Results

Microsoft's Azure revenue growth picks up sequentially in Q1

Microsoft's Azure revenue growth picks up sequentially in Q1

Microsoft reported better-than-expected fiscal first quarter results as its cloud services posted strong growth led by Azure revenue, which was up 29% from a year ago.

The cloud software giant reported first quarter earnings of $22.3 billion, or $2.99 a share, on revenue of $56.5 billion, up 13% from a year ago. Wall Street was expecting Microsoft to report first quarter earnings of $2.65 a share on revenue of $54.50 billion. 

In a statement, CEO Satya Nadella said copilots "are making the age of AI real" for consumers and enterprises. CFO Amy Hood said Microsoft Cloud revenue of $31.8 billion, up 24% from a year ago, drove the quarter.

Those growth rates trumped Google Cloud growth for the September quarter. Microsoft Azure revenue growth accelerated in the first quarter from the fourth quarter.

Speaking on Microsoft's earnings conference call, Nadella said that Azure is gaining share due to OpenAI, model training and new infrastructure. He said:

"Azure again took share as organizations bring their workloads to our cloud. We have the most comprehensive cloud footprint with more than 60 data center regions worldwide, as well as the best AI infrastructure for both training and inference. And we also have our AI services deployed in more regions than any other cloud provider. This quarter, we announced the general availability of our next-generation H100 virtual machines."

Nadella added that 40% of the Fortune 100 is in preview with Microsoft's copilots.

Hood said Microsoft Cloud gross margins will remain flat with a year ago, but the company continues to invest heavily in cloud infrastructure. She gave the following guidance:

  • Productivity and Business Processes second quarter revenue will grow between 11% and 12%.
  • Office 365 revenue growth will be up 16% in the second quarter.
  • Intelligent Cloud revenue in the second quarter will grow between 17% and 18% or $25.1 billion to $25.4 billion. "Revenue will continue to be driven by Azure, which as a reminder can have quarterly variability, primarily from our per-user business and from in-period revenue recognition, depending on the mix of contracts," said Hood. "In Azure, we expect revenue growth to be 26% to 27% in constant currency, with an increasing contribution from AI. Growth continues to be driven by Azure consumption business and we expect the trends from Q1 to continue into Q2. Our per user business should continue to benefit from Microsoft 365 suite momentum, though we expect continued moderation in seat growth rates, given the size of the installed base."
  • PC units for Windows appear to have stabilized.

By the numbers:

  • Office Commercial products and cloud services revenue was up 15% fueled by Office 365. Office Consumer revenue growth in the first quarter was up 3%.
  • LinkedIn revenue was up 8% in the first quarter.
  • Devices revenue fell 22%.
  • Windows revenue was up 5% for the quarter.

Here's the full growth lineup by product line.

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Google Cloud Q3 revenue lighter than expected

Google Cloud Q3 revenue lighter than expected

Alphabet's Google Cloud unit delivered third quarter revenue of $8.4 billion, up 22% from a year ago, with an operating profit of $266 million.

Wall Street was expecting Google Cloud to report revenue of $8.64 billion.

Alphabet's reported third quarter earnings of $19.69 billion, or $1.55 a share, on revenue of $76.7 billion, up 11% from a year ago.

Wall Street was expecting third quarter earnings of $1.45 a share on revenue of $76.69 billion.

Also see: Google Cloud Next everything announced: Infusing generative AI everywhere

Google CEO Sundar Pichai said the company is innovating across its portfolio. Ruth Porat, President, Chief Investment Officer and CFO, said the company was seeing "momentum in Cloud."

On a conference call, Porat said:

"We are pleased with the ongoing customer engagement with GCP and Workspace and the potential benefit of our AI solutions including infrastructure and services such as Vertex AI and Duet. We continue to invest aggressively given the significant potential we see while remaining focused on profitable growth. In terms of expenses and profitability, we're pleased with our operating performance. As we have repeatedly stressed, we remain focused on durably reengineering our cost base to create investment capacity to support our growth priorities, most important of which is with AI."

Pichai said that Google Cloud continued to see cusotmers optimize spending, but the pipeline of AI projects is growing. He said:

"We had definitely started seeing customers looking to optimize spend. We leaned into it to help customers given some of the challenges they were facing. And so that was a factor. But we are definitely seeing a lot of interest in AI. There are many, many projects underway now, just on Vertex alone, the number of projects grew over 7x. And so we see signs of stabilization, and I'm optimistic about what's ahead."

Other items include:

  • YouTube ad revenue was $7.95 billion, up from $7 billion a year ago.
  • Search revenue surged to $44 billion, up from $39.54 billion a year ago.
  • Alphabet ended the quarter with 182,381 employees, down from 186,799 a year ago.
  • US revenue was up 9% from a year ago with EMEA and APAC up 17% and 14%, respectively.
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Ingram Micro's Sanjib Sahoo: Why you need to know DigiOps

Ingram Micro's Sanjib Sahoo: Why you need to know DigiOps

Ingram Micro's Chief Digital Officer Sanjib Sahoo said his company is approaching its transformation through a lens of DigiOps, which should prioritize business value and then looks to technologies to enable it.

Speaking at Constellation Research's Connected Enterprise 2023, Sahoo talked to Constellation Research CEO Ray Wang about transformation, leadership and how Ingram Micro has gone digital.

Sahoo said Ingram Micro's focus has been on DigiOps, which "balances the art of the possible with the art of the feasible." Like DevOps, DigiOps looks to develop technology and then operationalize it. The twist is that DigiOps is business to technology instead of technology to business.

"Every single release or sprint we do has to create value for customers," said Sahoo. "Getting to DigiOps is about culture and developing real P&L responsibility. How much operating income am I generating? Am I growing margins? Is revenue growing?"

He added:

"Technology is always focused on what's possible. Operational folks say 'that's OK, but here's how to do it.' Otherwise, you build the best technology with no adoption."

Sahoo said that DigiOps has a heavy component of culture and leadership because it revolves around bringing together business and technology as well as change. It requires a mix of compassion and prodding to get results. "The future is humans, machines and spirit. You must want to learn new things," said Sahoo.

What Ingram Micro is trying with DigiOps represents a broader pivot to focus transformation and IT on real business value. The future metrics are going to look a lot more old school. Think less about release cycle times and total cost of ownership and more about operating income, margins and revenue growth.

"Technology doesn't matter. You have to iterate and focus on value," said Sahoo. 

Other takeaways:

Invest in your data infrastructure. Ingram Micro is investing in data infrastructure to create a data mesh and a foundation to build customer experiences.

Business transformation is about evangelizing a story and telling narratives to get employee engagement. "We have to evangelize a story and why we need a change mindset," said Sahoo. "We took an approach to get employees excited. The experience comes first and automation and technology follow. If the story is about automation first, you'll fail."

Mindset matters. Employee roles will change, and the kind of jobs will change due to generative AI.

Leadership lessons. Sahoo said some of the leadership lessons he has picked up include:

  • "Communicate with compassion and execute with passion."
  • You need balance between a bias for action and a bias for results.
  • Leaders need to develop new skillsets including RQ (relationship quotient), CQ (compassion quotient) as well as the emotional quotient.

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IBM buys Manta, adds data lineage tools to watsonx

IBM buys Manta, adds data lineage tools to watsonx

IBM said it acquired Manta Software, a data lineage startup, so it can add data lineage tools to its watsonx lineup.

Terms of the deal weren't disclosed. Manta Software, founded in 2016, is based in Prague.

According to IBM, the plan is to use Manta Software's ability to map data flows, sources and dependencies and enable watsonx to boost transparency of data used in models and systems and provide an audit trail.

IBM and Manta have been partners since June 2022.

Manta Software customers include Bank of Montreal, T-Mobile and J.B. Hunt.

In a blog post, IBM Tarun Chopra, Vice President, Product Management, Data and AI of IBM Software, said Manta Software is the eight acquisition of 2023.

More watsonx developments:

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Enterprises seeing savings, productivity gains from generative AI

Enterprises seeing savings, productivity gains from generative AI

Enterprises are starting to drive productivity and cost savings from generative AI with AT&T among the most vocal about returns. The catch: These returns require investment in IT and data infrastructure.

Although it's early in earnings season, the early returns are that enterprises are seeing generative AI as a cost savings tool that's much needed given the higher cost of capital due to interest rates. Rest assured enterprise software vendors will be rolling out customer citations to prove their generative AI worth. Vendors are scrambling to provide a generative AI magic bullet with fun names, domain specific LLMs and add-ons that add up.

John Stankey, AT&T CEO, said generative AI is driving cost savings at the company. He said during the company's third quarter earnings call:

"While we're still in the very early stages of Generative AI, we're already seeing tangible AI-driven improvements in productivity and cost savings. Measurable progress has been made with lowering customer support costs, unlocking software development efficiencies, and improving our network design effectiveness. We expect these capabilities to play a key role in our continued efforts to achieve our future cost savings objectives."

AT&T didn't reveal the savings attributed to generative AI, but the technology is part of a bigger picture. The company is generating strong cash flow and paying down debt amid higher interest rates.

And AT&T isn't alone.

Related:

Wipro CTO Subha Tatavarti said during the company's earnings call that the company has "adopted Generative AI to streamline our technology business processes as well as people."

Tatavarti noted that it's early, but it appears that there are multiple areas of productivity gains. He said Wipro is seeing productivity gains in the following:

  • HR "especially around background checks." Tatavarti said generative AI is also playing a role in hiring, retention, training and managing.
  • Quality assurance and testing has used generative AI to cut the time and hours to perform functional testing.
  • Multiple other pilots are showing early gains. "A lot of our work is now being streamlined, at least in early parts of our work with Generative AI in are very positive and encouraging in terms of productivity gains," he said.

Domino's Pizza CEO Russell Weiner plans to streamline operations and quality control via a generative AI partnership with Microsoft

For Concentrix, Chris Caldwell, CEO, said on the company's earnings call that it is accelerating its generative AI adoption internally and with clients. Caldwell said:

"From an internal productivity perspective, our AI and Alex-based recruiting platform now supports 8.6 million career site visits and processes 3.3 million applications already this year. It has already allowed our team to scale more cost effectively and we see additional benefits as we continue the roll out across our enterprise."

Caldwell added that it is also using AI for its scheduling and peak management for staff as well as supply insights for daily work optimization.

Companies in the financial sector are also looking for efficiency gains with AI. FactSet CEO Phil Snow said generative AI is bolstering coding and customer service. Snow said:

"We also see significant opportunity for cost savings as a result of GenAI projects targeting our efficiency. In fiscal 2023, we began to pilot AI coding initiatives to improve the productivity of our technologists. We also started using our agent assist bot to help with client queries and we are accelerating the collection of unstructured data across our content refinery."

Blackrock CFO Martin small also said AI has the potential for internal cost savings as well as products for its massive client base. He said:

"We've been using artificial intelligence, machine learning, natural language processing in our systematic business going back 20 years. And we have teams all over these things for how we can scale trading, pricing, operations, client service and even automation to make our software engineers most productive."

"If you ask me, where are we going to focus investments going forward with a particular sharp eye, I look at our total annual operating expense of about $11 billion and our largest fixed investments by dollars and importance, that's our really talented BlackRock employees."

"Giving (employees) more tools to enhance productivity, from large language models to better CRM, tools that help clients customize and self-service, like our BlackRock Advisor Center, those are going to be some of our best opportunities to deliver long-term profitable growth."

UnitedHealthcare's Dirk McMahon, chief operating officer, said that AI is critical for productivity, but it's also about freeing humans up to engage customers.

"We're leveraging the latest technologies to create greater operational capacity and productivity, so we can better serve consumers and focus on the highest value work. Our teams are significantly improving how quickly we respond to the millions of benefit questions we receive each year. We are using AI and natural language processing to expedite call documentation, to rapidly generate accurate summaries of consumer interactions with our contact centers, saving millions of dollars in administrative work and freeing up capacity for our people to prioritize engagement."

These stories are notable at this early stage in generative AI adoption, but there is a rather large catch: You need to have your data game down. It's not a big surprise that the companies so far leveraging AI and driving returns have core businesses that revolve around data and IT. Other AI success stories include:

For the rest of you, it's imperative to shore up your data operations.

AT&T's Stankey tells the tale. The company has been overhauling its systems for multiple quarters but that ultimately sets up transformation enabled by AI. He said:

"I mentioned to you many quarters ago that we've been investing in our information technology infrastructure. It's been painful, it requires a lot of work, and it's very detailed work every time you change out a CRM system or billing system. You have to carefully deal with your customer base and your different distribution channels. We're now getting to the point where we're starting to turn some scale up on those platforms. That coupled with the fact that more of our activity is built on fiber and wireless is giving us a different kind of cost structure in the business."

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Digital transformation should pay for itself with real business value

Digital transformation should pay for itself with real business value

This post first appeared in the Constellation Insight newsletter, which features bespoke content weekly.

Digital transformation projects are colliding with productivity and efficiency initiatives for funding, but it's not a zero-sum game. Digital transformation projects should pay for themselves and drive business value.

According to Accenture, Infosys and Wipro, there are large digital transformation deals to be had, but there better be real value. Specifically, digital transformation projects must drive enough value-savings via automation, process improvement, productivity, or efficiency--to fund future projects.

From a business perspective, the idea that digital transformation should be held to real business metrics shouldn't be too shocking. However, enterprises are putting digital transformation and efficiency projects into two different buckets.

Accenture CEO Julie Sweet recently noted on the company's fiscal fourth quarter earnings call:

"I was with about 20 different CEOs, and they had three messages. Tech is super important, that's number one. Number two, they already have major programs underway, and they know they need to do a lot more. But number three is they're feeling cautious about the macro, and we've already seen that in the small deals. But they're asking us to help them save money and be more focused right now, even on the bigger programs."

What?!? You mean massive transformational tech projects need to drive business value?!?

Sweet said companies are looking to create digital cores, modernize and be data driven for future AI use cases. But only a third of Accenture's clients have "modern ERP programs." I've been around long enough to know that ERP implementations and upgrades don't exactly drive business value initially.

More on innovation and transformation:

Salil Parekh, CEO of Infosys, echoed Sweet’s take. Parekh, speaking on Infosys' third quarter earnings call said:

"We see that with our large deal wins in the past two quarters, we are winning market share in the area of cost efficiency, automation, and AI. As the economic environment changed, we rapidly pivoted from delivering transformation projects to also delivering productivity benefits and cost savings at scale."

Random thought: Transformation projects should have always delivered savings at scale.

Nevertheless, Parekh's comments indicate that enterprises still have cost savings and transformation projects in two separate buckets. "We are seeing discretionary spending come down and we saw that transformation programs being slowed," said Parekh, who said that cost savings programs should in theory fund future transformation projects.

Infosys said financial services, communications, utilities, manufacturing, and retail were all wrestling with transformation vs. cost cutting efforts.

Thierry Delaporte, Wipro's CEO, outlined the current tradeoffs with transformation vs. optimization projects. Speaking on the company's second quarter earnings conference call, Delaporte said:

"Clients are continuing to take a much more rigorous look at their investments. They are hyper-focused on efficiency, optimization of existing investments and faster return on new ones. Lower discretionary spending is a reality today. Transformation programs that are nearing their project term are being replaced by new ones, but at a slower pace."

Delaporte added that generative AI was a "part of every client conversation”, and clients are "exploring new use cases." A lot of those use cases are aimed at efficiency. "The attention to cost takeout, cost optimization, margin, productivity and so on has certainly been a lot bigger than it was some quarters ago. There is no doubt," he said.

Citigroup CEO Jane Fraser said the bank's clients are concerned about the economic backdrop and interest rates that will remain at current levels for longer. "I'm struck how consistently CEOs are less optimistic about 2024 than they were a few months ago," said Fraser.

Fraser also noted that Citigroup has its own transformation efforts underway, but her definition includes process improvements and automation. Process and automation drive the returns that can fund more transformation via lower headcount. She said:

"Transformation remains our number one priority. We're deep into the large body of work of automating manual controls and processes, consolidating fragmented tech platforms, and upgrading our data architecture. We're committed to doing this the right way, knowing it will take time to meet our regulators' expectations and to deliver a modern, more efficient infrastructure."

Citigroup CFO Mark Mason said the bank's expenses in the third quarter were up 6% in part due to transformation projects, but those expenses were partially offset by productivity gains. In the third quarter, Citigroup's technology spend was $3 billion "driven by investments in product development, platform enhancements, and improving the client experience." Mason added:

"Our transformation and technology investments span the following themes: platform and process simplification, security and infrastructure modernization, client experience enhancements, and data improvements. Our investments in the transformation will continue to enhance our data analytics and stress testing capabilities, enabling continued capital optimization."

Does Citigroup have the transformation playbook down? Not quite. Fraser was asked why Citigroup's latest transformation plan will be any different than the others launched in the last decade.

But I'm willing to bet that Citigroup's approach is on target at a high level. Digital transformation projects need to be integrated with continual process improvement, productivity efforts and a never-ending drive to be more efficient to drive real business value. If an enterprise can produce operating savings of 5% a year it can self-fund digital transformation projects going forward.

Somehow enterprises have siloed digital transformation projects away from other business initiatives. That's not real transformation. It's just legacy enterprise technology.

More transformation:

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INSIDE ADOBE MAX THROUGH THE EYES OF A MARKETER

INSIDE ADOBE MAX THROUGH THE EYES OF A MARKETER

There is an electricity that sweeps through Adobe MAX, the annual celebration of creativity, that is infectious. Nobody is taking themselves too seriously…everyone is in awe of everyone else’s work. Nothing is out of the realm of possible. Nobody is excluded from the great debate of “Should Comic Sans ever be used outside of an actual comic?” (Answer: Comic Sans is the “pineapple on pizza” of creativity...so no.)

This year, thousands of current, future, and aspirational creators came together and exhaled. We had collectively survived tumultuous times. We had tapped into the muscle memory of being back together and celebrating our craft. We had made it through the explosive onset of Generative AI—something that felt threatening and ominous a few months ago. We had made the shift from AI competing for our jobs to being our valued co-pilot who was thrilled at the idea of endless hours of repetitive production work. We could exhale and make space for innovation and opportunity.

One of the biggest opportunities that consumed conversation was the future of content, more specifically the discussion around Adobe’s take on the Content Supply Chain and where creatives would envision themselves in the ebb and flow between supply and demand.

The Supply and Demand of Content

A supply chain maps the system that converts raw materials into finished products, following those products through every stage of creation, packaging and, eventually, distribution to an end customer/consumer. It is a common concept in manufacturing settings, allowing visibility across all the materials, teams, talent, processes, logistics and end points of fulfillment and distribution. Supply chain management is, by extension, the design, planning, control, and monitoring of this complex web of actions and resources with the goal of deriving more value by building an infrastructure that can better orchestrate and synchronize and measure the performance of binding supply to demand.

Content, and the drive to create more of it more efficiently and effectively, is core to how growth in any enterprise is achieved. We can all talk ad nauseum about the skills of individual functions, but at the end of the day when our prospects and customers consume content, there is a moment…a reaction…that sparks the desire to shift from the status quo. And that moment drives more demand from both the consumers of content and the marketers that want to keep feeding that dynamic relationship. The entire system is a supply chain that can managed, monitored and measured from the moment of ideation through to fulfillment.

Marketers and creatives have long understood that the content supply chain has been fractured, segmented into a series of disconnected myopic projects that only focus on a single act or campaign. We have focused on getting the work done and empowering that work with collaboration and project management tools…we have failed to fully understand and empower the unique and wildly creative supply chain, acknowledged the raw materials and intentionally established infrastructure to best orchestrate this complex web of actions.

Enter GenStudio: Adobe’s Infrastructure for the Modern Content Supply Chain

Adobe is uniquely situated across the content supply chain, and arguably the customer relationship supply chain at a larger level, serving as a technology that can sit at the center of both creative and experience delivery. This is the introduction of Adobe GenStudio, a new end-to-end solution that brings key applications across Creative Cloud, Express and Experience Cloud, with Firefly generative AI, a notable new stage in the ongoing evolution of Adobe.

For those familiar with Adobe’s portfolio, the individual tools in GenStudio will be exceedingly familiar with tools like Workfront, Journey Optimizer, Experience Manager Assets and Frame.io to name a few. And while these individual solutions have their own unique standalone benefits, Adobe’s belief is that used together in GenStudio, customers can create, orchestrate, and activate in a more scalable, measurable, and effective manner. Simply: it connects the technology dots that underpin the work, impact and purpose of content.

What stands out is that this is the step so many of us in the market (OK me especially) have been barking about for years—for Adobe to deliver a more unified point of view that spans their traditionally segmented Creative and Experience Cloud offerings. GenStudio is as much of a recognition of what customers need to start to wrap their arms around the content supply chain as it is a recognition that the market has been looking for a “Holistic Adobe”, delivering right-sized tools for the right phase of the supply chain.

GenStudio has already delivered results with brands like Orvis realizing a 75% reduction in time to product project plans, T-Mobile increasing campaign output by 47% without adding headcount and Asics achieving a 30% reduction in waste through asset reuse. These results are likely just the beginning in how we see brands that embrace the challenge of building and optimizing a modern, digitally forward content supply chain. We will likely see more of the overarching Adobe portfolio be brought into to GenStudio capabilities, bolstering the main pillars of workflow and planning, creation and production, activation, and delivery.

Mapping the Trajectory for Content Velocity

In this time of buzz and hype-cycles, organizations need a blueprint for purposefully introducing tools like Generative AI and advanced analytics to help scale, automate and optimize. For organizations ready to think about their content supply chain differently, tools like GenStudio provide a very different foundation to turn AI projects and co-pilots from experiments to tangible business applications.

This foundation also allows teams to capitalize on some of the other big announcements and reveals made at MAX

Adobe Firefly: Firefly got several upgrades and additions at MAX with the reveal of the impressive Firefly Image 2 Model, Firefly Vector Model and Firefly Design Models. These aren’t just models creating…these models generating content that is safe and ready for commercial use. In a time when CIOs are actively blocking the introduction of GenAI tools to have time to properly assess the safety and security of data, training models and output, Adobe has done the ethical heavy lifting early on and put added measures in to not just train the models in a manner that prioritize safe commercial use, but also recognizes and rewards the complexity of the creator economy by identifying and respecting (and compensating) artists.

Adobe Express: Adobe’s free creative application is already jam-packed with creator tools and templates, but now users can use Generative Fill, the newly announced creative co-pilot powered by Firefly, to remove or even replace objects, people, backgrounds and more. The new Text to Template feature leverages the new Firefly Design Model to give users the ability to give a text description to generate editable templates. New drawing, painting and even translation capabilities turn Express into a tool for the casual creator designing a t-shirt or the marketing manager that just wants to prep some social cards and TikTok videos.

Content Authenticity’s Continued Success: One announcement that shouldn’t go unnoticed are the milestones Adobe has made around content authenticity and brand protections. As one of the leaders in the Content Authenticity Initiative, originally launched at Adobe Max 2019, Adobe has pushed industries and markets to elevate the awareness of content attribution and transparency. Adobe announced that thanks to the wave of interest around generative AI, 2,000 new members have joined including Dentsu, National Geographic Society, National Public Radio (NPR), Photoshelter and Publicis Groupe.

Riding on this wave of interest around visibility and authenticity, Adobe announced the introduction and adoption of an official Content Credentials “icon of transparency” that leads to a digital “nutrition label” for AI-generated assets. This label is attached to Adobe Firefly outputs and can show information including the creator’s name, edits made with Ai and tools used. Microsoft has introduced Content Credentials to all AI-generated images created with Bing Image Creator. Nikon showcased a specially equipped Nikon Z 9 camera, currently in development but sampled at MAX, included image provenance functionality via content credentials and can be verified in a user’s workflow.

Time to Celebrate

With so much upheaval in the market and in the world, it hardly feels like a time to celebrate. Chaos seems to lurk around every corner. But no matter the circumstance or scenario, it is usually creativity and artistry that connects people together by communicating in ways that can range from the deeply emotional to the comically sublime. Through it all content is the vehicle that carries that connection and creativity across channels and into the hands of an enterprise’s customer.

Accelerating the velocity, accuracy, impact and efficacy of the content supply chain is a worthy goal for any organization, regardless of size. With the innovations and announcements Adobe showcased at Adobe MAX 2023, expect to see even more creators step up to the plate and gladly accept their role in improving how the content supply chain is operated and managed.

Generated by Adobe Firefly Image 1 ModelGenerated by Adobe Firefly Image 2 Model
 

 

 

 

 

 

And YES...these were generated by AI. More specifically this epic reimagination is of my dog, a white Akita, who I asked Adobe Firefly to picture, wearing a chunky knit purple sweater, sunglasses, sitting in a city at golden hour.  The image on the right was generated by Adobe Firefly Image 1 Model. The image on the left was generated by Adobe Firefly Image 2 Model using the exact same prompt. 

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HPE bets AI, edge, supercomputing workloads will drive growth

HPE bets AI, edge, supercomputing workloads will drive growth

HPE outlined a three-year strategy that has its three fastest growing businesses--edge computing, high performance computing and artificial intelligence—representing more than 50% of the company's revenue by fiscal year 2026.

The strategy and outlook were outlined at HPE's Securities Analyst Meeting in New York. CEO Antonio Neri and interim CFO Jeremy Cox provided noted that the HPE can expand its total addressable market by almost $100 billion over the next four years due to AI use cases.

"HPE’s strategy is aligned to significant market trends around edge, hybrid cloud and AI – all of which create profitable market expansion opportunities," said Neri. "Customers continue to validate our strategy turning to us to power critical business transformations. And even in this micro economic environment, we continue to see them prioritize in data first digital transformation initiatives. And those initiatives increasingly include AI which is invigorating today's IT spending."

HPE's other big bet is hybrid cloud and HPC that can be delivered as a service. HPE is projecting revenue growth of 2% to 4% for fiscal year 2024 through fiscal 2026. However, it's big bets--AI, HPC and hybrid cloud--will grow faster over that time frame. HPE also said that it will return 65% to 75% of free cash flow to shareholders over the next three years, up from the 50% to 60% range today.

For fiscal 2024, HPE is expecting revenue growth to be 2% to 4% with non-GAAP operating profit growth of 3% to 5%. Fiscal 2024 non-GAAP earnings will be between $1.82 a share and $2.02 a share. Fiscal 2023 revenue growth will be 4% to 6% with non-GAAP earnings of $2.11 to $2.15 a share.

Not surprisingly, HPE's strategy has a heavy dose of Greenlake with a mix of subscription and consumption revenue streams, Aruba (Intelligent Edge) and supercomputing and AI infrastructure delivered as a service. HPE is betting it can take share as well as grow the total market.

Here's a look at the components of HPE's growth plans.

Intelligent Edge and Networking 

HPE's Intelligent Edge unit is on track to deliver $5 billion in fiscal 2023 revenue and drive the highest profitability.

According to the company, it will expand its market by gaining share in campus and branch networking, expanding in the data center and entering new security and 5G markets.

HPE also said that it will bet on network-as-a-service, which will leverage AI-driven analytics as well as automation for large enterprises and mid-market companies.

Hybrid Cloud

HPE's Hybrid Cloud unit combines storage and compute as-a-service offerings including HPE Greenlake Private Cloud and software. HPE Greenlake is going to carry the unit and already accounts for 70% of the annual recurring revenue for the company.

Constellation Research analyst Dion Hinchcliffe recently published a report outlining how CXOs are moving to private cloud models for cost savings. In a nutshell, public cloud providers haven't been passing on savings and encouraging enterprises to move workloads such as AI on premises.

According to the company HPE Greenlake has 27,000 unique customers and ARR growth of 35% to 45%.

AI

Supercomputing and AI is HPE's best shot for expanding its market. HPE is betting that its AI platform software, infrastructure and supercomputing powered by Cray will turbo charge the business.

As HPC scales, HPE will get more leverage and be able to shift more toward IP rich offerings and software.

HPE plans to expand into ModelOps as well as DataOps and manage clusters.

According to Justin Hotard, Executive Vice President and General Manager of High Performance Computing, AI and Labs at HPE, it's very early in generative AI use cases in the enterprise.

"Customers are investing in LLMs for broad commercial applications, but they're not deployed yet in the enterprise," said Hotard. "The enterprise buildout will be massive, but it's just beginning. There will be technical use cases, scientific models, financial and trading and those use cases will go on and on."

Neri added that most enterprises are looking to leverage LLMs for productivity and then focus on tuning. From there, they will look for generative AI to drive revenue.

AI is also expected to drive demand for HPE's compute due to tuning and inference workloads.

Constellation Research analyst Holger Mueller said:

"It is good to see HPE getting more revenue drivers, it previously shrank its offerings down to too much Greenlake. Its HPC portfolio has been strong all the time, so it is good to see it becoming its rightful visibility - the question now is - can they get the traction beyond the HPE/Cray installed base and take market share. The AI offering is equally interesting, more importantly viable - so it really comes to Antonio Neri & team to execute and go to market."

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A look at Tesla's method to the innovation madness

A look at Tesla's method to the innovation madness

Tesla is sacrificing operating margins for market share with its electric vehicles and that reality is making it look like just another car maker. But the big picture looks more innovative.

Ultimately, the Tesla debate will be settled by what the company becomes. Tesla will either merely be an auto manufacturer or be seen as a technology company. For now, operating margins in the third quarter were 7.6%, down from 17.2% a year ago.

While this Tesla debate ensues, there are a bevy of innovation lessons to ponder for the rest of us. Here are some of the innovation takeaways from Tesla's earnings conference call.

It's about the data. It's always about the data. Musk realizes that Tesla is really a data company. It sold EVs to collect data and build autos with full self-driving (FSD) capabilities. Tesla said in an investor presentation: "Our large installed base of vehicles continues to generate anonymized video and other data used to develop our FSD Capability features."

Musk elaborated on Tesla's earnings call. "Our vehicles are now driven over 0.5 billion miles with FSD beta, full self-driving beta, and that number is growing rapidly," said Musk. 

Data doesn't matter without compute. Tesla is building out AI infrastructure at a rapid clip. "We recently completed a 10,000 GPU cluster of (Nvidia) H100s. We think probably bring it into operation faster than anyone’s ever brought that much compute per unit time into production, since training is the fundamental limiting factor on progress with full self-driving and vehicle autonomy," said Musk.

Tesla has also built Dojo, a supercomputer for vision video processing and recognition. Will this AI compute be a service at some point?

Related: Nvidia, Foxconn aim to build AI factories, collaborate on EVs, robotics | How Kinetic aims to transform digital EV repair, maintenance and aftermarket

Keep it simple or be ready to pay the price for complicated. Tesla shares are under pressure largely due to Musk's comments about the Cybertruck, which has 1 million reservations even though the vehicle looks as if a DeLorean and Pontiac Aztec had a love child.

Musk on the earnings conference call moved to temper Cybertruck expectations. He said:

"I’ve driven the car. It’s an amazing product. I do want to emphasize that there will be enormous challenges in reaching volume production with Cybertruck, and then in making Cybertruck cash flow positive. This is simply normal for when you’ve got a product with a lot of new technology or any new vehicle, brand new vehicle program, but especially one that is as different and advanced as the Cybertruck, you will have problems proportionate to how many new things you’re trying to solve at scale. So, I just want to emphasize that while I think this is potentially our best product ever and I think it is our best product ever, it is going to be -- require immense work to reach volume production and be cash flow positive at a price that people can afford."

Some Cybertruck scale won't appear until 2025, but that timeline is Musk's best guess at this point. "It's not a demand issue, but we have to make it and we need to make it at a price that people can afford," said Musk.

The original business may just be the beginning. Amazon started as a bookstore and now it is a retail giant and cloud computing provider. Uber was a glorified taxi service and now it is about mobility as broadly defined as possible. Tesla is killing margins on its cars to gain share, but in the future, it can extend into multiple businesses including robotics and AI services as well as mobility via a fleet of autonomous vehicles.

If you view Tesla's EV business as just a precursor to other businesses, Musk's strategy to lower prices doesn't look too shocking. After all, you need to make your innovation affordable to collect the data needed for the next phases of the business. Musk said:

"If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car, they simply cannot afford it. And we are tracking Model Y to be the bestselling car on earth, but not just in revenue, but in unit volume. If you compare that to the other vehicles that are number two and number three and whatnot, they cost much less than our car...

The thing that must be solved is to make the car affordable or the average person cannot buy it."

Companies need to evolve. Tesla's more interesting businesses have little to do with cars. The company's Optimus robot effort is notable as is its energy storage business, which along with services contributes more than $500 million in quarterly profit.

In the third quarter, Tesla's energy generation and storage business had revenue of $1.56 billion, up 40% from a year ago. Services and other revenue were $2.17 billion, up 32%. And total automotive revenue was $19.62 billion, up 5% from a year ago.

"We’ll continue to invest significantly in AI development, as this is really the mass game changer. And I mean success in this regard in the long term I think has the potential to make Tesla the most valuable company in the world by far. If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it’s not clear what the limit is," said Musk.

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SAP's 2023 outlook steady, S/4HANA revenue nears €4 billion annual run rate

SAP's 2023 outlook steady, S/4HANA revenue nears €4 billion annual run rate

SAP said its third quarter cloud revenue growth was 16% and the company reaffirmed its outlook for 2023.

The enterprise software giant is in the middle of migrating customers to its SAP S/4HANA platform, so cloud revenue is closely watched.

SAP delivered total third quarter revenue of €7.74 billion, up 4% from a year ago. Cloud revenue was €3.47 billion, up 16% from a year ago. Of that sum, SAP S/4HANA cloud revenue was €914 million, up 67% from the same quarter a year ago, and approaching a €4 billion annual revenue run rate. Software license revenue fell 17% in the third quarter compared to a year ago.

As for profit, SAP reported a profit of €1.27 billion after tax. SAP ended the quarter with 106,495 employees, down slightly from a year ago.

CEO Christian Klein said the third quarter results highlight how it is accelerating its cloud growth and focusing on AI and innovation.

SAP said 2023 cloud revenue will be between €14.0 billion and €14.2 billion with total cloud and software revenue of €27 billion to €27.4 billion. A non-IFRS operating profit between €8.65 billion to €8.95 billion are expected. The guidance is in constant currencies.

Key items from the SAP conference call

  • RISE with SAP customers now top 4,300.
  • "We are removing the data silos with RISE with SAP and build one strong data layer to allow us to steer the business 360 with real-time data. RISE and GROW are also very exciting opportunities for SAP. The two offerings result in net new customers and an installed base maintenance conversion of more than 2x," said Klein.
  • "Business transformation is much more than the pure technical migration of ERP legacy landscapes to the cloud. It's key to connect end-to-end processes and the entire data and system landscape to drive tool transformation. In 2021, we acquired Signavio, covering the process perspective, and in Q3, we announced our intent to acquire LeanIX to cover the overall enterprise architecture perspective, making sure processes, systems and data are yielding the wide outcome for every SAP customer. Together, LeanIX, Signavio and SAP Cloud Application Lifecycle Management create a unique business transformation suite," said Klein.
  • Klein added that he met with Microsoft CEO Satya Nadella in Berlin. "Microsoft is extremely interested on how can we join forces to also further combine our data. And what is also very important in the B2B world, I already mentioned it. I mean, in the B2C end, you can ask ChatGPT for a question for speech and you get a proposal for a speech. In the B2B world, accuracy and data quality is of utmost importance," said Klein.

Here are the details behind SAP's cloud revenue.

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