Microsoft 2Q17 Earnings Call Notes

Satya Nadella

Examples of cloud customers

“A prime example is Mars, a $35 billion business with 60 brands. An early adopter of Office 365, Mars is using Office and Windows 10 to transform how its 80,000-strong global workforce collaborates while staying secure. And more recently, they have begun running mission-critical workloads on Azure with hundreds more on the way, including inventory management using Azure IoT. Swift Transportation, one of the largest trucking companies in the United States, is digitizing work for nearly 20,000 drivers with Office 365 and Skype and is using Azure to harness the data from their sensor-equipped trucks to optimize driver productivity and safety.”

Have reorganized the sales force to be more technical up front

“I would say the overall change that we are going through, and this has been ongoing for I would say the last multiple years, is transforming our field engagement model, where we’re putting a lot more technical depth in the front-line sellers so that they can engage, whether it’s data specialists, cloud specialists, security specialists, or even productivity specialists. Because it’s super-important for us in this phase when people are looking for solutions to help them visually transform, for us to have a very fundamentally different type of capability in terms of our sales, and that’s the transformation. And so we have really reorganized ourselves, both in the headquarters and in the field, to be able to recognize that shift.”

Seeing customers span cloud offerings

For example, in FinServ, some very Tier 1 trading applications now using some of our capabilities in service fabric, which is really a PaaS service, which allows you to manage microservices with low latency and high scale, that’s a place where we are seeing in fact activity, whether it’s game development or trading applications. We are seeing even interesting use cases of Azure functions, which is completely serverless. In fact, you can think of it as a price cut for anybody who cares about being very, very smart about cloud consumption. Going serverless is something that we in fact advocate. So across the board, I feel we have the right mix of IaaS, PaaS, SaaS, and per user SaaS services like Azure Active Directory, which gives us the right mix to be able to even have the right margins long term. We’re not concentrated in any one layer of the stack, which is something we do by design because our vision has always been that we want to of course offer all of these layers, and customers will choose depending on their needs and their scenarios. And we are now seeing even a single customer estate spanning all of these.”

Office as SaaS means always up to date and secure

“But in addition to that, I must say there are two other things that are increasingly becoming fairly relevant in the adoption cycle, which is moving to both Office 365 and Windows 10 and getting essentially to this new frontier for productivity, which is an always up-to-date operating system, which is secure, and an always up-to-date Office experience that is a SaaS service. We’re increasingly seeing that resonate, not just in small business and some of the high-tech industry as it has been in the past, but now even in the regulated parts of the enterprise. So we are very excited about that.”

Amy E. Hood – Microsoft Corp.

Expect continued FX headwinds

“Now let’s turn to the outlook, first FX. We had originally expected FX rates to lessen going into H2. However, given current rates, we expect continued currency headwinds for the rest of the year. For Q3, we now expect about 1 point of negative impact on total revenue. Within the segments, we anticipate about 2 points of negative FX impact in Productivity and Business Processes and Intelligent Cloud, and 1 point in More Personal Computing. “

IBM 4Q16 Earnings Call Notes

Martin Schroeter

On pace for $40B in strategic imperatives by 2018

“We delivered 14% revenue growth in our strategic imperatives for the year, led by cloud. We finished the year with $13.7 billion of cloud revenue, which was 17% of IBM’s revenues. Our strategic imperatives, together generated $33 billion of revenue in 2016, and now represent 41% of our revenue. To put this in perspective, when we first established the strategic imperatives, we said they’d grow to $40 billion, and represent over 40% of our revenue by 2018. The growth we achieved in 2016 keeps us ahead of track to the $40 billion. In fact, a growth rate of 10% to 11% from here gets us to the $40 billion in 2018.”

The debate over AI is over

“We’re moving into a new phase. The debate about whether artificial intelligence is real is over, and we’re getting to work to solve real business problems. As we move into this new era, it’s important to understand what enterprise clients are looking for. They need a cognitive platform that turns vast amounts of data into insights, and allows them to use it for competitive advantage. They need access to a cloud platform not only for the capability, but for speed and agility. And they need a partner they trust, and who understands their industry work and process flows.”

Building unique datasets

“This is where we’re clear and confident about our point of view. Yes, we have world-class cognitive technology, but that’s table stakes. We are building datasets by industry that we either own, or we partner for. Importantly, we’ve designed Watson on the IBM Cloud to allow our clients to retain control of their data and their insights, rather than using client data to educate a central knowledge graph. And we’re using our tremendous industry expertise to build vertical solutions and train Watson on specific industry domains.”

The application for blockchain is well beyond financial services

“But the application for blockchain is well beyond financial services. For example, we’re collaborating with Walmart to improve the way food is tracked, transported and sold to consumers across China, and with Everledger, who is using a cloud-based blockchain to track the provenance of diamonds and other high value goods as they move through the supply chain. Here too, the data needed to improve food safety or track diamonds isn’t on the web. It’s private data, owned by enterprises, who want to work with a partner they trust.”

Currency will be much less of a headwind

“I don’t know when currency is going to ramp but we do know it’s much less of a headwind next year than it was this year at least at current rates.”

Margins are higher in strategic imperatives

“our margins in the strategic imperatives continue to be higher than overall IBM and higher obviously than the core, so our focus on delivering value hasn’t changed. And whenever that crossover point happens to be, yes, we’re already close”

IBM at Credit Suisse Conference Notes

Martin Schroeter – SVP & CFO

There’s so much data being created that you can’t just program a computer to find the relationships that you’re looking for

“the amount of data that our clients have already and quite frankly the amount of data they’re creating everyday in order to — when they run their businesses and in order to help them understand their clients and how they serve their clients best is creating an opportunity for us where we can no longer, nobody can any longer just program a computer to find relationships that you’re looking for. It’s just too much data and so in a world where a system has to learn about the data, you have to find a way to interact with it. That’s roughly for a non-technical person, that’s roughly what we’re talking about when we say a system where cognitive will influence and affect every decision that companies will make over time. So the world of cognitive is here because of the amount of data that our clients and companies already have as well as how much is being created by the world today.”

Cognitive requires an amount of compute power that is only available in the cloud

“Now all of that requires an amount of compute and amount of power that is not available for everyone to invest in, but that’s where the cloud comes in and so there is obviously an economic element to moving into a cloud environment, but more importantly for our clients, we see an ability for access to these kinds of cognitive applications as well as an agility that you get from your business and running in a cloud environment.”

The only way to thrive in healthcare today is to have a system that can ingest all of the data that exists

“Therefore in our view the only way to survive, the only way to thrive, the only way to deliver proper healthcare is you have to have a system — cognitive system that can ingest all of the data that exists today in a way that allows you to get the right method of treatment soon, that allows you to get the right linkages and the right clinical trials early and in a complete way, so that you can put together, you can put together that string of treatment and fit within whatever that envelope happens to be when that payer decides in total how much they’re going to allocate.”

Hewlett Packard Enterprise FY 4Q16 Earnings Call Notes

Hewlett Packard Enterprise’s (HPE) CEO Meg Whitman on Q4 2016

Uneven demand is a new normal

“Sure. So, listen, I would characterize this quarter as uneven global demand. But I have to say, I’ve been characterizing the last three or four years the uneven global demand. This feels like the new normal to me. There will be spots that do better, spots that are not as good as last quarter. And my view is, our performance is entirely in our own hands, yes, we’re influenced by the global demand.”

Tim Stonesifer

Keeping an eye on currencies

“Yes, sure. So, as far as Q4, we did see a little bit of that pressure, but not significant. But to your point, as you look, I mean, the currency environment has definitely been volatile in the last few weeks. And to your point, when you look at sort of where the rates are to-date versus where we guided, call it, mid-October, some of the rates are unfavorable. For example, if you look at the euro, the euro was at 110, and now it’s probably at 106, 107 something like that. So, given our global footprint that does put some pressure on the operations now. Having said that, it’s very early in the year and we do have some hedging programs in place. So we didn’t feel it was prudent at this stage to adjust our guide. And then in addition to that, the teams are being very proactive and very aggressive around the cost structure. There are also to your point in EMEA, we’re looking at opportunities to improve pricing to offset some of that pressure. So, I would just say this to wrap it up is, we’re keeping a close eye on the currencies. And at the same time we’re also implementing operational actions to help mitigate any pressure.

Microsoft UBS Conference Notes

Microsoft (MSFT) Management on UBS Global Technology

Rajesh Jha – Executive Vice President, Office Product Group

Satya brought a pretty big shift in culture

“So from a culture perspective, I would say perhaps the biggest impact was bringing the mindset, learning mindset, or growth mindset, where it’s about being humble, it’s about being open-minded, about intellectually curious, trying stuff, not being afraid to fail, learn quickly from failure. That was a pretty big shift, you know, it seems really an obvious thing for us to do, but it was a pretty big shift that he brought to the table.”

“And then brought a much sharper perspective on customer obsession, being connected to the customer. And then I would say under his leadership the third aspect I would add is probably more than ever before working as One Microsoft. So building on each other and getting the efficiencies from that.”

The key to AI is having unique data

“It’s huge. I mean look, the first thing when people tell you they do AI, the first thing you’ve got to wonder is do they have unique data, do they have unique signals. In Office we have billions and billions of data points as our users interact with our products. They are signaling us. When I share a document with you, Brent, that’s a signal. If I e-mail if somebody sends me e-mail and I dwell seven or eight minutes on that e-mail versus my typical minute or two, that’s a signal. And all these signals and all the data what we do with Office 365 is we treat them as a customer’s data and customer’s signals. So then what do we do? Now we’ve got lots and lots, billions of endpoints of data and signals. Then we bring in machine learning and AI techniques and natural language processing to give back the end user or the customer unique insights.”

Example of AI use in word

“Let me give you a couple of examples. Let’s say you’re editing a document in Word and you’re preparing a report and then you think maybe I want to reuse a chart from a report I had seen somewhere in my work group and you didn’t quite remember who had shared this with you, but you want to use one of those charts. So what we have today as a feature now in Office 365 is called Word Tap. So you’ll literally one tap onto the ribbon and we use the AI technique to bring all the relevant documents that you’ve seen in the past that may be interesting to the content that you’re writing now, and we auto-bring those things into you right pane. You can scroll in the right pane. You can tap on the chart that you see, and boom, it’s in your Word document. And so instead of going leaving Word, going and doing a search, find the filter you searched on, remember who sent you that thing, the AI signal brings it back into Word.”

24m consumer subs to Office 365

“So one thing we haven’t done a lot is we haven’t talked about Office 365 consumer business. We are quite happy with our consumer business. We have 24 million subscribers today for Office 365 in the consumer space, and the value that our users get there is they get a terabyte of storage in OneDrive, and OneDrive is a great integration as you just mentioned back into the core devices. And then an always up to date client, all the AI features I talked about start to show only for our subscribers.”

IBM at UBS Conference Notes

Tom Rosamilia – SVP, IBM Systems

Systems business

” Systems, for those of you who don’t know, is a combination of servers and storage, some responsible for our power business, mainframe business, and our storage business, hardware business software.”

Have to design systems for the cognitive cloud era

“I’ve got to make sure I am designing systems for that cognitive cloud era. They’re not the same as systems that have been built for prior eras like what we continue to do with transaction processing. So I’ve got to build design for cognitive, design for machine learning, design for artificially intelligence, design for systemic performance not just what I get from the processor. So I think the biggest change I am seeing and in addition to the speed is the fact that the infrastructure has to deliver for the workload.”

Blockchain is a great technology to embrace

“We’ve done other things like making job available on the mainframe; so all the new languages are available, so reinvigorating that enterprise. And now blockchain, blockchain to me is a great technology to embrace, because it in of itself is transformational. And so when the research team came to me a little over year ago and said we’re embracing this thing called Hyperledger, and we’d like to work with you on the mainframe environment, I was anxious to do so. And we sit-up in the cloud on the mainframe on LinuxONE back in the summer time a offering for blockchain in cloud. And we’ve got over 40 claims now using it in proof-of-concept mode, transitioning into production mode now to begin to use what they see as a secure container for Hyperledger.”

Broader applications to blockchain than just financial services

“I see it dramatically broadening. But specific use-case I’ll give you is one around supply chain. And I see a lot of the logistics in the supply chain capabilities being transformed by blockchain. Anything that takes a long time to do settlements today and takes multiple players and where I can benefit from having this audit trail and being able to do faster hand-offs, I think is a great example of what we can do with blockchain. I’ll give you a couple of examples. We’re working with the Wal-Mart, they happen to be using LinuxONE on the mainframe for their food supply in China. They want to know where this product started from and where it ended up. If they get a problem in their supply chain somewhere, they want to be able to trace it back to exactly what batch that came from. And if there is a problem with that, I only have to take that batch out of production or that batch off the market. I don’t have to take all the spillage off the shelves because I’ve got one place where it contaminated. So by being able to check the providence of that food supply, they can ensure a much safer food supply in China. ”

Flash is definitely replacing spinning disc storage

” I will tell you from a flash perspective, we were here together three years ago just off the road in Sausalito, and we were talking about convincing people that flash would replace spinning disk. I don’t have that discussion anymore, it’s very clear that that’s happening. So I don’t have to have that price performance discussion. Now, I mostly have the discussion about why I am better than the other guys. But I don’t have to talk them into the transition into flash. We’ve moved flash across our entire product line. You can buy all flash arrays for apron systems, for DSAK model for flash. You can buy store-wise, at models, all-flash. You can buy DeepFlash 150 for scale-out environments for each PC computing. So we put flash in every step along the way in our storage portfolio from the high-end to the low-end. And so that is clearly a transformation that’s happening in the industry and for me.”

We are not just giving up public cloud

“First thing I’ll say is we plan and intend to be a first-class provider in public, in public cloud. We do with the IBM cloud offering. And that is really important for people to understand. We’re not just giving that to others, we’re embracing it. We’re going after it. And making our platform-as-a-service layer available on top of that, it is essential for our strategy going forward. We also do a lot of cloud managed services for customers today, whether it’s on-prem or whether we do in our data centers. And my services colleagues banish that. And then there is this world in between of hybrid. And as I said, really need to define that. Ask vendors to define what that means. What some people think it means is the ability to use capacity on-prem and eventually use it off-prem when I need it.”

Near death experiences are good learning experiences

“So I would actually recommend a near-death experience to anyone in the room. I wouldn’t recommend a death experience. But near-death is a good learning experience. And we certainly went through that. And I think it helps motivate us through transformation and saying, I don’t want to get to the point where I am struggling to keep my head above water. The thing that’s so different for me this time is this move cognitive is one that we’ve initiated, not the one that we’ve reacted to. And so, to me, we’re on the forefront of this. We have the leading capability in cognitive computing. A lot of it invented in IBM research. Some of it augmented by things we’ve done, but most of it really home-grown for our R&D dollar. What I am delivering in systems for cognitive computing is all things that we’ve either done or we’ve partnered with others to do. So, I feel good about it being on the leading edge of this, not being on the bleeding edge of this and thinking about what’s going to happen if we don’t embrace something. We’re driving this. We’re not reacting to this. So that’s a fundamentals difference.”

Microsoft FY 1Q17 Earnings Call Notes

Microsoft’s (MSFT) CEO Satya Nadella on Q1 2017 Results

85m monthly active users of office 365M

“Monthly active users of Office 365 commercial are now over 85 million, up more than 40% year-over-year. Office 365 commercial seats were also up 40% year-over-year and revenue up 54% in constant currency. Across industries, customers such as eBay, European airline, jet, global pharmaceutical company, Allergan, the Fortune 100 companies like the energy leader Exelon and Liberty Mutual Insurance are choosing Office 365 to help make their employees more productive and secure.”

Vision for distributed computing

“Overall, again I go back to how we think about Azure. We really have a view of distributed computing which is more expansive doing just even our HyperScale cloud. We think about Azure and our servers as one distributed computing fabric that’s building. We also don’t think of Office 365 and Dynamics 365 as independent, we think of them altogether building out our commercial cloud because it takes one of the bigger growth areas we have in Azure, it’s IoT but it’s not just people connecting sensors and collecting data. They collect the data, they store the data, the analyze and do predictions on it but then after you do predictions you got to do something about the predictions. So in many cases they choose to use especially with the new Dynamics 365 field service module automating field service.”

Most excited about companies developing new workloads with cloud capabilities

“We definitely are seeing production workloads that are moving over from on premise, but I think the more interesting thing Heather for us is to see new workloads. When I look at what’s happening with say some of the most innovative work we’ve done around distributed computing which is service fabric and how people are in fact going straight to building out using our past services some of the new HyperScale cloud services using microservices and not only are they doing that but we’re also seeing great growth in our serverless infrastructure which is Azure functions. So I am actually as excited about new cloud growth from new cloud workloads from the same customers so the much interesting thing that I am observing is that it could be the same model customer that was participating with us in the client server area. We are not just building or moving their IT but they are building new digital services for HyperScale and that’s what it is probably unique in terms of what is changed year-over-year for us. It’s not just the Silicon Valley startups anymore, it is the core enterprise that is also becoming a digital company and we are well positioned to serve them and that’s good to see.”

IBM 3Q16 Earnings Call Notes

International Business Machines (IBM) Q3 2016 Results

Martin Schroeter – Senior Vice President and Chief Financial Officer

Currency was a modest tailwind

“for the first time in quite a while currency was a modest tailwind to revenue growth.”

Systems revenue was down

“Our systems revenue was down this quarter. The z Systems performance reflects the fact that we are seven quarters into the product cycle where POWER reflects the secular decline in UNIX mitigated by growth in Linux. There is a tremendous amount of change in our industry and we are continuing to invest where we see the best opportunities.”

Strategic imperatives represent 40% of IBM now

“Over the last 12 months, strategic imperatives delivered nearly $32 billion in revenue and now represent 40% of IBM. We had strong performance in our cloud offerings which were up over 40% led by our as-a-service offerings. We exited the third quarter with an as-a-service run rate of $7.5 billion. That’s up from $6.7 billion last quarter and the bulk of the increases organic. So we are building scale in these businesses.”

Block chain potential

“We believe block chain has the potential to do for trusted transactions what the internet did for information. We are building a complete block chain platform and are now working with over 300 clients to pioneer block chain for business, including CLS, who settles $5 trillion per day in the currency markets to implement a distributed ledger in support of its payment netting service and Bank of Tokyo Mitsubishi for smart contracts to manage service level agreements and automate multi party transactions.”

Watson isn’t going to run on someone else’s cloud

“And it came up as you heard on the call, will Watson run on someone else’s cloud? No, it won’t, it will run on the IBM cloud. And we are doing all of that with deep industry expertise and that’s what our clients are looking for, that cognitive capability on the IBM cloud with deep industry expertise and you can see that in our health, you can see that in our IoT and you can see now in financial services which we just announced a couple of weeks ago.”

VMware 2Q2016 Earnings Call Notes

VMware (VMW) Patrick Gelsinger on Q2 2016 Results

Leader in cloud management for third year in row

“Our leadership in cloud management was acknowledged by leading analyst firm IDC during Q2. They named VMware as the market share leader in both the worldwide cloud systems management and the data center automation software markets based on 2015 revenues. This is the third consecutive year that VMware has topped both categories.”

Our expanded relationship with Dell will be very positive

“I want to talk briefly about the proposed merger between Dell and EMC, which EMC indicates is expected to close within the originally announced timeframe. We believe our expanded relationship with Dell will be very positive for our customers, partners and shareholders. One of the core tenets of this relationship is the commitment from Michael Dell that VMware will retain and continue to invest in its strong independent partner ecosystem. Overall, we were very pleased with the business through our OEM partners in Q2 and we expect our relationship with Dell to build upon the strong partnership we’ve built with EMC over many years.”

We are seeing broad adoption across all customer segments for NSX capabilities

“We were especially pleased with our results across our portfolio of newer growth businesses. In Networking, we had another great quarter with NSX license bookings more than doubling and the number of customers now exceeding 1700. We are seeing broad adoption across all customer segments for NSX capabilities, including micro segmentation, IT automation, and application continuity. We continue to extend our leadership in hyper-converged infrastructure software, with approximately 5,000 customers now using Virtual SAN since its launch just over two years ago and up from about 3500 just a quarter ago. Our hyper-converged license bookings, including VSAN and VxRail software, grew over 200% year-over-year. The new VxRail appliance we jointly developed with EMC was launched earlier this year and has enjoyed an impressive start, benefiting also from Dell’s decision to resell VxRail.”

Acquisition of Arkin Net

“We continuously complement our R&D engine with the infusion of acquired technologies and talent. To that end, in Q2 we completed our acquisition of Arkin Net, a leader in software-defined data center security. Arkin was described in a recent article as offering a GPS or Google maps for networking traffic. Its management platform is purpose built for NSX and, combined with vRealize, will provide customers with a security and operations management plane for the SDDC. We are confident that Arkin will further expand vRealize suite’s position as the industry’s clear leader in cloud management.”

Board authorized a repurchase of up to $1.2 billion for 2016

“I’ll spend a moment on our stock repurchase plan. As we mentioned on our last call, our Board authorized a repurchase of up to $1.2 billion for 2016, which we plan on using to repurchase class A shares in the open market before the end of the year. We expect to begin repurchasing our stock after the EMC shareholder votes.”

Microsoft FY 4Q16 Earnings Call Notes

Microsoft (MSFT) Satya Nadella on Q4 2016 Results

Why enterprise partners choose Microsoft cloud

” let’s get into the specifics of the Intelligent Cloud, an area of massive opportunity, as we are clearly one of the two enterprise cloud leaders. Companies looking to digitally transform need a trusted cloud partner and turn to Microsoft. As a result, Azure revenue and usage again grew by more than 100% this quarter. We see customers choose Microsoft for three reasons. They want a cloud provider that offers solutions that reflect the realities of today’s world and their enterprise-grade needs. They want higher level services to drive digital transformation, and they want a cloud open to developers of all types.”

350m Windows 10 users

“Now let’s talk about the progress in More Personal Computing. We have increased Windows 10 monthly active devices and are now at more than 350 million. This is the fastest adoption rate of any prior Windows release. While we are proud of these results, given changes to our phone plan, we changed how we will assess progress. ”

Azure customers extending beyond those just in the “classic tech” industry

“pretty much anyone who is a customer of Azure is also in some form an ISV, and that’s no longer just limited to people who are “in the classic tech industry” or the software business. That’s the same case with GE. It’s the same case with Boeing. It’s the same case with Schneider Electric or ABB or any one of the customers we are working with because they all are taking some of their assets and converting them into SaaS applications on Azure. ”

One third of customers are traditional ISVs

“The question you asked is an interesting one, which is if I had to slice it by classic ISVs, it would be one-third or so of our revenue. But the thing that – the first question that Keith asked is probably more indicative of what’s happening, which is every customer is also an ISV. So every customer who starts off consuming Azure is also turning what is their IP in most cases into an ISV solution, which ultimately will even participate in AppSource.”

The cloud is about moving towards services

” I look at what we are doing with Office 365, Dynamics 365, AppSource, LinkedIn as all being part of one strategy. So the move to the cloud for our customers and for us is not just about a new way of delivering the same value just as a SaaS service. It’s really the transformation from having applications that are silos to becoming more services in the cloud where you can reason about the activity and the data underneath these services to benefit the customers who are using these services. So that’s what this notion of a graph represents.”

Amy E. Hood – Chief Financial Officer & Executive Vice President

Expect Commercial Cloud Gross margin will improve materially next FY

“Before discussing our total company gross margin expectations, let me first address Commercial Cloud gross margin. We expect the Commercial Cloud gross margin percentage and dollars to materially improve next fiscal year. We have invested heavily to build share, expand geographically, and ensure world-class support and reliability for our commercial customers. Going forward, we expect those investments to provide benefits of scale. We also anticipate our cloud capital expenditure growth curve will slow. ”

PC market was a little better than we thought

“the PC market was a little bit better than we thought. And particularly in developed markets, the PC growth was better than we thought. And developed markets are where we see the most transactional business with Consumer Office that impacts in quarter. So the strength from that outperformance or better market in consumer PCs in developed markets is a direct correlation to our performance in Office Consumer.”