Economic Outlook, Tech Earnings, AI Trends, and IT Confidence

[00:00:02] [SPEAKER_00]: It's Tuesday, September 3, 2024, and I'm Dave Solbel, 4th thing to note today.

[00:00:08] [SPEAKER_00]: US Consumer Confidence Index rises slightly despite labor market concerns.

[00:00:13] [SPEAKER_00]: Dell surpasses expectations with an 80% surge in AI-driven server sales,

[00:00:18] [SPEAKER_00]: an IBM Study reveals a sharp decline in confidence in IT departments,

[00:00:23] [SPEAKER_00]: and Intel Moles splitting in half.

[00:00:26] [SPEAKER_00]: This is the Business of Tech.

[00:00:31] [SPEAKER_00]: Back from the long Labor Day Week in the US, we should talk about some economics.

[00:00:36] [SPEAKER_00]: The recent Jackson Hole Symposium revealed the shift in global economic sentiment.

[00:00:42] [SPEAKER_00]: Central bankers from among others, the US Canada and England expressed optimism about steady growth and low inflation,

[00:00:49] [SPEAKER_00]: moving away from the crisis mentality of previous years.

[00:00:53] [SPEAKER_00]: While the US economy appears solid, concerns remain about potential risks

[00:00:57] [SPEAKER_00]: and the impact of high interest rates on economic activity.

[00:01:01] [SPEAKER_00]: Central bankers acknowledged the need for caution as inflation pressures could resurface,

[00:01:06] [SPEAKER_00]: and the effectiveness of monetary policy adjustments is still uncertain.

[00:01:11] [SPEAKER_00]: The conference board reported a slight increase in the consumer confidence index

[00:01:15] [SPEAKER_00]: to 103.3, indicating that recent job market volatility and soft job numbers

[00:01:21] [SPEAKER_00]: have not significantly harmed Americans overall outlook.

[00:01:25] [SPEAKER_00]: However, despite falling inflation and a low jobless list rate,

[00:01:30] [SPEAKER_00]: the index remains low historically reflecting ongoing discontent with rising prices.

[00:01:36] [SPEAKER_00]: Concerns about the labor market are growing as the jobless rate has increased from 3.7 in January to 4.3 in July,

[00:01:45] [SPEAKER_00]: leading to a more pessimistic view of future labor conditions.

[00:01:49] [SPEAKER_00]: July data on income spending and inflation indicate a balanced US economy

[00:01:53] [SPEAKER_00]: with personal income rising point 3% and consumption spending up 0.5%.

[00:02:00] [SPEAKER_00]: Inflasher remains steady at 2.5%, supporting the Fed's potential interest rate cut this month.

[00:02:07] [SPEAKER_00]: Gartner projects that cybersecurity service spending will grow by 13.8% in 2025,

[00:02:13] [SPEAKER_00]: reaching 86.07 billion dollars.

[00:02:16] [SPEAKER_00]: Driven by concerns over a talent shortage and increasing cyber threats,

[00:02:21] [SPEAKER_00]: particularly those involving generative AI.

[00:02:24] [SPEAKER_00]: Cyber security spending is expected to rise 15.1% to $212 billion,

[00:02:30] [SPEAKER_00]: with security software also seeing significant growth.

[00:02:34] [SPEAKER_00]: AI enabled attacks are identified as a major factor influencing this trend.

[00:02:40] [SPEAKER_00]: Why do we care?

[00:02:42] [SPEAKER_00]: Vibes.

[00:02:43] [SPEAKER_00]: The data shows a strong US economy and the vibes are a lot less strong.

[00:02:48] [SPEAKER_00]: I'm going to couple the data with a big idea presented on Thursday's show.

[00:02:53] [SPEAKER_00]: Optimism should be your default, not blind optimism of course,

[00:02:56] [SPEAKER_00]: but optimism nonetheless.

[00:02:58] [SPEAKER_00]: There should be plenty of opportunity out there and more importantly,

[00:03:01] [SPEAKER_00]: you can convey that to customers as their opportunity to seize as well.

[00:03:09] [SPEAKER_00]: Today's episode is supported by CoreView.

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[00:03:59] [SPEAKER_00]: So let's talk about some earnings calls.

[00:04:01] [SPEAKER_00]: In video's recent earnings report indicates strong demand for AI-related chips,

[00:04:07] [SPEAKER_00]: with revenue doubling to $30 billion and net profit rising to $16.6 billion.

[00:04:13] [SPEAKER_00]: Despite Nvidia's impressive revenue growth of 122% year on year,

[00:04:19] [SPEAKER_00]: and a net income increase of 168%.

[00:04:22] [SPEAKER_00]: It's stock fell by 6% following the earnings announcement.

[00:04:26] [SPEAKER_00]: As concerns about slowing growth emerged,

[00:04:28] [SPEAKER_00]: the company continues to perform while across all sectors and expects future revenue

[00:04:33] [SPEAKER_00]: to reach approximately $32.5 billion,

[00:04:37] [SPEAKER_00]: but faces challenges including delays in next generation chips

[00:04:40] [SPEAKER_00]: and an investigation by the U.S. Department of Justice regarding competition practices.

[00:04:47] [SPEAKER_00]: Dells Q2 2025 earnings report showed a significant 80% increase in server sales,

[00:04:53] [SPEAKER_00]: driven by demand for AI-oriented servers,

[00:04:55] [SPEAKER_00]: particularly those using Nvidia chips.

[00:04:58] [SPEAKER_00]: Revenue reads $25.03 billion surpassing expectations with net income rising 85%

[00:05:06] [SPEAKER_00]: to $841 million.

[00:05:08] [SPEAKER_00]: Despite a strong performance in the infrastructure solution's group,

[00:05:13] [SPEAKER_00]: which saw overall sales rise 38%,

[00:05:15] [SPEAKER_00]: the client solution's group experienced a decline in revenue.

[00:05:19] [SPEAKER_00]: Del revised its full-year revenue guidance to between $95.5 billion and $98.5 billion.

[00:05:26] [SPEAKER_00]: And CrowdStrike reported a significant financial impact from that recent global IT

[00:05:31] [SPEAKER_00]: outreach caused by a sensor update,

[00:05:33] [SPEAKER_00]: expecting a loss of about $60 million in annual recurring and subscription revenue.

[00:05:39] [SPEAKER_00]: Despite this CEO George Kurtz emphasized customer loyalty and trust,

[00:05:44] [SPEAKER_00]: countering claims of defections to competitors.

[00:05:46] [SPEAKER_00]: The company experienced a 451% increase in net income year over a year,

[00:05:52] [SPEAKER_00]: but has lowered its revenue and profit forecast for fiscal year 2025 due to the incidents on going effects.

[00:06:00] [SPEAKER_00]: Why do we care?

[00:06:02] [SPEAKER_00]: If you spring a little AI-pixie dust over most things,

[00:06:05] [SPEAKER_00]: investors in Wall Street will reward you.

[00:06:07] [SPEAKER_00]: Now that's not true when it comes to Main Street,

[00:06:10] [SPEAKER_00]: as we've seen data that shows mention of AI drives down the value.

[00:06:14] [SPEAKER_00]: So pair of the two ideas.

[00:06:16] [SPEAKER_00]: As an IT services firm, you should be focusing on business outcomes.

[00:06:20] [SPEAKER_00]: With AI inside, you will deliver solutions that benefit the business,

[00:06:25] [SPEAKER_00]: be it revenue increasing or cost savings,

[00:06:27] [SPEAKER_00]: and lean into the business side and away from how it works.

[00:06:31] [SPEAKER_00]: And let's note two things.

[00:06:33] [SPEAKER_00]: Does seem that CrowdStrike will take a revenue hit from a breach.

[00:06:37] [SPEAKER_00]: And second, its slowdown will be from an astronomical 451%.

[00:06:42] [SPEAKER_00]: So it remains to be seen how long term the dip will be.

[00:06:49] [SPEAKER_00]: A recent IBM study reveals that business leaders' confidence

[00:06:52] [SPEAKER_00]: in IT has significantly declined,

[00:06:55] [SPEAKER_00]: with only 47% considering their IT organization effective,

[00:07:00] [SPEAKER_00]: down from 69% in 2013.

[00:07:03] [SPEAKER_00]: This discontent stems from rising expectations for technology

[00:07:06] [SPEAKER_00]: to deliver competitive advantages and inadequate communication

[00:07:10] [SPEAKER_00]: between IT and business leaders.

[00:07:13] [SPEAKER_00]: To improve IT service delivery,

[00:07:14] [SPEAKER_00]: the reports suggest increasing female representation in tech,

[00:07:19] [SPEAKER_00]: addressing technical debt, leveraging AI for modernization,

[00:07:23] [SPEAKER_00]: measuring technologies impact on business outcomes,

[00:07:25] [SPEAKER_00]: and involving the workforce in AI initiatives.

[00:07:29] [SPEAKER_00]: The SAS disruption report by unmosis and enterprise strategy group

[00:07:34] [SPEAKER_00]: reveals that 78% of US tech leaders are concerned about SAS security threats

[00:07:38] [SPEAKER_00]: as reliance on those applications grows.

[00:07:41] [SPEAKER_00]: Key risks include grinding data access to third-party providers,

[00:07:45] [SPEAKER_00]: leading to potential cyber attacks and data leaks.

[00:07:48] [SPEAKER_00]: The report emphasizes the importance of data retention

[00:07:51] [SPEAKER_00]: and highlights that 72% of leaders prioritize security.

[00:07:55] [SPEAKER_00]: Recommendations included adopting a no data architecture

[00:07:58] [SPEAKER_00]: to maintain data ownership and conducting regular security audits

[00:08:02] [SPEAKER_00]: to mitigate risks associated with SAS applications.

[00:08:06] [SPEAKER_00]: An enterprises are increasingly adopting cloud solutions

[00:08:09] [SPEAKER_00]: to meet the demand for generative AI and machine learning,

[00:08:12] [SPEAKER_00]: with 63% reporting accelerated cloud adoption this year,

[00:08:16] [SPEAKER_00]: per factory research.

[00:08:18] [SPEAKER_00]: Despite challenges like telechordages and closk concerns,

[00:08:22] [SPEAKER_00]: companies plan to allocate over 25% of their IT budgets

[00:08:25] [SPEAKER_00]: to cloud technologies, averaging 95 million dollars,

[00:08:28] [SPEAKER_00]: with a significant portion directed toward AI platforms.

[00:08:32] [SPEAKER_00]: Cloud consumption has grown approximately 20% year over year,

[00:08:36] [SPEAKER_00]: and major providers are expanding infrastructure in response.

[00:08:39] [SPEAKER_00]: However, concerns of requests, security, and integration

[00:08:42] [SPEAKER_00]: remain prevalent among IT leaders.

[00:08:46] [SPEAKER_00]: Why do we care?

[00:08:48] [SPEAKER_00]: It's that first story I'm going to linger on,

[00:08:50] [SPEAKER_00]: as I think the other two are supporting

[00:08:51] [SPEAKER_00]: of the General IT Service's strategy.

[00:08:54] [SPEAKER_00]: IBM survey highlights more of what I mentioned in the last story

[00:08:58] [SPEAKER_00]: and raises the bar.

[00:08:59] [SPEAKER_00]: It's becoming table stakes to be involved in the business,

[00:09:02] [SPEAKER_00]: delivering business outcomes with technology

[00:09:05] [SPEAKER_00]: as part of the competitive advantage.

[00:09:07] [SPEAKER_00]: Fail here and you lose.

[00:09:12] [SPEAKER_00]: Therod.com reporting how Intel is considering

[00:09:15] [SPEAKER_00]: a potential breakup of its chip design

[00:09:17] [SPEAKER_00]: and foundry businesses due to serious financial struggles.

[00:09:21] [SPEAKER_00]: With CEO Pat Genslinger exploring various options

[00:09:24] [SPEAKER_00]: to present to the board.

[00:09:26] [SPEAKER_00]: The company is basically significant challenge this year,

[00:09:29] [SPEAKER_00]: including a 60% drop in stock value and significant layoffs.

[00:09:33] [SPEAKER_00]: While immediate changes are not expected,

[00:09:35] [SPEAKER_00]: Intel may implement conservative cost cutting measures

[00:09:38] [SPEAKER_00]: that could hinder innovation,

[00:09:40] [SPEAKER_00]: leading to speculation that separating the foundry business

[00:09:42] [SPEAKER_00]: may become necessary.

[00:09:45] [SPEAKER_00]: Why do we care?

[00:09:47] [SPEAKER_00]: Intel's really struggling.

[00:09:48] [SPEAKER_00]: Why don't necessarily see this as critical

[00:09:50] [SPEAKER_00]: to daily operations of IT Services orgs?

[00:09:53] [SPEAKER_00]: It should be a contributing factor to your strategy planning

[00:09:56] [SPEAKER_00]: with customers.

[00:09:58] [SPEAKER_00]: We're pending a big upgrade cycle for hardware

[00:10:00] [SPEAKER_00]: with a wave of AI enabled PCs.

[00:10:02] [SPEAKER_00]: Will Intel be a participant?

[00:10:05] [SPEAKER_00]: Well, I'm not betting on it.

[00:10:09] [SPEAKER_00]: Therod has declared death to the ticket.

[00:10:12] [SPEAKER_00]: Did you know tickets date back to the 1800s

[00:10:15] [SPEAKER_00]: and customers ate tickets?

[00:10:18] [SPEAKER_00]: Therod uses an approach for connecting,

[00:10:20] [SPEAKER_00]: communicating and ultimately collaborating.

[00:10:22] [SPEAKER_00]: Therod allows people to come together around a topic.

[00:10:26] [SPEAKER_00]: They can discuss and make decisions.

[00:10:28] [SPEAKER_00]: They can share and invite the right people.

[00:10:31] [SPEAKER_00]: The future of service is collaborative.

[00:10:34] [SPEAKER_00]: Supercharge your service experience

[00:10:35] [SPEAKER_00]: by seamlessly integrating AI and automation

[00:10:38] [SPEAKER_00]: to meet your customers where they are.

[00:10:40] [SPEAKER_00]: In teams, Slack and DESTOPs,

[00:10:43] [SPEAKER_00]: not in tickets.

[00:10:44] [SPEAKER_00]: With Instant Updates 2 and from Connectwise,

[00:10:47] [SPEAKER_00]: Autotask and Halo PSA,

[00:10:48] [SPEAKER_00]: the all communication in one place where it should be with people.

[00:10:54] [SPEAKER_00]: Decrease time to resolution 30% with chat-based support

[00:10:57] [SPEAKER_00]: by visiting Getthread.com slash MSB radio

[00:11:02] [SPEAKER_00]: to declare death to the ticket.

[00:11:07] [SPEAKER_00]: Thanks for listening.

[00:11:07] [SPEAKER_00]: Today is telephone day.

[00:11:09] [SPEAKER_00]: I'll be using that to call my dad as it's his birthday.

[00:11:13] [SPEAKER_00]: Happy birthday, Dad.

[00:11:14] [SPEAKER_00]: I'll be key-noting for pulseway

[00:11:16] [SPEAKER_00]: with their virtual event September 11th and 12th

[00:11:19] [SPEAKER_00]: would love to have you join me.

[00:11:21] [SPEAKER_00]: Link is in the show notes

[00:11:22] [SPEAKER_00]: and in the description,

[00:11:24] [SPEAKER_00]: so sign up for this free event

[00:11:26] [SPEAKER_00]: and I will be taking questions live during it.

[00:11:29] [SPEAKER_00]: And if you've got a comment on the story,

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[00:12:24] [SPEAKER_00]: Once again,

[00:12:25] [SPEAKER_00]: thanks for listening to me.

[00:12:27] [SPEAKER_00]: I'll talk to you again

[00:12:28] [SPEAKER_00]: on our next episode

[00:12:29] [SPEAKER_00]: of the Business of Tech.