The Information's TITV
00:06:57 · Patrick Moorhead
[00:06:57] S1: knows I how to send know. I mean, it's likely Google and AWS on the packaging side. It's on the wafer side that is the biggest unknown, but I do believe that it's gonna be NVIDIA and Apple, out of the gates, because they need a second source, and, they also see the need to manufacture more The United States. And a lot of that CapEx that's going in right now that's making them cash flow negative is investments that is going into 14A node and 18A and AP nodes to build out the capability. The semiconductor business is a cruel business in that if you find yourself with the wrong architecture, you're literally gonna have a hard time fighting back. It'd take you four years, okay? You lose the recipe in a foundry, it could take you even longer. And then when you try to connect the two together, which Intel is doing between design and foundry, it is and continues to be a challenge. So I look at milestones. Was Intel able to crank out 18A? Check. Yields are getting better every quarter. Is the feedback on their early designs called PDK kits for, 14A. It looks like everything is out on time, and what I'm hearing in the ecosystem is those are higher quality. And in 2027, you have this convergence of Intel designs where their PCs and their newest servers will be on very similar manufacturing nodes. What that allows them to do is move wafers back and forth between client and server that they can't do today. They currently have no servers on 18A, yet their premier client is on 18A, and the servers are either on Intel seven, 10 nanometer, which yeah, a few desktops are still on, but it's very hard to shift manufacturing when one part of the market becomes hot. But out of the other side of my mouth, I will say, those parts that did converge on the same process, Intel was able to move a lot of capacity on the server side. So I do want to give them some credit for that.
00:09:31 · Akash Pasricha, Patrick Moorhead
[00:09:31] S0: Right. Hey, Patrick, so I know you said you're obviously looking ahead to AMD earnings. But, you know, based on the commentary that we got and the results we got from Intel, what are you expecting from the other chip companies? Broadly speaking, how does this affect what you think they might report? [00:09:52] S1: I think data center is gonna be full steam ahead. I think TSMC will will cross every bridge and break every rule to be able to to to give AMD what it needs on on the server side. And then on the PC side, we will likely see a lower number, from from Intel, right? Because they're all selling to the same people. They're all they're all pulling back, on that. And and therefore, think, I think net net, they will have a better guide. The one thing I wanna say about the PC market though, is that demand is not gone. Let's say you had a five year old PC and you looked at memory prices, and you're about to pull the trigger on a new one, and you're like, I'm gonna wait. Like, you can't... PCs don't live seven, eight, nine, ten years. I mean, some do, but, but not a lot. [00:10:50] S0: Right. But just very quickly, you talked about AMD, but what about all the other chip companies that inevitably do rely on the same memory in many cases?
00:10:50 · Akash Pasricha, Patrick Moorhead, Ken Gawrelski
[00:10:50] S0: Right. But just very quickly, you talked about AMD, but what about all the other chip companies that inevitably do rely on the same memory in many cases? [00:11:00] S1: Yeah. So I think NVIDIA has taken care of substrates. They were in there first, cut deals, even two chains deep with the Japanese sub suppliers of substrates. I think they're going to be fine. I think a lot of folks who are tied into TSMC are gonna be are gonna be, are gonna be good on wafers. I mean, there's never gonna be enough. TSMC says it's sold out until 2028, and NVIDIA is is talking about the same thing. So the industry doesn't have enough, and it probably won't have enough even data center memory until 2030. [00:11:40] S0: Great. Well, I want to thank you for coming on. That is Patrick Moorhead from Moor Insights and Strategy here on TITV. Thanks. AWS revenue continued to accelerate in Amazon's third quarter, but the rest of Amazon's business segments, like its online marketplace and advertising, decelerated, in some cases dramatically. Here to discuss the results is Ken Gawrelski, Managing Director, Senior Internet Analyst at Wells Fargo. Ken, welcome to the show. It's great to have you here. [00:12:13] S2: Thanks so much for having me.
00:12:13 · Ken Gawrelski, Akash Pasricha
[00:12:13] S2: Thanks so much for having me. [00:12:14] S0: Okay. So we're going to get to AWS in a second here, but I want to talk about the rest of the business here because the numbers were staggering here. So 2% growth in online stores compared to 15% last quarter. That seemed to flow through the rest of the result too. Six percentage point decline in third party seller services. Advertising was less than half of the growth rate. What do you make of these numbers? [00:12:43] S2: Yeah. So look, I think it's helpful to keep it in perspective, which is there was a big shift. There was Prime Day shifted to 2Q from 3Q this year. That had an impact on those numbers. I would actually say if you adjusted for Prime Day shift, if you look at the retail revenues overall, QQ, 3Q, quite consistent between 1011% underlying growth. And if you... And you... And I would take another step and say, you look at fourth quarter and the implied guidance, suggests another consistent quarter, 10 to 11% growth. I'll I'll touch on advertising, which you you you discussed. Advertising was a bit weaker in this quarter, maybe even a bit weaker than we expected. I think some of that is Prime Day shifts. I think there were some other events that impacted that. I think importantly, Amazon is talking about about reaccelerating advertising growth to the high teens in the fourth quarter. So I think I would... In perspective, I think looking at two q, three q together, I would say the numbers on the retail side and even advertising were quite healthy.
00:14:00 · Akash Pasricha
[00:14:00] S0: Right. And so what you're talking about here is basically normalizing the fact that Q2 may have been a bit stronger because Prime Day was shifted into Q2, and so that's the average of the two quarters basically that you're taking. Advertising is kind of interesting though, because I look at what we've seen with the other hyperscalers... Well, not hyperscaler, the other advertising giants, I should say, reporting their results. I mean, Google's came in light. Meta, on the other hand, spoke very confidently about how AI was helping it keep that advertising business strong. Why isn't Amazon seeing those tailwinds? Are they seeing the tailwinds? What's your assessment there?
00:14:45 · Ken Gawrelski
[00:14:45] S2: Yeah. So, I would agree with your assessment. Meta was blowout on advertising. Right? Really strong result in three q and then calling for an acceleration in four q. I mean, a really fantastic execution at at Meta on the core advertising business. On the other hand, Google search weaker and and notably also YouTube weaker. The YouTube one really perplexes us, frankly, because there's some political tailwinds as well, and YouTube does capture some of that as those political dollars. We're surprised. On search, I would just say for Google, it's a bit of a different, in our view, a bit idiosyncratic. And what I mean is that's really AI overviews and an impact to the number of paid clicks we're seeing, the amount of real advertising we're seeing, not the amount of engagement. In fact, I would argue that the engagement on search is as healthy as it's ever been. So, getting to Amazon on the advertising side, we really think of it as quite healthy. If you think about Amazon advertising outpacing retail GMV or transaction value, I I think that's that's quite the achievement. And it has been doing so for quite some time. We are now reaching about 7% of of of total retail sales volume is now allocated to advertising. So, advertising as a percentage of retail sales, that's a pretty high level. That's best in class in the industry. So, we would expect over time it will mature.