Podcast: Things Past and Things to Come January 30 2023
The global economy may be doing better. Inflation may be dropping. Short-sellers may be pummeling stocks a bit less. Things might be improving in fundamentals and stocks. In tech, is it possible that we’re going to see a race for the next big thing in telco services, run by a mixture of incumbents and startups? See what our podcasters think.
01-Maven: Another interesting week, for sure! Welcome to Things Past and Things to Come, a TMT Advisor podcast service. I’m Maven Lightheart, and Tom and Nigel are joining me as usual.
The markets ended the week up pretty significantly as indications grew that inflation is falling. The Fed is expected to raise rates by only a quarter-point at their next meeting. In the US, GDP growth was better than expected so we may well see a soft landing. The EU might dodge a recession too, and there are even some signs that the UK economy may not fall too far. Of course we said both the US and EU would likely not have recessions. Anyway, all three major US indexes were up for a week, and my NASDAQ led the pack. Some end-of-day selling on Friday reduced the weekly gains, but it could have been some profit-taking as much as short selling.
The markets shrugged off some negative news, tech earnings from companies like IBM and Microsoft were cautious on guidance, and my demon short-sellers did their best, but buying conviction continued to improve and that’s the enemy of all short sellers.
Tom, what do you think about the tech earnings reports? I know you blogged a bit on the AT&T and Verizon results, and you’ve done your TechsRay podcast on those telcos, and another on IBM, Microsoft, and the cloud. Let’s not repeat those, but what are we learning about tech?
02-Tom: Not a lot, really, particularly when you consider that our baseline assumption has been that the first quarter would be the most problematic and that things wouldn’t start to turn around until May.
I’m Tom Nolle, president of CIMI Corporation. Getting back to Maven’s question, the tech results so far have been consistent with that, and so has the continued tech layoff situation. Everyone knows the early part of their year is likely to be challenged by deferred project decisions, and that there’s little chance that there will be a significant recovery until the third quarter. There’s also the debt ceiling issue overhanging things, so it’s no surprise that guidance would be cautious.
We’re also seeing some unwinding of the effect of work-from-home. The PC market is obviously impacted, but mostly because once companies got computers for WFH employees, they didn’t need to keep giving them new ones, whether WFH ended or not. Intel’s numbers were impacted by that, but also by Intel’s inability to develop new and broader chip opportunities. These shifts have impacted Microsoft a bit too.
03-Nigel: I viewed your TechsRay podcast on IBM and Microsoft and the cloud, Tom. I agree with those points, but I’m particularly interested in your comment that there was a kind of PR-and-Wall-Street shift of focus to artificial intelligence. Is AI really going somewhere or is it only erecting an attractive billboard for everyone to look at?
04-Tom: A bit of both, I think. Earnings calls are talks with investors, with Wall Street, and you want them to believe you have a lot of good stuff that’s coming down the line. Microsoft, who made a big investment in ChatGPT, needed to stake out a Wall Street position. IBM also blew a kiss at AI, but not nearly as much as Microsoft did, because its Watson might be looking a bit long in the tooth.
The thing is, we need to understand that as a topic, AI is really too broad to be able to assess easily. To say that AI will be big is like saying that human intelligence is important. Both are true, but neither tells anyone much about products or profits. Can we monetize AI? One thing I think is interesting is that the company who may be most committed to AI and most able to demonstrate it can make you money isn’t either IBM or Microsoft, it’s Juniper. They’ve been very successful with Mist AI and they’re now starting to push more aggressively on their Apstra data center automation, which I think would also benefit from AI. They’re reporting this week, so it will be interesting to see what they say.
Overall? Tech has been oversold for sure, and so it’s recovering faster than the indexes that were less oversold. Go back and look at performance over three or six months, and the NASDAQ is at the bottom. Look at performance over the last month and it’s at the top. People believe in tech, even Maven’s demon short sellers. They took advantage of lack of buyer conviction last year and battered it down because they knew it would come back strong, and they’d make money on the comeback too.
05-Maven: Yes I agree with that, but I admit I’m worried about the Intel mess and by the shift in the PC space you mentioned. Are people shifting away from PCs for home devices? Is that why a loss of WFH hits the market hard?
06-Tom: To a degree they are. Obviously people have been doing a lot of things on their phones that they used to do on PCs. People are also doing more with Chromebooks now, because being tied to Internet access to run things isn’t such a big issue when most of what you want to do involves the Internet anyway. There will always be things you can do better on a PC, but the growth in that overall things-you-can-do space is mostly in parts where phones and Chromebooks are as good or better. And you can’t haul a PC with you as easily as a phone.
07-Nigel: You mentioned Juniper but how about Nokia? They seem to be the only vendor that’s riding high on 5G. Ericsson has had its issues, and while there’s a lot being said about open 5G models, it seems like they’re still not the mainstream strategy. Is Nokia a winner or just having a good period for now?
08-Tom: They’re having a good period now, but their challenge is that the part of 5G they’re really a key player in is the RAN piece, and whether open 5G models emerge or not, 5G RAN is going to be pretty far along by the end of 2023. Will 5G Core develop any real momentum? Only if someone figures out how to make a lot of money on network slicing. Anyway, 5G Core is more about moving packets than about mobile services; all the latter is out in the RAN. I think Nokia needs to be thinking about where they go from here, and I’m not sure they’re really doing that.
09-Maven: To tie what you’ve said about AT&T and Verizon in with that, it seems to me that unless operators come up with a determined effort to launch new services, there may not be much point in Nokia thinking about things. Even if there was operator interest, which I think your podcast and blog both suggest isn’t developing, wouldn’t all these new service options end up being related to edge computing rather than to what Nokia is good at?
10-Tom: Good point, Maven. Yes, but I think there would still be a role Nokia could play even in edge computing. Remember that I’ve been saying all along that edge computing applications need some sort of platform, a baseline middleware feature set. And I think that my digital-twin metaverse example is what that sort of thing would look like, because there are no credible edge applications that aren’t real-time, real-world, focused and that means digital twin metaverse to me.
11-Nigel: Getting back to Juniper, what or who do you think is their greatest threat, and maybe what’s their greatest opportunity?
12-Tom: The two tie together. DriveNets is pretty obviously their biggest “who” threat. AT&T is more committed to revolutionary changes in technology to drive costs down than any other Tier One I know. DriveNets carries 52% of AT&T’s core traffic according to information I read on Friday, so the disaggregated white-box-cluster-and-software model of DriveNets is the “what” threat. The greatest opportunity? Well, think about the threat piece. Core networking is a commodity because you can’t push features deep where traffic levels are that intense. The key spot isn’t the core, it’s where you can tie features in, and I believe that spot is the metro. Juniper has a Cloud Metro story, though they need to develop it more. They have Apstra to enhance edge hosting and tie it to a Cloud Metro. They have Mist AI to help with operations efficiency. If they take all their assets and jump on metro in earnest, they could go far with it. If they don’t, somebody else is eventually going to do that. Who wins metro wins networking, probably forever.
13-Maven: Wow that’s a bold statement! I can see why you’re saying it though. But if Juniper can win there without servers and edge middleware, why would middleware be key for Nokia?
14-Tom: The best strategy would be to have everything, from servers to platform software to application middleware to applications themselves. Nobody has all of that and they probably can’t get it all either. So you need something compelling in one space at least. Juniper has that now if they position their current assets effectively, which is more than their competitors can say. But I think the real asset, the one that would select a metro winner, is that digital-twin metaverse model. Get that and position it effectively, and it’s going to be a challenge for anyone to catch you.
15-Nigel: How about DriveNets? You’ve already said their architecture would work well in metro. If they had the digital-twin-metaverse package, can they be the winner? It sounds like any of the three network companies you’ve talked about might be winners here.
16-Tom: Yes, they could be. I think the industry is misunderstanding what kind of work it would take to create that digital-twin metaverse middleware. It’s a year, if it’s done right. Less, if it’s done with naked aggression. But maybe it’s not a problem of over-estimating how much work digital-twin metaverses might be. Maybe it’s too much conventional short-term thinking. Any one of the three could win with the metaverse, but I don’t think any of the three will step up. I think that we’ll end up seeing metaverse middleware coming from a cloud provider.
But that’s enough for this week. Thanks for joining us and check back next week for our next podcast. I’ll also be posting at least one TechsRay piece next week.