Steve McDowell 0:41 Let's do a podcast Matt Kimball 0:42 man. Let's do a guest. Good podcast. So what are we talking about? Steve McDowell 0:48 earnings are starting to come in for a second quarter. They are and we saw three groups that earnings AMD so recording this on Wednesday, AMD reported yesterday as we record this Intel reported last week and there's been a lot of drama on the Intel front. And then I also want to talk a little bit about IBM because they had some interesting earnings as well. Matt Kimball 1:12 Okay, Steve McDowell 1:13 so where do you want to start? Matt? You want to work backwards? Sure. Matt Kimball 1:17 Yeah. Let's start with Intel. Yeah, let's start with Intel. So Steve McDowell 1:21 Intel's in the news they they delivered a solid quarter. I don't know if the I don't remember if they beat the number of met the number, but it was it was good performance. But the drama showed up and they said their seven nanometre is going to slip out a year. There's been some, you know, leadership churn in the last four or five days. Yeah. Is they dealt with the fallout of that. Matt Kimball 1:44 Yeah. You know, it's funny because when you look at their numbers, their their DCG their data sniper. It's a 43%. year over year, you think healthy numbers, right. Networking is up. Internet of Things is down, mobilize up. So there's some there's some good stuff in there. There's good stuff Steve McDowell 2:07 that they're hitting solid me, you know, even in a down server market like you said, DCG is up. I'm looking at the breakout their platform. I guess how we're servers live is up 36% Yeah. Matt Kimball 2:22 Yeah. So it's it's been a healthy business. I think it's the downward guidance and the Miss on the seven nanometre completely ignoring the fact that 10 nanometre for data centers even shipping. Yeah, right. Steve McDowell 2:34 Well, yeah, I mean, there's two ways to look at this right. One is, you know, kind of, from our perspective as his data center analyst is, you know, are they serving the data center market well enough? Are they losing ground and we'll talk about AMD in a second. You know, seven nanometre to me that that's, that's like a horse race metric when you look at you know, Intel versus AMD versus some of these other guys And yes from from an investment perspective, it's, I mean, if I were an investor it would be more important than if I were it buyer. I mean, there's nothing wrong with their 10 nanometre portfolio and clearly, you know, buyer buyers responding to that if you look at these numbers Matt Kimball 3:17 i think i think i hear you I think there's a different way to look at it though and that is if I see that AMD is out in telling Intel when it comes to you know, getting product out and being on the Advanced side of the process known and manufacturing node, then it tells me that maybe maybe Intel can execute against our strategy. I mean seven You know, when you get on you know, this you know, when you shrink your your package, you know, it's a power savings, performance gains, right, those are both code. But bigger is Intel puts a lot of money into manufacturing. And they did two things. Number one, they said, all this investment We've made and building out the seven nanometre or, you know, investing in 72 It ain't quite working for us and by the way, we had a big nightmare with 10 nanometre right, and you forget nothing slipped a couple years, right? That's part one. Part two is you know that that they said that so So number one, the investments aren't bearing out like they thought they were going to so can they even deliver is probably a confidence. Part two is they made discussions there are some you know, there were discussions and some languages that that led people to believe that maybe they would look at outsourcing their manufacturing process if they can't do it internally which is almost thrown away flag in some ways right which I think is probably it's a confidence thing so I see if I'm an IT buyer see be hitting on all cylinders. They're not being slowed down by this yes process new thing right, quote, unquote, process new thing. Meanwhile, Intel who I've been relying on are starting to really struggle so I can see where it would have an impact on on it as well. I think it's bearing out in numbers, it's bearing on the numbers, I mean Intel still maintain. So AMD in their earnings call, we can mix this up a little bit. So their server businesses finally had double digit growth, which tells me you know, Intel is still somewhere between, you know, 85 and 89.9% of the market server parts. So, the, the underdog story is good to tell. And, you know, we talked about this and other verticals, which is, Steve McDowell 5:35 you know, the the orders of magnitude difference in the businesses in AMD has a lot more headroom than Intel. So, again, I look at Intel and they're seeing you know, they're losing ground AMD. But man, that's a healthy business. Matt Kimball 5:52 There. Well, you're, I think I hear what you're saying. But you're looking at you know, you get it is, you know, there Add, you know, upwards of 90% of the market. I look at it as they've lost 10% or a short order, because niemals didn't do a lot for a. So there is a there's the What do they have? And there's the, you know, what is their momentum like, and I think the momentum is all moved to f8 away from Intel. You know, I wouldn't I haven't looked as deeply at the Intel numbers as I would like. But I would like to see what their cloud versus enterprise businesses like my guess is, all of that growth is still in cloud. And that is, you know, that's like that's the run rate business that just keeps getting quartered in order in order to over and over without much thought. But I think you've started to see the winds line up behind AMD, which is is what is making people nervous. The other thing on Intel is, they're losing executive management left and right. Yeah, I mean, Keller's gone. Mike neighbor, he's retiring who was you know, he was the guy that was was driving everything. Hang around their process no development. there's a there's a bit of Steve McDowell 7:04 No Yes. It's it's clearly not a fun place to be working right now. So my steel trap mine I do have the numbers right here in my head and the cloud business grew 47% Yeah. enterprise and government up 34 and then what is coms? sp 44% said Matt Kimball 7:26 guys, that's telco service providers, you know the telco guys. Steve McDowell 7:30 Yeah. And they talked about higher ASP s and their 5g business I guess that'll folds in. And the other part of DCG which is interesting, and I just want to make a note not go deep here. So IoT was down a little bit, but their storage business NSG which stands for non volatile storage group, I think their storage memory business grew 76% year over year. Now. I know we grew from 940 million dollars to 1.6 billion. But I think if we think back about nine or 10 months, there was a oversupply of NAND in 2019 and late 2018 coming out of 2018 and 2019 and a glut in the market and everybody suffered. I think what this is showing me and we've seen earnings from some others as you know Hynix is another example that came out last week. You know, their strength Now again, in the NAND market. Matt Kimball 8:23 Yeah. And they're making huge margins on that Steve McDowell 8:26 they're making huge margins. They didn't break out how much how well optane is doing I still think that's struggling to get ground. And it's not a high margin, although it's a high revenue part. But, you know, that's growing and then PSG is PSG was up 2%. Matt Kimball 8:44 Yeah, I will say this for Intel. And I don't mean to be about because I think they're really brilliant company. They make you know, they're they're very competitive but the thing I that gives me a lot of confidence in them. We talk about this a lot. You You know, we can submit a counter a little bit of what I said, you know, AMD is finding, you know, the winds lining up behind them on on the data center CPU side, where Intel is just miles ahead and this is in regards to AMD in regards to everybody in the market is Intel is lining them. So Intel seems to understand that kind of in the grand scheme, CPUs are one element of the Compute Engine, right? And all of those other elements talk about octane being kind of combining, combining different functions that drive better application performance, these emerging applications and workloads. You know, when you talk about octane, we talk about the asix market and the FPGA market and all of those other tangental markets, not 10 gentle but related markets that are required to really stand up these these new data data center workloads that are going to be the mainstream here in a couple of years. They're there so they are we're the popular is moving to and they're they're set up very very nicely for the success AMD still has to move beyond just epic right Steve McDowell 10:12 nope I hear you Is there anything else you want to say about Intel? Matt Kimball 10:17 No I didn't so you listened in on the on the call Did you hear anything on the Raja kaduri front around when they're gonna have their disagree? Steve McDowell 10:28 Okay, no nothing there No. Okay, so just some other kind of Quick Hits right. client was down, which I guess makes sense given the current environment. Yeah, well not down but the growth was 4% desktop was down 14% while notebook grew 14% that's not a surprise. I can't imagine anyone's buying desktops right now. Certainly not it buyers yeah There's a weird thing where, you know, their 5g and comms business was growing significantly, but IoT was down. Looks like what was behind that. They have product called Mobileye, which targeted automotive market. Yeah, automotive market is stalled out because of everything that's going on in the economy. So that was pretty good quarter Didn't they were down 27%. Were they really based on based on a stall in automotive production due to COVID-19? Matt Kimball 11:29 It's okay. Unknown Speaker 11:33 Interesting. And then, Steve McDowell 11:35 yeah, and then IoT revenue was down 32%. Overall, which includes Mobileye, they blamed that on COVID-19 impact and then a statement I don't quite understand which says US government entity list publication. So if they fell out of the preferred vendor what happened there, but Matt Kimball 11:54 interesting, I wonder if and I wonder what their prob I wonder if sounds like Drones are what they're providing. Steve McDowell 12:02 Oh, yeah. I don't know. Why, why is cloud growing at 47%? Matt, I thought we saw cloud dipping overall as a vertical over the last couple of quarters. Matt Kimball 12:13 You know, it's, I think a lot of it has to do with, you know, COVID in the ability to spin up in certain by virtual desktops by turning on services for the business from an IT perspective that you can deploy in the data center. There are a lot of drivers for it. It's not surprising to see a lot of business. Steve McDowell 12:32 So I will tell you what did surprise me I think we've seen in the started last quarter, you know, largely every every tech company is declining to give guidance this year because of the uncertainty Intel did not take that tack. They're actually guiding the guiding down. They said their revenue is going to drop 5% year over year and next in q3. Yeah, their operating margin is dropped 30% that's our down six points I'm sorry to approximate 30% and then earnings are going to go down as well. Yeah Matt Kimball 13:09 Yeah, well you know, I think if I remember correctly after q1 AMD guided down for the year as well they did. I'm pretty sure they actually I'm pretty sure they did. It was it wasn't it wasn't terrible the knowing of the guidance wasn't terrible but it was certainly down I'll be interested to to watch how you know code impacts next summer is always dead for these guys. You know that but you know, if there is a better response to COVID and enterprise picks up right. I'll be curious to see how that impacts silicon guys to semiconductor guys. Steve McDowell 13:51 Let's talk about the other semiconductor guys. Was that everyone is excited about am DS earnings yesterday, I think So, to hit the high points, what is it? They're their quarterly revenue? They came in at 1.9 3 billion. That's up 26%. year over year. Yeah. gross margins 44% which is up three points, which they say is largely driven by rise in an epic margins. Matt Kimball 14:23 Yeah. Steve McDowell 14:25 Although their semi custom product, they lost the margin there. Yeah. They said their profitability. Go ahead, you can say some, Matt Kimball 14:34 I say the semi custom, they're doing a new park. So it's always my crown that it's a little larger part anyway, so. Steve McDowell 14:42 So here's just throw out some stats and we can talk about it. So computing and graphics segment. So they so they have an interesting way of counting. So they've got computing and graphics, and then they have a group called enterprise embedded and semi custom which, you know, I know you wrote about recently. So computing and graphics, is that just their consumer business? Matt Kimball 15:06 Yeah, it's their desktop notebook. And Unknown Speaker 15:11 it's still called radio on their, their consumer graphics parts and gaming. Right It is it is still called radian. So Steve McDowell 15:20 so this is interesting because, again looking at Intel, so Intel grew 4% and their client business ryzen grew 45% year over year. Yeah, graphics down 5% the says this is an interesting statistic. So, again, looking at client, this is their highest client processor revenue in over 12 years, which was right about the time you and I left. So Matt Kimball 15:53 actually, it's about the time we joined, isn't it? Hmm, Steve McDowell 15:56 you're right. You're right. Yeah, it's about the time you went into the client Group installed their sales. I'm not surprised to see record quarterly notebook processor units because, you know, notebook market has been been hot as everyone transitions to work from home. Yeah, especially on the enterprise side. Matt Kimball 16:15 Everything I read was that rising. They took they took share from Intel the mind side in that, and I don't I don't follow desktop sales I probably should. But I know that the rise and the new rise in mobile part lagged the desktop part. But I also knew that it was supposed to be a pretty hot part. So it sounds like they they contract with it. It's Steve McDowell 16:40 a hot hard listen to this statistic. So there are 50 over 50 rise and 4000 notebooks in the market. And I'm guessing that that means 50 different skews not just getting notebooks. They're launching another 30 Plus Ultra Thin premium gaming and commercial OEM notebooks. I guess second half Yeah. On the commercial side, which is what you and I focus on HP and Lenovo are both ramping their first enterprise targeted notebooks powered by ryzen during second half Matt Kimball 17:12 Yeah, they, you know, do you really follow the notebook market the commercial notebook market a little bit, Steve McDowell 17:19 but it's been a decade so I don't spend a lot of time thinking about commercial client. Matt Kimball 17:25 Yeah. It's interesting because it almost feels like on the on that side they're almost even more conservative than you know, like when HP was was almost like the notebook folks for even more conservative in their adoption of our hearts than a these parts than the server folks was in our hearts. I know our were there, right. But it felt like there were just there was a there's a greater level of kind of hesitancy and adopting and promoting these I know some of it has to do with security. Some it has to do with reliability. But they're going haiti's going gangbusters right now on the rise in front, Steve McDowell 18:11 then yes. And then they're moving a lot of radium products in through apple. So all of Apple's GPU businesses are AMD is is Apple's only GP supported GPU. It will be interesting looking at the client market next year, as Apple starts ramping their arm based parts, which, you know, I think we learned at the apple developer conference is not going to support AMD at least out of the gate. What that does to AMD use radium business because outside of the apple world, it's an Nvidia it's an Nvidia market and then we also have Intel coming in with their consumer GPU sometime over the next 18 months. Yeah, so that business is going to get extremely competitive. I think for AMD, Matt Kimball 19:01 it is, this will be interesting to you know, it'll be, it'll be fun to watch the impact. Fun, right? as an observer, fun to watch the impact. And tell us coming into the market with a competitive discrete GPU will have on AMD overall business, right? Because they're gonna have to shift resources to stay competitive on that side. And what does that do for the resources you have on? Now there are two different organizations Obviously, I'm talking about budget ships right and focus shifts that are going to have to take place until one third of the people at AMD can't necessarily throw the money in the people have these problems? Steve McDowell 19:42 Yes, you are, right. So let's talk about server the they gave some color on the call. And then let's talk about numbers. But AMD said this is the first time they've captured double digit seer of the server processor market and that's probably in the company's history. I think during the early aptron days, we peaked at five or 6%. And they're showing continued growth there if you look at the actual numbers. So again, enterprise embedded and semi custom, AMD is grouping server parts with their semi custom gaming stuff. But they're saying quarter over quarter, they're up 62% driven by increased server processor share. Microsoft has added epic processors to power Office Online apps. I don't know what that means. Who is Tencent? Matt Kimball 20:39 Tencent is a Chinese cloud provider. Steve McDowell 20:42 Okay, so, Tencent is this is a highlight from amds news. Tencent ramped multiple millions of VMs powered by epic, so I'm guessing it's a big part of their Yeah, infrastructure. Yeah, Google announced exclusive use of epic public Are Google confidential computing VMs? Which is interesting to me, is there something we talk a lot about? Or, you know, some of the security features that are showing up in Intel's parts does does AMD have some secret sauce on a security front that would make Google choose them for their? Matt Kimball 21:18 Yeah, they have a security. They have silicon dedicated to security is based on arms, trust them. It's essentially a copro. But they also have, they also have an encryption mechanism for for encrypting so you can physically encrypt your memory, which is nice, but also you encrypted VMs individually and not not just encrypt them. But encrypt them in such a way that there's a pass through of the hypervisor to the encryption key, the key store, because in the silicon so even if you're a even if you have a hypervisor you have max no access into that VM itself. Truly on by who owns the keys? So it's the band Steve McDowell 22:04 does does. So we know that Intel has a proprietary solution along those lines. Does Intel also support the trust zone? Matt Kimball 22:14 No, they don't Intel doesn't and Intel really doesn't what Intel does is they encrypt memory spaces. So you have to in order for it, so it doesn't work with hypervisors. It works at the application level. And you have to rewrite your applications to take advantage of this capability. But if you're running things in a VM, it all breaks on you. Unknown Speaker 22:35 Yeah. Okay. Matt Kimball 22:37 And you see you combine that with a side channel issues exploitations that Intel had, and AMD has a distinct advantage on the security from just going back to something. You mentioned AMD and double digits. They were actually about 25% share back about 10 years ago, of the surviving of the server market, yet updated. have a very high share. That was at the height of Opteron and the early days. Okay. Below double digit back in like 2012 Steve McDowell 23:08 or so. Okay. I did not know that. Unknown Speaker 23:13 What else? So, so I guess Google Cloud. Steve McDowell 23:17 They appreciate Andy's approach to security. Well, you Matt Kimball 23:21 know, it's not just Google Cloud VMware does it too. So VMware just in a very recent release, enabled ESX to recognize a call SCD secure diversification as well. So even in the ESX hypervisor, you can incur these VMs and they can create essentially drill a hole through the hypervisor to go directly down into memory. So yeah, that was a big that was a big win for AMD. Microsoft had had it for a while with Hyper V, but VMware enabling it was a big deal. Unknown Speaker 23:55 That is okay. Yeah. Steve McDowell 23:59 Are you laughing at I have no response that I have some response. Really, that's boring. It's not boring. here's here's what I'm thinking. So not not to relive Steve's history, I hired into AMD in 2004. And my first job there was was on the secure virtualization at the time they treat creep, treat it security and virtualization together, right. And a lot of this was driven from a program, Microsoft had that eventually I didn't roll out called nx gubb. Which, you know, predicted a lot of what they're shipping now, in what's going through my head as you're describing this, it's like, you know what, we wrote these specs 15 years ago. And it's good to see them come into fruition. I think it's good for consumers, for sure. In a cloud world, where, you know, all of these side channel attacks and cache attacks are rampant. This is exactly the kind of solution you want to see out there. Yeah, Matt Kimball 24:59 yeah. It's funny you say that because I remember when you hired me on the whole Trinity project that was going on. And I ran into a few times before that when you were on your Steve, the virtualization King road show, t shirt made for that, didn't you? I did. I did. Yeah, it was funny. I remember the early days of that, the early days of ABS current security implementation, the secure memory in particular, and you can see they would run these in these scrub attacks on on memory. And you can see the, you know, the unprotected memory versus the protective physical memory and it's legitimate in the cloud guys loved it. I don't know, broadly, it's been adopted and the cloud guys absolutely Steve McDowell 25:46 loved it. Well, you know, enterprises a different environment, and you don't have to worry so much about VMs attacking each other in a way you do in a public cloud environment, right. AWS clearly likes epic parts, too. they've launched EC two comm c five a great gaming over there man it's like the military. So they announced their EC two c five a and since is based on based on epic wallet while I'm talking about AWS to digress for a second. Amazon also announced this week as we record this that they're Graviton. two instances they're juicing the storage they've added NVMe attached SSDs locally on. Unknown Speaker 26:27 Yeah. Steve McDowell 26:29 I'm guessing I don't know. But the Graviton to I'm guessing are not shared resources. I'm guessing if you get a Graviton instance you're you've got your own motherboard just because of the architectural choices they're making. You don't think that might that's true? Matt Kimball 26:45 I think there well, there there are multiple instances right? It depends on the type to instance you get I think I can either there's the there's the the memory optimized or the applicant storage optimized for your data. They call it and then there's a general purpose. Okay. I think the general purpose stuff is is shared, I don't think the optimized instances are shared. Okay. Look, I'll go ahead. Either way is, you know, when we say, or I say it every podcast, when the hell is going to get some love man. You know, you look at the numbers that, Steve McDowell 27:24 you know, Amazon shows on performance. It's like, these are legit parts, you know, very legitimate part. I know. I know. And for the many of the workloads running in public cloud, it's good enough. And we talked a lot about this in the last podcast. And and you know, we're going to talk about it again, I think a lot more as once the arm, the artificial conference early October. Yeah. So we should line up some guests from arm and Matt Kimball 27:51 back on to talk about it. And now they're not just good enough steady, they're better in some cases. Yeah. I know. I know. Steve McDowell 28:02 Yeah, I don't want to digress on ARM too much. But you know, as we said on our last podcast, this is very reminiscent of, you know, x86 versus risk in the 90s. But it's also a little reminiscent of Linux versus mainstream Unix in the 90s. And even windows, right, you had this thing that's growing up out of kind of the tech side of the more technical side of the world that just starts slowly infiltrating and taking over and I think, you know, that's what we're seeing with arm. Yeah, I don't think Matt Kimball 28:35 open source used to be like, a Hamas letter word and BSI. Everything was skunkworks. Yeah, Steve McDowell 28:41 yes. Right. I can't put my copyright on and I'm not gonna ship it. And now everything is open source. Yes. But let's get back to AMD. So we got AWS Dell, HP Lenovo, both expanded AMD offerings with additional second Epic processor platforms I misread second there. Yeah, so that's a largely largely every server OEM is expanding their portfolio. Matt Kimball 29:10 Yeah, I think Dell went a little bit bigger than the others are there, they all have a healthy portfolio. Delegates rounded up there, they like their approach, they took single socket, dual socket and then density optimized but, you know, they went for each kind of for each of those like single socket, they went kind of the just, you know, basic compute and then the really the compute optimized, you know, like, lots of storage, lots of capabilities for both the single socket and the dual socket. And they were also like, as they took epic based platforms, and they expanded their solution to their ready solutions and appliances, if you will, offerings greatly so that it's incorporated into all of those ready solutions, which I think is really smart. Steve McDowell 29:57 They really Matt Kimball 29:59 get to I'm going to talk about this a little Steve McDowell 30:02 Yeah, we should and not to go all man again. But when Dell shipped their first, or their first AMD part and any platform, it was front page news everywhere. And now they're with how the world changes. Yes. You know, you look at what Dell is doing, you look at, you know, Microsoft and their embrace of Linux and open source. It's great. It's great. It's a brave new world it is. And then the last thing is, Matt Kimball 30:30 it's interesting to see how when you look at all the major OEMs, you know, Dell, Lenovo, HP, Cisco, so on and so forth. And you look at how they have, how they have adopted and brought to market, Intel versus AMD. It's very interesting. And I guess this makes sense. But when you look at Intel, you know, there's just it's countless number of skews, it's almost impossible to keep track of all of the different offerings right with AMD And maybe it's just because it's, I think it's because it's newer. But it's interesting to see the epic rollouts and each company has their own. They know where their strengths are in the market. In other words, you know, the high performance computing and the kind of online business and they have each built gravity you call it epic gravity around those areas of strength that they have on the market, which tells you they're really trying to drive greater adoption of these platforms, because that's where they see their their greatest opportunity. Yeah, anyway, sorry. Steve McDowell 31:35 Yeah. And, you know, epic is not a meaty part. It's got you know, it has a very distinct value proposition and a lot of workload segments. And they're not standing still. So this this is the bit of news I think that people are comparing against Intel Intel talked about as we talked about earlier, is delaying their seven nanometre or because of manufacturing issues, I think is what the presses shaking out to say. AMD is on track to begin shipping Zen three Alon data center CPUs later this year. What's new and different about Zen three is that's significant. So there's a lot, there's a lot that's different Matt Kimball 32:14 that can't be talked about yet. It's not just publicly disclosed, but it is it's gonna be in a five nanometer process node. Insane. For people who are listening, they're like, what's five nanometers? Seven, eight are attending, right? It's, it's, without getting into it. It's one thing that's important to note is that not all process nodes are created equal. It's fair to say that, you know, to tsmc or Samsung or glovo, their process nodes aren't necessarily as efficient as Intel's. So, you know, just because AMD is going to five nanometers, it doesn't mean that it you know, it has Intel has more efficiency. So they're five nanometre actually gives you a little bit better power efficiency a little bit better performance. five millimeter from AMD is more equivalent to like a seven nanometre from Intel. Yeah, they're gonna be the enemy and there's a lot more to it that we really can't talk about yet but that's Steve McDowell 33:16 the the key takeaway here is Lisa's team is executing. Matt Kimball 33:22 Boy, I'll tell you what, man, you gotta love. You have to love Lisa Sue, she has taken that company and a lot of the work started you know, with Lori and others before kind of, you know, setting them on the right course but she is she has created an execution machine over there. It is incredible what they're doing. Steve McDowell 33:41 Yes. And that's really what it's about, right. It's about the execution as much as it is the the the IP they're generating. The last thing I would say about AMD is they're also giving guidance, they did not guide down. They're predicting for FYI 2020 in their fiscal year I think aligns with the calendar year. They're going to grow approximately 32% year over year. Matt Kimball 34:10 What's this? It's called me did this. Steve McDowell 34:13 Looking at the slides, they're up right in front of me here. So they're saying q3 2020. Enough fy 2020. Outlook non gap, they're predicting revenue in q3 of 2.5 billion plus or minus 100 million. With FYI, 2020 growth of approximately 32%. year over year. They're also looking at margin expansion. Only a point they're looking at. I'm sorry, not a point. They're looking to approximately 45% margin for the year. Matt Kimball 34:39 Okay. Oh, interesting. q1, they were going down because of maybe maybe not Steve McDowell 34:46 that, well, you know, q1, I, you know, we're, yeah, we're five months into this. Four or five months into this new new economy. So I'm looking at their stock price and this is what hurts So they are up 12% today. They are trading as we record this, it's $76 a share. Yeah. And this kills me because when I left AMD, I sold all of my shares at about $3 and walked away from options at $30. They were underwater. And now look at this $76 Yeah, good for them. Good for everybody there. And what a great story. Matt Kimball 35:29 Absolutely, yes. Yeah. You know, it's one. Let's say it's worth noting that here they have a new guy over there. Dan McNamara who heads up the server business and, you know, there's the talk about, you know, it's all about execution, but it's execution on building and delivering product. It's also execution on bringing that to market and finding irrelevance and I think he's been a great, he came over from Intel. He's been a great addition to that kind of the back end of that. execution machine right driving in the market getting the right design elements getting the right partnerships and and a key part of that right when I said execution earlier I was you know, mostly talking about manufacturing and product, but you're exactly right. And if you look at the the way that the OEMs and AMD partners are talking about these parts and positioning these parts, you know, they're absolutely doing something right on the relationship front. Steve McDowell 36:27 It's unusual I think in this business to see OEMs get excited about hardware. Yes, but but they do when it comes not just epic, but man, the rise in the thread Ripper stuff. It's a great story and it's not just because it's better price performance, right? These are some kick ass parts that are getting people excited. Matt Kimball 36:50 Yeah, you're right. You know, a lot of times like nerds like you and I'll get down into the, you know, total cost of ownership or performance per watt or squat per dollar and get Intel these metrics that you You know, unless you're unless you're a true architect, you don't really give a crap about, but it goes beyond that, you know, this doesn't require a lot of critical thought. These are just from the billboard perspective, you know, bigger, not bigger and better, better, better. Right, right up. Yeah. Steve McDowell 37:19 Let's switch gears entirely. And just want to hit a couple of points on IBM world. Yeah, IBM announced their earnings I guess a few days before until maybe a week. And again, I'm not a financial analysts, I don't keep track of how they're comparing against the street necessarily. But they delivered a strong quarter and there are a couple of segments where they were particularly strong and I just want to hit on you know, everybody questioned the Red Hat acquisition and and how relevant that was going to be to IBM. So if you look at their Their highlights for the quarter. It gets confusing when the fiscal and calendar year doesn't line up. So they just finished their first quarter. Red Hat grew 20% year over year. Yeah. What did I want to talk about? cloud is up 23%. Cloud was a bright, bright spot. Red Hat was a bright spot. Yeah. But let's talk about systems. I'm talking slowly because I'm scrolling through the presentation looking for the numbers. So Matt Kimball 38:38 yeah, it's nice to see Red Hat By the way, as you're scrolling, it's nice to see the red hat. You know, and people were concerned that you know, it's going to get sucked into the IV, quote unquote, IBM machine and people far too negative on that acquisition. It's nice to see a redhead kind of maintain their autonomy yet, IBM be able to leverage the kitchen sebright had within its its offerings. I mean, it's they've really they've done a good job of walking that line. Steve McDowell 39:05 They do. And they talk about Red Hat and cloud and and kind of the same breath, right? I mean, Red Hat is there to help bolster the cloud story. And this is interesting. I was I was on a watching a Twitter. Twitter discussion, was it last week, the Google Cloud summit was happening sometime in the last two weeks. And and somebody says, Google Cloud center here, and one of the an industry analyst who covers cloud stuff said, is IBM even relevant in cloud anymore. And she looked at the breakout of the numbers in it for worldwide revenue around Cloud Spin public and private. IBM is number five. Or number number number five, but behind the three big public cloud players, the Chinese guys and then yeah, and then IBM is there, right? And it's not just private cloud. One of the things I've noticed As IBM is, you know, continues to update their portfolios over the past 18 months, every software release now is embracing public cloud in a way that it didn't before. It used to be all IBM cloud. So these are significant player. And it's not that they want to be your cloud provider necessarily. I think at one point they did. But now it's all about I want to help you tell this cloud story. You know, it, they have some IP that they're moving there, right. And Red Hat is a big part of that. I think that also drives a significant amount of their services business. Yeah. Which is strong. But let's talk about software and systems because that's what you and I care about. Yeah. Let me let me just give you some numbers. So their overall software and system segment was up 4% year over year. And it's a blend so I bmz You know, we've we've been talking about the mainframe on and off I guess since we've been doing this podcast, I bmz is up 61%. year over year. Matt Kimball 41:12 Yeah. And I'm trying to think to the refresh cycles and Steve McDowell 41:18 yesterday, so they announced some new hardware the back half of last year. But what's interesting to me is, you know, a main, well, how often do you refresh your mainframe? This is the market, I need to go learn more about. You know, when I think of mainframes and IBM z, you put these millions of dollars into this product and I expect it to last a while. So if I own one of these, am I rushing out every refresh cycle and Matt Kimball 41:45 like, I think the question I have and I don't know if you know the answer to this or not, or if you're what you're looking at the charts but is Linda's Linux one fall under the Z? Unknown Speaker 41:56 Yes, it does. Matt Kimball 41:58 Yes, Linux one. Whereas real is where you're seeing a lot of the growth right? And that is, for people who are listening or watching our beautiful faces Linux one is think of, I hate to say mainframe because IBM hates to position it that way. But it is a big honkin Linux platform that's great for service providers. You know, whether it's an MSP or cloud service provider, it's a it's a great solution for enterprises that have a lot of, you know, Steve McDowell 42:27 this will run millions of instances of, of Linux side by side, right? Matt Kimball 42:31 Yes, correct. Yeah, yeah. I think that's probably where you're seeing the growth it's a pretty compelling solution story. I think if people can get I think people you like you and I are weird because we think IBM we think mainframe maybe the younger generation isn't so isn't so caught up in the, you know, the negative connotations of not even negative but legacy connotations of mainframe, but I don't know, but that Linux one platform is it It's pretty it's pretty beastly, Steve McDowell 43:01 I say. So you and I are Industry analysts we covered datacenter segment and we don't know enough about this. I'm making a note here. I'm going to reach out to IBM and see if maybe somebody can come talk to us about where IBM z plays and how we should think about it. Matt Kimball 43:17 Yeah, I would. Yes. I would caution though, that the even with an IBM Linux one team, even though it's it's in the zeba portfolio, they want us around group I think Steve McDowell 43:29 yeah, I think Yeah, I just think we need more color on this because it's significant part IBM's business and looking at the dollar figures around this it's a significant part of the overall IT spend right, sure. So be interesting. I'll tell you what's not a significant part of overall it buying and that's power. Powers down 32% are they largely just selling the legacy customers at this point, and this is gonna die. You know, it's like dex backs where they They were on life support until there's still people running backs for legacy software. Matt Kimball 44:04 It certainly seems that way. Right? They've gone to the open source model on on power design. I think it's a. And it's funny, if you look at the power platforms, you know, they're getting you talk about performance beasts, right, and their performance base. And you look at the open compute movement tied to it. And some of the designs that were coming out from companies like Rackspace around power based designs. were incredible. But just never found that Steve McDowell 44:34 traction doesn't have doesn't have a big ecosystem. That's the price performance relative to x86. You know, is it worth the premium? I'm paying for that. And then, you know, it largely runs AI x or Linux. But if you're buying power, you're buying it for AI x. Yeah. And if you look at just a licensing, it's Matt Kimball 44:57 you know, it's funny, if you look at if you look at how IBM's approach or the the power approach to the server market versus the arm based approach to the server market, right one key above the x86 performance profile and key below what would many would consider below. And it's interesting because it seems to me that you know, the arm the arm ecosystem is finding a lot more success than power was power rubber dude. Unknown Speaker 45:30 But anyway, here's Steve McDowell 45:32 the other thing I just want to point out and I know a little bit of this is associated with mainframe refresh. So IBM storage unit, and IBM is the number five ranked storage player or number four again, it vacillates. They have experienced their third consecutive quarter of positive growth in their storage business. So this is the the first store journey we've seen this question. So I don't know how they stack up. But if you look at last quarter, the market shrank. And the only two storage vendors showed positive growth. One was Pure Storage, which grew at 12%. And IBM grew, I think at 3%. In this past quarter IBM storage grew at 19%. You know, some of this is mainframe related. The storage group, their software doesn't report under under storage. I know they take a significant amount of they take a significant amount of revenue from their software piece. Matt Kimball 46:34 What do you attribute the very strong quarter two? Is this just a function of you know, clock in turned on and they're supporting Steve McDowell 46:43 now? Yeah, I think some of it is you know, by BMC is growing so as your mainframe storage, right, so some of that is that IBM has been, you know, very aggressive about keeping their hardware refresh. They have some of the best storage hardware on the market. It right if you look at the breadth of their portfolio, so it'll be interesting to see is this refresh cycle kind of evens out what that does to their storage business. I only bring it up because it's notable relative to the rest of the rest of the industry. Again, the first quarter we saw IBM and pure with the only growth Dell and HP shrank. Matt Kimball 47:21 Pacific emphasis on that trade Steve McDowell 47:22 shrank. It's my new favorite word is it shrunk or shrink? shrink? I can't break out the dictionary right now because we're on a podcast. Unknown Speaker 47:35 Sure, it's right on your desk Steve McDowell 47:35 there. Yeah. The other thing and we talked about IBM and cloud, I'm just throwing numbers out right at this point, I'm run out of things to say, but their cloud revenue was up at 6% year over year. Again, sorry, their cloud IBM's. Cloud revenue was up at 6% year over year. So they deliver they delivered 1.3 billion in cloud revenue and that does not include services. In the past quarter, Matt Kimball 48:02 you are right. I think they get so old again, it's they just get so overlooked. And I wonder, obviously, they're not overlooked by everybody because they've got a very healthy business. Right. And I can't imagine that's just the banks and the Steve McDowell 48:16 government. No, right? Well, this is one of these companies. And we talked about I think we even talked about this last podcast with someone else. They've been around so long, and everybody has such preconceived. We don't talk about them. Analysts don't talk about them. The Press doesn't talk about them, right. They're not young and exciting. They're just sitting there and they're executing. And, you know, everything they do, I think, on the systems and software side, is to supplement and drive the strategy around cloud and services. Yes. You know, their storage business with the IP they have just to take an example and I think you could say the same event. Maybe there business and some others, if they were just to go and and, you know, target a vertical around storage or AI or whatever, you know, they could be a compelling competitor there. But that's not what they're choosing to do. They're choosing to, you know, throw all their weight behind, you know, certainly z as a cash cow, right? So is the business in its cloud. Right. And everything is in support of that they're not trying to be a server vendor. Right? Right, right. Yes. And no, Lenovo is greatly benefited, I think from IBM is desire not to be a you know, just another OEM. Matt Kimball 49:38 Yes. I would wholeheartedly agree with you on that. Steve McDowell 49:42 I don't have any other color to add there. But I just thought it was interesting set of earnings from IBM, Matt Kimball 49:47 who's coming up in the next couple of weeks for earnings. I don't know Steve McDowell 49:51 about that. I should know this. I shouldn't too. Matt Kimball 49:56 That's why I asked you because I'm like, man, I should know but Steve McDowell 49:58 see no rules. Dell announces on August 27. So that's about a month away. Yeah. Okay. HP announces Matt Kimball 50:11 right around that same time right there all. Steve McDowell 50:14 Yeah, there. We actually Google's telling me they're also on a 27 although they typically don't do the same day. Who else do we watch? Unknown Speaker 50:28 Cisco? Steve McDowell 50:29 Cisco, right? This is compelling. Cisco announces on August 12. That's a good one. So there's a lot so we should you know, by the end of August have a pretty clear picture of what second quarter look like and second quarter You know, this is the first pandemic quarter which was not, you know, transitional. So right. And then I think that's it. You and I, we have some guests coming up. I don't know that we want to pre announce them but keynote In the space, we have some good guests coming up on the podcast over the next couple of weeks. Matt Kimball 51:04 Yes, we do. Steve McDowell 51:06 We do. It will be interesting. Matt Kimball 51:09 It'll be fun. It's always fun. It looks smart with glasses on. Steve McDowell 51:14 You know, I paid extra for that. Matt Kimball 51:16 Yeah. Think about it for a second. That's funny. Does that work? Steve McDowell 51:31 All right, let's let our listener go. and tune in again, same bat time, same bat channel. See you Matt Kimball 51:38 next week. Transcribed by https://otter.ai