Keynote Analysis

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Unpacking the cloud wars, big tech earnings and the Microsoft-Activision deal

Today’s RSA Conference live analysis segment from theCUBE’s Dave Vellante focused on the latest earnings reports of big tech companies that focus on cloud business.“Microsoft beat earnings. Azure came in at about 31% in constant currency,” said Vellante (pictured). “Google Cloud grew at 28% … I’ve got AWS growing at 15% this quarter year over year.”These numbers indicate that Azure is gaining share over its rivals.Vellante discussed this and more at today’s RSA Conference, during an exclusive broadcast on theCUBE, SiliconANGLE Media’s livestreaming studio. (* Disclosure below.)UK regulators block Microsoft-Activision dealVellante also touched on U.K

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Keynote Analysis

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>> Hi everybody. Welcome back to RSA Conference 2023. This is theCUBE's continuous coverage day three. It's Wednesday, hump day here at the show. Last night, it was just packed. So many parties, you know, we're bouncing around. John Furrier is on his way up because he's stuck in traffic 'cause he's coming up from Palo Alto. But he's got all kinds of information that he's been digging. He and I were out last night. Got some good, good action going. But yeah, so people are saying there's probably 40 to 50,000 people here. I haven't heard the official numbers. My guess was 50,000. It's actually amazingly packed. We had the keynotes this morning. One of our guest, John Chambers, who's coming on later was speaking at the keynote in a little fireside chat. He was talking about the lack of urgency in the industry. So we're going to ask him about that. And there's been a big week in earnings. Microsoft announced they beat their earnings last night. Google has announced. I wanted to take a minute to unpack some of the cloud action. As you know, we follow that very closely here. And the other news is the UK is, UK regulators are blocking the Microsoft acquisition of Activision. I dunno if you guys heard that, but you know, we thought that was going to go through. We thought it was going to be have some conditions that the UK was going to put on it, but it looks like they're going to try to kill it. And so that's a big blow to Microsoft. I mean, they were basically going to transform their entire gaming business to be online and basically a cloud-based business. And that looks like it's really in jeopardy It's another example of governments around the world basically, you know, trying to halt, you know, the acquisition posture of big tech on the potential that it could limit competition. It's really seeing a shift in sort of the pendulum swinging, sort of away from sort of the business friendly posture that we've seen historically. We certainly know Lina Khan in the United States, the chair of the FTC is definitely on a mission to scrutinize more closely, that's an understatement, big tech generally, and big tech acquisitions specifically. We certainly saw the US government was very unsupportive of the arm acquisition by Nvidia. Sort of didn't really, didn't support that. In fact, I think it's sued Nvidia and so we're seeing just a change in posture there. So Activision is the latest. But back to Microsoft's earnings. They beat earnings. The stock is up today quite nicely. It's up, you know, high single digits. And Azure came in at about, we had it at about 30% growth. They came in at about 31% growth in constant currency. So we were right on our number. GCP, Google announced Alphabet announced. You know, it's interesting, we follow Google very closely. We listen really carefully to the announcements that they make, their language, their earnings posture. As you know, only AWS really reports what we would call clean IS, infrastructure as a service revenue. So you take AWS and it's harder to make an apples to apples comparison across the big three clouds. AWS, GCP, Google Cloud Platform, and Microsoft Azure. Because Google and Microsoft bundle in their other software, their application software. So for instance, office 365 is in Microsoft's Cloud number. Google's sort of workspaces is in Google's Cloud number. However, each company gives clues as to the growth rate and the relative performance. So for example, Microsoft actually reported that its Azure business grew 31% in constant currency. The problem is they never tell you and they have never have historically what that number is, what the absolute number is. So we've had to triangulate going back, you know, I dunno four or five years. So I'll talk about where we have that number. GCP's a little different. So GCP will tell you that their cloud business was $7.5 billion this quarter. Now normally what they do, and they did as well is they will give a relative performance of GCP, sorry Google Cloud, they'll give you a number. The $7.5 billion, I might've misspoken there but Google Cloud was 7.5 billion in the quarter. Now normally what Google has said historically, going back you know, a few years now that Google Cloud, GCP the language used to be on the earnings call, significantly the growth of GCP significantly outpaced that of the overall Google Cloud. That language changed about a year ago, maybe five quarters ago, four or five, I can't remember exactly where Google then moderated that and then said GCP grew faster than the overall cloud business. So we inferred from that that, okay, the gap between Google Cloud growth and GCP was closing. The GCP was higher, but it was closing. This quarter they basically said GCP remains strong across the board in all regions, in all industries. My estimate is that Google Cloud actually grew more slowly than Google's overall cloud business. So you've got Google Cloud growing by their numbers at 28%. I'm guessing that's constant currency but I'm not positive. Actually, it may not be. I had 28% for GCP. I think that number's lower. I think it's more like 21% to 22%. But Alphabet grew 3% overall. It had a $70 billion top line and it had an operating profit in its cloud division the first time ever. I mean, remember it was losing billions in its cloud division. So that's a real positive to focus on. And then AWS announces later on this week, word is there's some rumors that even AWS is going to have layoffs. So that's a big deal because AWS is the profit driver. Everybody expected that the AWS side of the business would not be impacted by headcount reductions. I've got AWS growing at 15% this quarter year on year. Others I think have them somewhat lower. And we've heard conversations that Q2 forecast are down as low as 10%. Now, people may think and do think that that's a sign that Amazon is losing share. And they are. No question that Azure grew faster and gained share this quarter. I mean at 30% it's you know, clearly appears to be anyway growing its share. We'll see when Amazon announce, but I don't think Amazon's going to be growing at 30%. No way. Google's a bit of a concern 'cause they're much smaller. So here's the numbers. My estimates are that a Amazon AWS when they announce will come in just above $20 billion for the quarter, let's call it $21 billion. That's about 15% growth year on year. I've got Azure at $17 billion or about 30% growth in constant currency. GCP growing 20% to 21% at $3.5 billion. So you can see the delta, I mean we're talking about you know, 6x, 1/6 Amazon's business. But notice at $21 billion and $17 billion that delta this is just an attempt to be apples to apples with infrastructure as a service. You can see that there's a compression between Azure and AWS. So we'll see what's happening there. And again, the companies don't report apples to apples, but through, you know, various research and analysis and surveys and other discussions we try to triangulate that and take our best shot. We're one of the few companies that actually does try to do an apples to apples comparison. Meta of course is next. Later on this week we'll be hearing from them. I also want to talk about just a general climate. We talked about this yesterday a little bit with John, John Furrier. We got a weird situation going on, right? And there's more talk now of a soft landing. Soft landing, meaning that the fed's actions to raise rates and stall the economic growth really is an effort to fight inflation. The concern is that'll cause a hard landing which would be a big recession. There's more talk now about a soft landing because you've really got a mixed case. You've got most earnings now coming in above expectations. So we're not seeing a lot of I think I saw the number, 80% of earnings thus far this quarter are above forecasts. Have hit or beat their consensus forecast. So that's a good sign. Now nobody's really, there's not a broad increase in outlook. People aren't beating and raising. They're beating. So there's still a lot of conservatism but I think that conservatism coming into this quarter it was a good thing. But you're seeing, obviously banks are down, you know, First Republic continues to be under fire even though the big banks are just fine. GM is up. I mean GM had a great quarter and raised. They're one of the companies who did raise. Consumer staples are benefiting from higher inflation. So things like toothpaste and diapers and you know, detergent and Coca-Cola and McDonald's are more expensive. Housing obviously is softer after the big run up. Google from its results, we saw advertising down. We'll see what happens with Facebook. You know and tech and cloud generally is down. But since the beginning of the year, actually since October people that bought the dip actually have done pretty well. But it's still a lot of uncertainty out there and a lot of as I say, conservatism in the numbers. The other thing is, and we've reported on this that the series C funding or growth funding really has dried up and there's a lot of funding that's from VCs that's shifting now into early stage. I think VCs are all excited. Everybody's excited about GPT and foundation models. VCs are particularly excited because it means they can start more companies for less money. So if you're a venture capitalist and you've got let's say you got a bunch of money, let's say you got, you know, 5, 10, 15, maybe even a hundred million in to a series C company a hundred million might change your posture a little bit. But let's say you've got a bunch of money into a series C company and that company's got to do a down round, is going to go wash out their existing shareholders to a certain extent, the employees. So they're going to be demotivated. You got to bring in some other outside investors. You got to really rethink about, okay, how are we going to retool this company if they're not cash flow positive or at least fundamentally profitable. Inherently profitable. So what would you do? Would you put more money into that entity or would you say hey, let's start identifying companies that we can start that can really drive AI. 'Cause that's the next big wave. And of course we know VCs, you know, they would much rather have, you know, a 10% hit rate on a 100x or even a 1000x return, you know, than a 90% hit rate on a 1.2x return, of course. So unlike Tiger Management, which is a huge hedge fund, which you know, recapped its whole portfolio which puts in big, big money looking for a you know, let's call it a 1.5x return because the numbers are so big, the net is so big. VCs obviously play a different game. And so there's a lot of conversations about the shift in investing mentality. So that's something that, you know, we're watching. Now here at RSA, you know, there's a lot of conversation certainly from the vendor community about optimism. You know, we're hearing it all over that we're optimistic. You know, looking forward, the possibility for generative AI to do good things is great. You know, I guess I'm an optimist but I'm a realist as well because the other piece of the narrative that you hear is we got to spend more but we spend more every year but it doesn't seem to make us safer even though our security is better we just don't seem to be safer. So that's something that we've been poking at a little bit because most security chest wounds, if you will, open chest wounds are self-inflicted. So it's unclear why spending more is going to be you know, an answer. And you know, look despite heavy investments in cybersecurity, you know, people are still falling victim to cyber attack. So, you know, it begs the question are tech vendors over promising? You know, that's been a hallmark of technology companies for years is, you know, they promised the moon and you know, they deliver, you know, they promised the stars and they deliver the moon maybe I should say. There's also a lot of talk about foundation models, of course. I mean, everybody's talking about AI. We've not found clear evidence from talking to the big threat intelligent companies. You know, think Mandiant, think Palo Alto's Unit 42. We got a lot of CrowdStrike folks coming on today and we'll ask them. We've not seen or heard from them that there's clear evidence that the attackers are using foundation models like GPT to actually invoke attacks. Now that doesn't mean they're not doing it. As John Furrier pointed out yesterday, Dave, I guarantee that they're doing this but they haven't seen clear indications yet in terms of signatures that they can definitely say are you know, GPT driven. And I think part of the attacker approach is going to be to hide those signatures. Use AI to hide those signatures. So that's a big, you know, discussion. Well, there's also of course a discussion on the upshot of generative AI. You know, we talked to Google about this. Sunil Potti said look, we're going to focus on the low risk, high return areas. And what are those? So one of the things that was really interesting in the Palo Alto Unit 42 threat intelligence report is that 80% of the alerts come from 5% of the rules. Okay so, and this has been the case for years. So what does that mean? That means that SecOps pros are getting inundated with the same types of alerts and they're struggling to prioritize. So perhaps generative AI and AI you know generally can be used to help prioritize and maybe even take action on some of those alerts and maybe even sift out the ones that aren't critical. So, you know, the other sort of point of discussion which is kind of interesting is cybersecurity you know, often leads, breaches often lead to significant financial and reputational losses. So should security vendors be held financially or legally accountable for failing to prevent breaches? You know, and if so, under what circumstances? And to what extent, you know, can and should cyber companies, you know, cover those situations and what role will public policy play and the government play in kind of enforcing that? So I don't think anything's going to happen soon but it's a discussion that's been coming up. And you know, the other piece of that when you think about public policy and the US government obviously they have tremendous capabilities in cyber, how aggressive should the US government be in terms of its response to nation state attacks? On the one hand, you know, we could do some damage as the United States. On the other hand we got a lot to lose with critical infrastructure. So we had a big discussion yesterday on theCUBE about securing critical infrastructure like power plants and dams and reservoirs and things of that nature, which are so important obviously to you know, the stability of the economy and the general health of people and nations. Okay, so today, big day here. I mean some of the things that we've you know, covered this week are just, you know, an amazing, you know, two days so far. We're getting into day three. John Furrier is on his way, he's been out you know, doing some great research last night. He's got so many great contacts. You know, you walk around the area here with John, everybody knows him. All the VCs know him. We popped into a VC meeting last night, little meetup, you know, John was holding court. It was amazing to see him in action. And so really plugged into the scene and knows what's going on. So we're going to pick his brain about what he learned last night. John Chambers is coming on, again, you're talking about a sense of urgency. John is a longtime friend of theCUBE so we're super excited to have him. Lee Klarich is the Chief Product officer of Palo Alto Networks. They've been a big supporter of theCUBE as well and helped us, you know, get to RSA conference this year. We're super excited to have on Zeus Kerravala, he's coming on 11:30. So Lee is on 11:00 West Coast time. Nayaki Nayyar is coming on. She's the CEO of Securonix. New CEO there. We've got some folks from Fortinet coming on and that's going to be really interesting. Some threat intelligence people, Apiro, it's kind of an interesting startup in this space. We got a number of folks coming on from CrowdStrike. They're chief product officer. We got some folks from Sunrise Security coming on. Michael Sentonas is also coming on. He's the former CTO of CrowdStrike. They just named him president of the company. So we're going to get their perspectives. So it's wall-to-wall coverage of theCUBE as usual. We're here on broadcast row in Moscone West. Stop by and see us if you're here at Moscone. If not, check out siliconangle.com. Rob Ho and his team are cranking out all the news. Duncan Riley, Mike Wheatley, Maria Deutscher, our newest journalist, David Strom is here getting all the stories. Mark Albertson is here. He's out watching the keynotes, digging deep and getting all the story they're feeding us. So go to siliconangle.com. theCUBE.net is where you'll find all the videos from this and other shows. So we're kicking off day three. Wednesday at RSA conference 2023. You're watching theCUBE. We'll be right back at Moscone West right after this short break.

Keynote Analysis

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