue to have, make their hay in that space basically because of everything else Qualcomm does in that space. You can’t deny that this company’s doing a good job in playing in the right spaces and building the right ecosystem, Pat, so I don’t have as much content on this one, but let’s just say my overall impressions from reading through the numbers and the results is that they’re heading in the right direction. It’s also an indicator that 5G has a lot of growth to go. And despite the fact that many people are kind of saying the consumer market device market is going to get smashed, people are going to want to upgrade to 5G devices. And that’s not just phones, that’s 5G everything that’s going to enable greater connectivity. So decent, solid from Skyworks Pat.

Patrick Moorhead: Good stuff man.

Daniel Newman: All right. Yeah. So I think we’re on the sixth now, right?

Patrick Moorhead: We are. Let’s hit Lenovo.

Daniel Newman: So I am pulling up my notes because you know, got to do this, so we got to, by the way, and I got to spend some time with YY, and YY, the Chairman and CEO that’s how he, that’s his nickname, that’s how he is addressed. And he came to the Grand Prix, Pat, and we hung out and we heard from him and he was very optimistic and very positive and for largely good reasons. Now over the last several quarters, Lenovo has been outperforming the industry. And this company sort of focuses on, it’s sort of broken its business into three big focus areas. You got the devices, the IG business, you got the CSS G, and you got the, is it DCG? ISG Infrastructure service. Yeah, sorry about that. There’s so many acronyms out there. And this company is one that loves their acronym. What happened though, Pat?

So overall revenue down just a little bit, but margin up and profit up. So on a year over year basis, given the fact that this company and they showed a slide, 62.6% of its revenue mix is PCs and yet only a 4% decline in revenue. Well, how did they fix that? How did they do that? Well, they diversified their business and they’ve diversified very well into areas that are not being hit as hard by the market. So you want to look at where things have gone. Well, services, 26% growth. You and I talked to Ken Wong who leads that business late last night and that was a great opportunity to kind of hear what they’re doing there. And then ISG, which is led by our friend Kirk Goggin, Kirk just saw a 33%. So they’re making huge growth on a year over year basis into those particular business units.

And what they were essentially able to do is offset the softness that took place in the PC market. The company is doing the things right to gain profitability and of course they’re focusing on what they kind of call this one Lenovo program. Now question I’m asking, and I’m waiting for a response on is I want to understand with Lenovo’s incredible strength in PC that 63% of this multi-billion dollar business, how much they’re able to lean on that to keep growing that non PC business. They’ve been able to diversify to that close to 60/40 mix. But if they’re going to be successful over this sort of one to two year, what I think is going to be goalie in the space for PCs, they’re going to have to see that ISG number and that services number continue to grow. So you’ve got the device as a service thing, that’s a big part of this, of the services, but that’s going to have to scale into a lot more enterprise services.

And then of course the ISG business, company got some really important approvals to do more business with the federal government here. That was a big thing for Lenovo. And of course they’ve had a big diverse skew win across the portfolio with, and we’ve done a couple of their server announcements here on the show. So, you know, see that the company believes that ISG is a huge moat for it. They’re seeing the server market growth, they’re seeing the edge growth. I mean they’re quoting out some numbers, Pat, they say by 2025 the server opportunity’s going to be $134 billion. And by the way, best growth, I’m just looking at their last five quarters this quarter. So on the ISG business.

So, I’m really liking the fact that the company’s put its head down, it’s diversified the business and it’s coming into what everybody’s looking at is kind of a tough period for the OEM on strength. The number to watch going forward is going to be Dell to see, because that is the most sort of comparable in terms of portfolio and see how Lenovo did and how did Dell do in this particular quarter. Because like I said, Lenovo is really able to prop itself up well seeing record revenue in areas like storage and Edge and offset a lot of the weaker softness in the PC space. So Pat, I feel like we’re cheerleading, I’m not meaning a cheerlead, I’m just being candid. It was a really good performance.

Patrick Moorhead: Listen, there’s cheerleading, which is saying stuff that you don’t actually understand, in my opinion, and then there’s admiration, and there were a lot of things strategically that Lenovo did that if I were a betting man, I would’ve said, I don’t think this is going to work. First of all, Lenovo used to be just a PC play. A good one, don’t get me wrong, and they absolutely kicked butt with the ThinkPad brand in particular, but then they went and they bought Motorola’s handset business from Google and then they bought IBM server business X86 server business from them, and those businesses were absolutely tanking after they bought them. And profitability was super, super elusive. And what Lenovo did is they brought in some really strong management to figure out both of these businesses. And heck, the Motorola brand is number three in the United States and it’s profitable.

And if I look at their roadmap, I got a sneak peak last week with their IDG senior management, the roadmap looks freaking hot. So, super-excited with that. And then when you look at, the company brought in Kirk Skaugen to run ISG, I think he was the second guy who came in there, took many, many years to turn that boat around. And here we are, record revenue, record operating profit, record revenue in not just in one segment, like CSP, but in enterprise and SMB. CSP grew 48% Daniel. Hmm, seems kind of close to the amount of growth that we’re seeing in the top CSPs plus gaining share from some of these ODM only folks. It’s the first company that I’ve heard from that actually outgrew the market and they did an enterprise and SMB by five points. Then you might say, “Oh, it’s got to be all the Asia out of China.”

Okay, record revenue out of the Americas, EMEA, and Asia Pacific. Okay, that takes that off there. “Oh, it must be just, just servers.” No, no, no. Record storage, Edge AI servers, and storage. Sorry, and servers. Outperformed their forecast by between 20% and a 100%. Oh, and by the way, in the quarter they brought out over 50 new products. So, do I sound like I’m cheerleading? I don’t know, maybe. But they’re kicking butt in places that other people aren’t. They’re taking share and they’re growing profitability. So, yes, I think that’s cool. And, hey, let’s just have even more risk. Let’s create a services division inside of a company that isn’t known for services.

And then let’s talk about them first on our earnings call, first in our product presentations. And like you said, doing really well. The one thing I want to zoom in on, which really stood out to me is I get a lot of the arguments in the market that says, “Hey, Lenovo’s doing a bunch of break fix of the hardware that they’re bringing up,” boom, manage services and project solution services, or 52% of revenue mix. And that says to me that 48% is break fix. Not that break fix is bad, but it’s very highly margin, but it’s not as sexy and it’s not as scalable as their managed services and project and solution services that they do. And oh, by the way, true scale, they have eight case studies out on the website. I was really, I wouldn’t say dogging them, but okay, as a service, let’s see the proof. And they’re starting to build that marketing capability behind it. That’s it. I all got buddy.

Daniel Newman: You done? You done?

Patrick Moorhead: I’m done.

Daniel Newman: Well cause if you’re done, if you’re done, that means that that means that we’re done, right? Does that mean that we’re done? If you’re done, that means that we’re done. That means we’re done. Well listen, great episode. Another big week of earnings. We’re going to have some backlog here because we’ve got some things that happen that were not earnings related, but we figured we just had to hammer through it. I think this is the last week of it being crazy. And we’ll come back, we’ll talk about the Honeywell events, we’ll talk about the Cisco events. We’ve got several other breaking stories that have taken place and more related to tech, new products, new offering, new services. We’re going to come back to that. We’re going to get back to that in the next week. But we know you love when we talk earnings ’cause it’s the ground truth of these businesses, and we dig that conversation.

If you haven’t hit that subscribe button yet, what are you waiting for? Hit it right now. Follow at Patrick Moorhead on the Twitters. I’m not sure if I’m going to pay the eight bucks, so I may no longer be verified on Twitter, but I was verified early and that was a kind of a badge of honor for me. I don’t know if I need to be verified anymore. I can become one of those people that just trolls on Twitter. Then I become anonymous. What have you guys on the all in column, they had a funny name for those people. But anyways, I can’t remember.

Patrick Moorhead: Brigadoon’s.

Daniel Newman: Brigadoon’s. I’m going to become part of the Brigadoon’s. That’s my goal. I’m going to Brigadoon you Pat. But in all serious, we love our community. Follow the Six Five, join us on LinkedIn, follow us in the community. We have lots of interviews, conversations, events, and of course this show every week. Favorite thing to do, start to finish. But for this week, for this show, it’s time to say goodbye now. We’ll see you all later.

Patrick Moorhead: Bye-bye.

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