Motley Fool Money - Headsets First, Killer Apps Second

Episode Date: January 8, 2024

The Consumer Electronics Show kicks off with big news from Nvidia and many more. (00:21) Jason Moser and Deidre Woollard discuss: - Announcements from CES. - What could make Apple’s Vision Pro successful. - The relevance of Twilio’s CEO switch. (17:42) Ricky Mulvey interviews Kevin Simzer, Chief Operating Officer of Trend Micro, about cybersecurity in the cloud and the new threats facing electric cars. Companies discussed: AAPL TWLO, NVDA, AMD, OTC: TMICY Claim your Epic Bundle discount here: www.fool.com/epic198 Host: Deidre Woollard Guests: Jason Moser, Ricky Mulvey, Kevin Simzer Producers: Mary Long, Ricky Mulvey Engineers: Dan Boyd, Desiree Jones Learn more about your ad choices. Visit megaphone.fm/adchoices

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Do more electronic shows still relevant? Motley Full Money starts now. Welcome to Motley Full Money. I'm Deidre Willard here with Motleyful analyst, Jason Mozer. Jason, how's it going today? Hey, doing great, Deidre. How about you? Doing well.

You know, I'm sort of in my feelings a little bit because it's CES week. And this used to be like, this used to be the week. I used to work for a sister blog to Engadgett when Engadgett was the thing. And this was the week. it feels a little more lively now than the last few years. But do you think is CES back and has AI made CES relevant again? Well, I mean, I definitely, it feels like it's back from, yeah, the last several years. It's just not really been front and center.

I mean, there obviously been a lot going on over the last few years. But, you know, I think it's also, I mean, there hasn't been a ton in the tech world that has just been keeping us on the edge of our seats. Sorry, Metaverse. It's not me. It's you. You just aren't quite as special, maybe, as we were hoping you would be, at least not yet. Now, maybe we'll find some better use case forces, use cases for you down the road. But I think AI has taken over sort of that role, right, as being that narrative, that headline, that really, that one thing that everybody's really focused on. And that's neat, because The thing about AI is because we're in such early stages with it, we're really just starting to learn about the implications, the ways that it can impact our lives.

I think a lot of what AI is going to do, it's probably not going to be stuff that's front and center and in our face, but it's going to kind of be the stuff that's helping behind the scenes to make our lives better and easier and whatnot. But, yeah, certainly feels like CES is a little bit more back than it has been recently. Well, thinking about AI and everybody trying to put AI in everything, Volkswagen announced that it's putting chat GPT in cars. And this is interesting because, I mean, right now I don't really watch chat GPT in my car, but it's sort of like a down-the-road thing. So they sort of talked about how they wanted to be this sort of like ongoing conversation that you might be having with AI in your car. You know, who knows where this will go. It might start with directions. it might lead to things like breaking news updates or things like that or where should I go for lunch.

So, I don't know. Do you want chat GPT in your car? It's really funny. I wonder what are people doing when they're driving that insists on having all of this stuff at your fingertips, right? I mean, I'm kind of focused on the road, making sure I'm getting to where I want to go. And I either have a podcast or some music going. And that's usually about it. I mean, cars have done a really good job of incorporating a lot of technology. into them. I mean, we've said for a while now, they're really just becoming computers on wheels. That's no more true than today, I think. But it clearly, as we move into sort of this internet of things and everything becomes more connected, I mean, it's obvious real estate

for these technology companies, right? I mean, finding sort of the solutions that make the most sense for consumers. Entertainment, navigation, those are two really obvious opportunities. You see big chip makers that continue to make investments in the space. I mean, you've got A&D, Qualcomm, Nvidia, and more continuing to really get their technology in these cars. And you've got smaller companies like Serence, for example, which used to be a part of nuance. Then they split off from Nuisance. Microsoft acquired Nuisance. Serence is on its own now, and Serence is bringing their voice technology into the car.

Again, focused on sort of that intuitive AI assistant, sort of chat GPT-like. But again, focused really on entertainment navigation things. like that. So I think it's something that probably will develop a little bit more slowly than people might anticipate, but the first step really is getting the technology into the cars and then learning where it can be most useful. And I think we're kind of in the middle of really discovering that, which is exciting. Well, you mentioned the Metaverse earlier. You kind of made a little face. You can't see it through the earring, but it was there as a face. I was having fun.

Yes, so we've got Division Pro coming out. And now we've got some dates here. January 19th, you can pre-order. It's going to be released on the second. We'll see if people are lining up outside the stores. Is this going to be big? Are you going to be lining up? What do you think?

Well, so I definitely personally will not be lining up. I think we will absolutely see plenty of Apple Fanatics creating a lot of buzz about it. I think that's exciting. And, you know, I mean, this is, this is really Apple's first step in this spatial computing paradigm, really at least first meaningful step. And it's very easy to get excited about it because it's Apple. And usually when Apple does something, you know, they're going into it with plenty of research to really justify the opportunity, right? I mean, I don't think they would have gone into this willing-nilly.

I mean, this is something we've probably seen a lot of the competition around them. And, yeah, I made a little joke about the metaverse earlier. And that really is something where I'm sure the metaverse is going to come up with more and more applications for consumers as time goes on. Again, something that probably just develops a little bit more slowly. But to that point, I think that is one of the important points to know with Apple and the Vision. Probably, this is really just their first step.

I think what this leads to is more discovery on their part into how they can improve this technology, but even more so what this technology ultimately can do. And I think that's what Apple and meta and all of these heads. at companies, they're really trying to figure out, okay, we've got this technology out. Now, now what can it do? And it has to be that way, right? I mean, you need to get the technology out there and start experimenting with it and trying it out in different areas in order to get an idea of really where it's most useful and

where it can be most helpful. And that just is going to take some time to develop, right? I mean, I don't know that that's something we should expect something in the next couple of years where all of a sudden now the Metaverse is just mainstream because of this killer app that's been discovered. I mean, I think they're going to discover some, some quote-unquote, killer apps, but I think it's something that's going to take some time. And I think this is something where we're going to see Apple using this sort of high-end device to then help them sort of build more compelling, lower-end devices that ultimately will be able to reach out to the

consumer. I mean, I do continue to believe that these headsets, the biggest, the biggest hurdle for these headsets is the form factor. I mean, it just anybody's just, one with these headsets, it's just not just Vision Pro, I mean, it's any of them. I mean, these headsets are just cumbersome, heavy, and uncomfortable, and you don't want to wear them for very long. But this is the step in kind of getting to where they ultimately need to go, where they can go. That will take some time. And I think that once they can really crack the code on that form factor, I think that'll open a lot of things up. But it's neat to see them making progress in the space for sure. Yeah, well, it's sort of, it starts with a device and it ends with an ecosystem.

And we're just at that point and thinking about where the iPhone was when it launched. And I wonder if this time Apple is going to have a little bit of a different strategy in terms of how quickly it, you know, it lets other people play in its playground. You know, it's a different Apple since when the iPhone first launched. So do you think that there are some companies that might benefit from this in the VR space? Or will there be some more that emerge? Well, definitely. I mean, and I think one of the things we've talked about with is, Vision Pro is this initial iteration is going to be something, I think, more for professionals

and developers in order to kind of figure out those applications and those quote-unquote killer apps, so to speak. And so it's nice to see that Apple has allowed for that partnership ecosystem to begin, right? I mean, it's not something where they're just going it all alone. I mean, they've got companies, you know, like Adobe, for example, I mean, working with Apple to create experiences and sort of exploit this technology. for its best use-case scenarios. And so, I mean, Adobe stands out as one that certainly could benefit down the road. But I think there are going to be plenty of companies that ultimately Apple will saddle up with

in order to try to make this the most useful, productive, and enjoyable experience as possible. So with CES, we're not there walking the floor, but I've been watching the press releases come out. Some of it, you know, I don't need an AI cat door. But some of the things that I find are interesting is the transparent screens. So LG has one. It's a transparent OLED screen. Samsung showed off this transparent micro LED screen. It's really, really beautiful.

I mean, we don't have any details on pricing yet, but I wonder, like, do we want these transparent screens? Is this one of those things, do you think, is a gimmick or the future of something really beautiful? Yeah, I don't know. That's a really good one because, you know, I looked at these. examples and the technology. You're right. On the one hand, it's amazing technology. It produces these crisp images, just beautiful screens. And it's almost like it's just a hologram, right? Which is neat. I mean, that really is a little bit of a look into ultimately that, you know, what the future could look like? You know, then the flip side is to that,

okay, what is the core use case for these? Is it just another model of a TV? Is it just something, I mean, are we looking to put this in our living room or is there another use case that could go with it. I mean, I think there are plenty of use cases where it could apply. And maybe the use cases for technology like this are a bit more apparent in the enterprise side of things. I don't know. I think that's something we'll have to wait and see. I mean, I think cost is going to be something that matters, right? Like you said, there's not a lot of information in regard to cost there, but I think one thing I did find in regard to Samsung, these non-transparent micro-LED TVs that they have are running $150,000 for a 110-inch model.

And so it's not cheap, right? I mean, look at that Vision Pro, and we talk about how cost-perhibitive, that could be, clearly, this technology, the screen technology, is going to be somewhat cost-prohibitive for consumers, at least in the near term. But it's definitely a window into what could be. I guess the question is, is this sort of the new form factor, or is this the next 3D television? And that, I think, is the question we just don't have an answer to yet.

And for those not keeping score, the 3D television that turned out to be kind of a flop. 3D is one of my favorite things because it comes up every like 20 years or so, we get all excited about it and then it goes away again. It's like reading movies. It's just something keeps coming up and keeps going away. Well, that's, you know, I mean, that's similar to these headsets too, right? I mean, these headsets are bringing that more immersive technology. And on the one hand, it's amazing technology. On the other hand, is it what people really want?

And I just don't know. I mean, obviously, 3D television was not something that people want. These headsets have done well to the extent that they've sold a number of them. But, you know, an ongoing story is that they ultimately just turn into dust collectors, right? People get them. They use them for a few weeks. They don't really find them to be all that tremendously useful. And so then they just kind of sit in a corner and collect dust.

because we really haven't discovered the core use case for why we need them yet, as opposed to maybe wanting them. Gaming always stands out as sort of that core use case for a lot of this technology. And so I can see technology like this, making some waves in the gaming space for hardcore gamers looking for the best experience possible. That doesn't really extend itself to the mass consumer. And so again, that's kind of where Tom will tell. Star of the show so far, Invidia, you know, they're not showing. So it's different because they're not, you know, there's not like a TV you can look at. But they did come out with a whole bunch of announcements.

InVIDIA tends to do this where they just blitz you with a bunch of press releases. But I think the thing that I thought was most interesting is the shot across the bow at AMD with newer, cheaper GPUs. And so I feel like this is an interesting battle. You know, I don't know as much about it as probably I'd like to you know more than I do. But how should we be thinking about the competition here with Vindisi's? thing, like, we can make beautiful technologies just as cheaply as you do. Well, yeah, it sounds like what Nvidia is ultimately trying to do, or at least with this chip, this chip suite that they've rolled out, and a lot of it centers around AI, but it's ultimately

trying to make that leap from AI going from behind the scenes and helping us in ways that we can't really see and helping businesses in ways we can't really see to bringing it front and center, going from server to local, right? And we see Microsoft trying to do the same thing, bringing that co-pilot's key to the actual keyboard of a laptop. In this case, you've got Nvidia trying to bring this AI technology to the consumer in the laptop or the desktop form and making it more accessible for us as consumers. I think that really is exciting because with all of the talk about AI, and we see the potential, right? I think it's a lot easier to see the potential on how it can help at the enterprise level,

because those are big, often inefficient sort of organizations that could benefit from streamlining and doing things more efficiently. But that's not so sexy for the consumer, right? The consumer's asking, well, what about me? How does AI help me? And this is a step in that direction, right? Bringing AI more front and center directly in front of the consumer. And so, you know, being on PC, being on desktop, I mean, ultimately being on mobile, I mean,

that's what these companies are ultimately looking to do. So, yeah, I think it's exciting times. We're going to see, I think, plenty develop here at CES, and it's going to set the table. I think for some exciting shows here in the future as well. Yeah, totally agree. Well, I'm going to pull us away from CES for a second because there's a little bit of news I wanted to hit, wanted your take on. You recently called out Jeff Lawson of Twilio as CEO on the Hot Seat.

Well, the hot seat got really hot because he's moving on. So he's a co-founder. He's leaving the board as well. You've got someone who's been at the company for a long time taking the reins. We know the activists aren't going to be happy about that, but how are you thinking about that move? Well, to me, it feels like it was something that was more or less inevitable. I mean, you're right. The 2023 Molly Full Money preview show, one of the questions for the show for the show was who's a CEO on the hot seat.

I said, Jeff Lawson, to me, was the CEO on the hot seat because he's in this position with Twilio where Twilio is a good business, has developed this tremendous suite of offerings, but now it really got to the point where they need to focus on making some actual money and focusing on the core competencies of the business. It just kind of felt to me along the way that Lawson is more of an entrepreneur, and maybe the company had hit that stage where he needed to step aside and let an operator come in to maybe help take this business to the next level, right? We see it often. I mean, we see plenty of businesses from small, getting established, companies like Marquetta, to larger companies with longer track records of success like Chipotle. And so I think in this case,

it probably makes the most sense. I mean, there's clearly some activism in there that might have sort of prompted this, or at least hastened it. And it's not to say that Lawson won't have any say so in the matter, at least for now. I mean, he does still own a good portion of the company. It does have that dual share class structure. So we'll see how that ownership interest shakes out here over the coming quarters and years. But I think ultimately this is probably a good thing for the company is it's going to give them a chance, really, to take that next step and become mainstream, established, profitable, and really become the type of business that investors in Wall Street are ultimately looking for.

Well, we'll have to wait and see. Thanks for touring CES with me today, Jason. Thank you. In a world full of noise, long-term thinking stands out. On the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing, leadership, and life. It's a rare look inside a firm that's been helping people pursue their financial goals for more than 90 years. Listen to the Capital Ideas podcast from Capital Group, published by Capital Client Group, Inc. We talk about a lot of stocks on the show, but it's just a peak at the Motley Fool's investing universe. This year, we're rolling out a new offering. It's called Epic Bundle.

The service includes seven stock recommendations every month, model portfolios, and stock rankings, all based on your investor type. We're offering Epic Bundle to Motleyful money listeners at a reduced rate as a thanks for listening to the show. So for more information, head to www.fool.com We'll also include a link in the show notes for you. We're staying on the tech theme. Ricky Mulvey caught up with Kevin Simzer, the chief operating officer of Trend Micro, to talk about cybersecurity in the cloud and the new threats facing electric cars. I know the company, you have more than 3,000 engineers basically protecting enterprises

and people against cyber threats. It's been around for more than three decades. It's less discussed, I would say in the full universe. I'd say less discussed in general, in part because your company spends a little bit less on marketing than some of your competitors. Your company has a big focus on cloud security. You've been in that space for a while. Big focus on endpoint security or the connection between, let's say, the device you're using right now and those big cloud servers that are storing everything. To the layperson, can you go through? What's the offer for customers from Trend Micro, especially

as those cloud providers, including Microsoft, have their own security options? Thanks, Ricky, for the setup. And, you know, perhaps we should be more well known because it really is an American success story. Can you believe that it was founded, that we were founded over three decades ago in Los Angeles, California, started as a startup in a garage, went on to become a multi-billion dollar cybersecurity giant doing business across the globe. And, you know, one of the things I'm really proud of in terms of the trend micro performance is actually our business is much, much more global than what many people think. Around 25% of our business comes from the Americas, 25% from Europe, 25% from the Middle East and Africa, Southeast Asia, and then 25% from Japan, where we're formally headquartered. So much more resilient and global than many of the other cybersecurity providers. We have evolved substantially by building out a cybersecurity unified platform that we offer.

You know, we do in all sorts of things up to and including cloud security, like you pointed out. Cloud security is big globally, but in particular in the U.S., where many, many people are adopting cloud and we're there to protect them. IDC actually have us as the number one cloud security company in the world. What are the kinds of cloud security threats that you're defending against? What do those look like compared to maybe ones that enterprise has experienced in the past? Yeah, you know, it's interesting. In an enterprise, we all got pretty comfortable with an environment where we built these walls around our enterprises.

And gradually, those walls ended up with more and more holes. through the walls because, you know, we needed to connect our supply chains and everything else up. In the cloud world, in particular, our largest partner, largest cloud service provider, which is AWS, they've adopted something called a shared security responsibility model, where AWS is responsible for protecting the infrastructure, but customers that adopt AWS need to think about the application itself. And that's where we come in. So it takes both AWS and ourselves in order to keep the adversaries out. Adversaries are sitting there watching, looking, learning, and trying to work their way into those critical applications now that are running

in the cloud. So it's a big deal for many of our customers. One place I know you've been working on as well in a podcast last year you said it was an area of focus is, is a lot of electric vehicles. Can you talk about your work in this space and sort of what electric vehicle companies, customers would need to be mindful of in terms of cyber threats? Actually, the New York Times coined as cybersecurity giant. So as a cybersecurity giant, you end up having your hands in lots of different things. And we have our core business, like we talked about earlier, protecting everything from endpoints to email, cloud network, OOT environments. That's our core business. But because we're threat practitioners, we're cyber security

practitioners, we also have a view of what else is going on in the industry. And a couple of things that really intrigued us. One was around all things 5G. So security around 5G. Another one that interests us in a big way was security around the entire eV. the ecosystem, not just the cars, but the charging stations and whatnot. And what we did to address that is we actually spun off wholly owned subsidiary companies. We own them, but we felt like actually the go-to-market was going to be substantially different, some of the technology, the partners that we would need. And relative to EV, we created a subsidiary called Vic 1.

vehicle one. And that subsidiary is doing some really, really cool things working with automotive manufacturers, working with charging manufacturers in order to build out a set of security capabilities that can be incorporated directly into their platforms. So we're sort of taking the burden of protecting EV cars and protecting EV charging stations from adversaries, from, you know, denial of service attacks, or whatever it happens to be, we build an offering and we make that available to the automotive industry. So that's an exciting space for us.

Gosh, we've got 100 people working on that now. So it's a substantial investment that we have going into that. We all know that EV cars are the future and we're going to be there to stop the bad guys. Yeah, so it's a denial of service attack basically. you can see that when a website just goes down, shuts down. Seems like that would be a different issue for, or I just, it would be a terrible issue for a car and something to be expected. When you're talking to your team at Vic 1, like with these kinds of threats, I imagine

they're facing a ton. You have the denial of service attack. You also have these car manufacturers, which I have personal opinion on, but they're, they're doing a lot of, like, subscription as a service offering. So BMW got famous or became a little infamous for charging, people for heated seats, and then you have a lot of hackers trying to essentially jailbreak features within their car. I can't imagine that there's a lot of other issues that they're defending against. What do you think is issue number one for the VIC-1 team about questions for

cybersecurity, for the charging infrastructure and the cars? And is it a lot different from what you are traditionally doing? Well, one of the things that people need to think about, and we had to think a lot about, is all of those threats. And we thought about it ourselves. but we also are the owners and sponsors of something called Pone to Own. And in Japan, early next year, we will be hosting the very first Pone to Own conference where we will be soliciting researchers. We have around 3,000 independent researchers around the globe whose job it is is to, we pay them to find vulnerabilities in areas.

that we find could be interesting from a threat adversary standpoint. And in this case, we're paying them to look at the overall EV automotive ecosystem. So they'll be finding vulnerabilities and writing exploits in order to try in. That gives us a lot of insight as to what the threat actors are going to be up to. So that's actually quite helpful in terms of providing that level of insight. And for us, we can incorporate all that technology into our offering and make that available to the automotive manufacturers. So, you know, we see it as a really tight grouping of smart people coming together in order to try and keep the threat actors at bay. The number one thing that people should be aware of is what with an EV car is the over-the-air,

software updates. That notion of updating software over the air, receiving updates over the air, it creates an inroad into the car, and that's one of the number one areas that could potentially be exploited. So you could imagine, you know, if a software update were ever hijacked and modified, and it could do catastrophic things. So trying to make sure that that, that doesn't happen is what we're fiercely focused on. And as we wrap up, we can focus back in on the company of Trend Micro. You guys have had fairly good quarter that the market seems to be celebrating. Anything's going on with the business that you would want investors listening to Motley

Full Money to be aware of? Yeah, I think there is, Ricky. We publicly announced in January of 2020 business transformation. We were going to move towards this consolidated platform. and we were going to start investing heavily in it. And what we saw over the last few years is we saw the success of that platform start to build and grow. We're seeing, you know, we're now up to 9,000 plus customers running on it, $750 million

plus in annual recurring revenue. So we're seeing phenomenal growth happen in it. And it culminated in our two, three results. like you pointed out. Our Q3 results were very, very strong, up 13% year over year. We surprised on the positive side, up 13% year over year on the top line,

up 58% on the bottom line, 30% increase in cash flow. So, you know, truly our investors celebrated the performance. And what we did was we took that and we wrapped it in, well, you know, we're sitting on two and a half million dollars in cash, what could we do to reward shareholders even more? So we introduced a special dividend and a large cash share buyback. So we were really, really thinking that, you know,

let's reward shareholders for some of our performance, positive performance here. And as we go into 2024 and 27, we see the business scaling even more. We see the top line growth continuing, and we see even more bottom line performance. So we actually made the declaration that 100% of our net income, we will be giving back to shareholders for the foreseeable future. So, you know, we're really feeling like we're financially sound. The ideology of our chairman, I'll leave you with this, of our chairman. He's the founder and chairman of the company,

and he really pushes sustainable, superior performance. And we've been around for over three decades. We want to be around for another three decades. So, you need to build a sustainable, superior performing business in order to do that. As always, people on the program may have interest in the stocks they talk about. And The Motley Fool may have former recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm DeJ Willard.

Thanks for listening. We'll see you tomorrow.