NetApp Inc INSIGHT Financial Analyst Tech Session Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : This is David Vogt at UBS. Just maybe as a follow-up, can you kind of explain sort of what the revenue opportunity or the software mix, looks like, as we move from traditional storage use cases to multi-cloud AI use cases, higher GPU utilization, to your point about adding on a $0.5 million box. Should we expect a much more robust software story going forward? As this permeates to multiple different sort of end customers and use cases relative to where we were over the last 5 to 10 years? Russell Fishman Well, I mean, so back to that point about data management, right? If you look at NetApp's portfolio and so you think about BlueXP, for example, as a unified control plane, if you think about our essentially software-defined storage products. If you think about other things like Instaclustr, for example, and what was known as cloud data sense, but now known as BlueXP data classification. We're starting to see a lot more pickup in those areas, right? And that makes sense because when AI started, it was very much a data science conversation, right? So lines of business, data scientists, they are the ones we're really engaging with. What you started to see was, CDOs and data owners getting very concerned about how that data is being used, right? Almost like a moderator and a nuclear reactor, right? They're coming in with their carbon rods. They're slowing everything down. And there's this sort of push and pull between the data scientists who want to get out there and move quickly and the data owners, who want to slow everything down. So what's interesting, of course, is that NetApp has this amazing portfolio capabilities that can address both sides of that, right? So what we're starting to see is a lot more engagement on the data owner side as well. So my expectation is that more of our data management capabilities will be consumed at the time. Andy Sayer Yes. And I think the other factor to consider here is regulation. We fully anticipate that regulation is going to hit the industry and customers are going to need to comply with that regulation. And we're encouraging customers to start looking at that today and using tools, as Russell mentioned, that can automatically filter out personally identifiable information for instance. So that never makes it into the models, or to be able to create auditable models so that if a customer -- or if the government, for instance, wants to go back and look at how your AI came up with a particular answer, you have a steward image of that model with its data at the time that, that was created, which we think is going to be very important moving forward. Russell Fishman Yes. Last thing I'll just say is that, regulatory compliance, I guess you hear that all the time. What we hear more from customers than anything else is commercial concerns about the commercial sensitive of data and the reputational risk of having that data lake. It wouldn't necessarily be a legal issue in some cases, but it would be obviously a reputational issue. Andy Sayer Absolutely. Yes.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : I just want to follow up on that point. So as it becomes more pervasive in terms of training models, inference, data sovereignty, what is the differentiation that all of these sort of applications bring to an enterprise? Doesn't it become ultimately somewhat table stakes in the sense that there's multiple offerings? They tend to be somewhat similar and sort of you have to do it but there's really no revenue uplift for the corporate, not for NetApp, but I'm saying for the company, and it's more of a cost-saving tool at this point.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. David Vogt, UBS. So when you think of your go-to-market from an enterprise customer perspective, the fact that you can deploy across multiple different sort of platforms. How has that changed over the years as customers are looking for potentially maybe other vendors that can do something at some point down the road? I know you're first to market with a lot of your offerings, but how has the competitive landscape changed over the last call it 5, 6, 7, 8 years from your perspective? Jeff Baxter So it's a great question. I think that in the competitive landscape, obviously, everyone's moved to all-flash, right? And that was, Sandeep discussed that in some of the others discussed that. I think that a lot of our competitors are still looking to try and rationalize their portfolio offerings. I think that to their credit, they've probably gone down from some of the major ones from having 7 different storage operating systems to having 3 or 4, right? We still think we have a lead in a pretty substantial moat there, quite frankly, competitively in that regard. They've also started to, and we take this as a validation of our strategy, we've seen, especially over the last year, people starting to tiptoe into having their offerings on the public cloud, typically is marketplace offerings. And you're as probably aware, we first had a marketplace offering of ONTAP in 2014. So -- and that was our first called it ONTAP cloud at the time, right, and putting on AWS in 2014. And so I still think there's a very substantial moat there. There's really 2 parts to the moat. Can you technically make all of your storage operating systems, especially if you have multiple ones work on every different cloud? Is there any technical impediment to all of our competitors doing that? No. I mean that, and most likely, they've all indicated

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. I just want to go back to the comment you made about working with your customers that are designing or developing applications either on-prem and then moving to a public cloud or innovating in the public cloud, moving back, and it's not your kind of position to kind of tell them how to run their business. But can you talk to how you bring CloudOps to that conversation to help them manage potentially incrementally higher cost or complexities or technical challenges that they may face going back and forth in either direction? And should that ultimately be sort of an incremental service that most customers take as you're trying to optimize and solve for potentially a complex solution? Ronen Schwartz Do you want me to start or you'll start? Unidentified Company Representative (inaudible) Ronen Schwartz Yes. I'll start a little bit, and then we will continue. I think that you said it already and especially in the last 6 to 9 months, cost is an important thing for each and every customer, right? So as we are bringing -- I mentioned just the TCO calculators and all of that, right? So basically, part of actually giving the customer the right recommendation for workload does include the technology-best practices, but it does include the total cost of ownership recommendation. And this is actually where the CloudOps portfolio is coming to play, right? And it comes to play in multiple levels. It comes to play in how much is that compute heavy workload? Can we help you with compute optimization? Is this a database workload? Can we help you with full service of the database, delivering the database as a service to you as a customer? Can we help you with INSIGHT that help you find the bottlenecks across your entire environment so that the workload is optimized? So I think the work -- if you go from the workload, then storage is a critical component, but the entire optimization where our CloudOps is focused on is the natural next step. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2023 / 4:30PM, NTAP.OQ - NetApp Inc INSIGHT Financial Analyst Tech Session Pete Lilley It is, it is. And we're able to bring to bear the complex team of technical account managers, the sales and account management teams and the engineers, the customer success engineers to get engaged with the customer that's looking to deploy in multiple contexts and look for and position the right kind of solutions at the right time that really bring the benefit to the customer at whatever stage of the cloud journey they're in, whether it's going one way, going the other or going both ways at the same time. And then talking about my part of the business, which is the Instaclustr business around enterprise open source. The experience that we offer to the customer is really an as-a-service experience, both on-prem and in the cloud. So it's natively the same, and we'll get more of the same as we continue developing those capabilities. And so really, it does come -- the customer has all the maximum flexibility, but they just need the right -- access to the right tools and capabilities at the right time to help them make those TCO-based decisions. Ronen Schwartz I mean, I think...

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : That was going to be my follow-up. So I know it's not your purview in terms of helping them design or innovate their applications. But when you brought in a discussion from the CloudOps side, is it as the innovation is happening? Or is it a customer says to you, hey, we've got this great application. We're working on this workload. Do you think we should develop it in the cloud? Do we develop it on-prem? Or is it more of a secondary consideration at some point in the journey effectively from a customer's perspective? Pete Lilley So we see customers, I think, at all stages. So it can be, we're doing something new, help us understand what the deployment challenges might be. They may have a strategy in mind. So I'm thinking about a customer that we're working with at the moment that is looking to make a move from a hyperscaler-deployed environment back to an in-house one. And they're giving all of that consideration around TCO. And so there's an engaged process in that and having a discussion with the customer about all of the benefits of doing so and what that cost will be and how that falls out and what the opportunities are to optimize. And my experience working with our customers has been that, as Ronen was saying, optimization doesn't necessarily happen out of the box either. It can often be a peak followed by some optimization, followed by another peak, followed by some future optimization as features and capabilities evolve. And -- but the whole goal of the trend over time is towards optimization. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2023 / 4:30PM, NTAP.OQ - NetApp Inc INSIGHT Financial Analyst Tech Session Ronen Schwartz And I think that workload deployment in the cloud is not a onetime opportunity. Even if you arrived in a late stage of the current workload, the next one is just around the corner, right? So you can arrive -- if you show and explain the value, you'll be early in the next corner. Pete Lilley Exactly. I mean the other types of customers that we'd experienced from the plan and doing a project through to, my cluster is on fire, please help us now because it's a critical application, is another example of a customer where you're almost in rescue-type optimization to get that customer stable and then you bring them into the optimization discussion off the back of that.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Sorry. So maybe for Phil. So I would assume, given your status as a national laboratory, nothing that you do is in a public cloud. It's all self-contained within the laboratory from an on-prem effective solution. So does that change your thought process? You mentioned at some point down the road, you need a GPU. Does that change your thought process in terms of what your ultimate infrastructure looks like down the road? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2023 / 4:30PM, NTAP.OQ - NetApp Inc INSIGHT Financial Analyst Tech Session Is it definitively you have to go down sort of an NVIDIA GPU type solution? Or is there other Ethernet-based solutions like Slingshot that are more than adequate to kind of meet the needs that you have? And so just curious about how you're thinking about that. Anthony Lloyd That's a very good question. Philip Adams Let me think about that. So I'll say we have available to us GovCloud. So anything that is a FedRAMP cloud we can use where we have an ATO to be able to use one right now, and we have leveraged it for certain things. Certainly, we have outside vendors that we have as trusted partners that do things for creating diagnostics for us to recalibrating things and sometimes they send data back to us. And so we leverage AWS and S3 so that they can upload data into that, and we download from that, for example. So there is some footprint that the National Ignition Facility has on cloud. The greater lab, they have been using GovCloud quite a bit and pushing a lot of other things out to the institution, but I personally can't speak to that. We have, from the NIF, had some requirements, for example, where we did need some GPU capability. And there was a certain set of work that we could not farm over to supercomputing because they're too busy. The pattern is full sorry, and we said, okay, let's see if we can spin up some stuff on AWS, get it going and answer this question. And I think it's very powerful for being able to meet our gaps between the time to order, the time to deliver, the time to implement in our data center versus, okay, team, we've got some time to rent somewhere else and be able to do that. So those are powerful. But the other things that we look at in our environment since we have an on-prem building is some of the safety and failure modes and effects analysis. So we want to make sure -- I mean, there will always be an on-prem presence because you want safety interlock systems and those kinds of things to be locally controlled, and those are good things. So we are very careful about where we put things, how we compartmentalize things. I think some time back in the past, we consolidated until it hurt. And then you found out, well, we couldn't take certain parts of our infrastructure down for maintenance and patching and those kinds of things. So cloud fits into our strategy in a way of saying, well, how do we best leverage this in a way that is going to make sense? I think you and I were talking about some of this yesterday that some of the challenges are wanting to lift and shift a legacy application and just stick it out in the cloud doesn't make fiscal sense. You really have to collapse that whole thing and make a truly cloud-native application. So there are things that we're still working through. I wouldn't say we've got all the answers on it, but we are dabbling in it.