00:00Well, this is less about the high memory prices and more just the middle numbers about where
00:04the guidance is going.
00:05So Scott, just to take a step back, they guided at 12% revenue growth through September.
00:11They guided to 9 to 11.
00:13Now when you find this subtraction key with a company, a stock that's been up 22% over
00:18the past month versus the NASDAQ up 1%, when analysts go to that subtraction key, that
00:23is negative for the stock.
00:25There's just no explanation that can get investors comfortable.
00:29And I think that's kind of where the conversation ended.
00:31But I want to go through that a little bit and answer your question about what's the substance
00:35of what's going on?
00:36Is this about memory costs?
00:38The answer is a little bit about memory costs.
00:40Maybe if you think about the 10% decline, probably 1% or 2% is about just higher memory
00:45costs.
00:45It's going to have a 50 bps negative impact on their margins in the September quarter.
00:50The bigger picture is on revenue.
00:52And effectively what happened, this is a pretty unique dynamic, but it makes a ton of sense,
00:56is that the iPhone has been on fire.
00:59It was up 22% in the June quarter.
01:01If you look at over the past year, it's been up 22%.
01:03That compares to over the past five years, it's up 3% on average.
01:07So we've got this huge surge in iPhone demand.
01:11And separately the Mac up almost 30%, typically it's up a few percent.
01:15And what that means is that they have essentially been pulling through inventory.
01:18Remember how tight inventory is?
01:20In part because of these pricing deals that they have to try to keep costs low, they're
01:24limited to the amount of capacity that they've had.
01:27So they pulled inventory essentially from September into the June quarter.
01:31And that means they just simply don't have as much.
01:33And the way that I'm going to back test this, and it's going to be pretty easy for your listeners
01:37to do this, is just look at what the lead times on the products are.
01:41Right now they're running a few weeks.
01:42Now that typically would be same day on many of their products.
01:46And that's an indication that they are, in fact, constrained, and so effectively what
01:50happened is they stole demand from the September quarter and pulled it into the June quarter.
01:55There's still a ton of demand out there, stole supply, excuse me, and pulled it into the June
01:59quarter.
02:00There's still ample demand.
02:01And I think at the end of the day, just to put it in the most basic terms, Street was
02:05at 12% revenue growth for September.
02:07If they would have kind of had currency constant and supply constant, I bet they would have guided
02:12to better than 15% growth for the September quarter.
02:16So Gene, you were busy this week, as a lot of tech investors were with all the earnings.
02:20But I got to ask you about this story, Wall Street Journal story about Tesla spinning out
02:25its China business to maybe pave the way for a SpaceX merger.
02:29Does that does that seem reasonable to you?
02:33Yeah, I would say it's reasonable.
02:36And it is going to increase the probability that I have put on this happening in the next
02:41few years from 90 to probably 92%.
02:44About a week ago, I had it at 80%.
02:47And then the Tesla earnings call, they let a question in about the two companies coming
02:52together, which surprised me, Elon started to answer the question, and then legal took
02:57over and said, really, we can't say much.
02:58And then Elon grabbed the mic back and started to kind of pontificate about the benefits of these
03:03two companies being together.
03:05That took me from 80 to 90, now I'm at 92.
03:07And the answer is, it just makes a ton of sense.
03:10This China piece, I think, is grossly underappreciated about the tensions from the technology companies
03:18geopolitically, as I've been meeting with many companies that have ties, and these leading
03:22private companies that have ties to China, it's pretty clear that they want as much separation
03:27as possible.
03:28And so my view is that we're probably a couple years away.
03:31Elon has always structured the China business to be easily separated from the US business
03:38for a lot of reasons.
03:39And one of them is his master plan, it's very simple.
03:43He's going to just keep rolling up his businesses into a master company.
03:46And so to answer your question, Paul, is I think that this makes a ton of sense.
03:51And even though they're saying it's not going on, I think it very much is in the cards.
03:55It sounds like it'd be good for Elon Musk from the way he operates and runs his company.
04:00Would it be good for investors?
04:03Now that's the key question, and I think the simple answer is yes, from two levels.
04:10An operational piece, which is most important, is that when you bring things together, you
04:15reduce redundancies.
04:17And there's this longstanding view within tech companies that are highly innovative that
04:22smaller teams are more effective.
04:24And so when you have smaller, tighter teams and effectively you can do that, I think that's
04:28one piece of bringing all these together.
04:31I think their visions are very similar, obviously around being AI first, space AI with SpaceX,
04:37physical AI, terrestrial with Tesla, all of that makes sense.
04:41The other reason why I think investors would be rewarded is that the dynamic around Tesla
04:46and SpaceX to a lesser extent right now is really about investor confidence around the
04:51long-term retail investor confidence, and I think that that unwavering confidence would
04:55only increase if they brought some of these together, and that has really explained how
05:00Tesla can still be a $1.2 trillion company despite having many of its targets pushed back
05:05for years.
05:06And so...
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