NetApp Inc at Citi Global TMT Conference Transcript

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

Question: Asiya Merchant - Citi - Analyst : So George, we've been just asking all our companies here. If you could give us like how you think about end demand, obviously, you guys just reported results last week. Given the market dynamics that are out there, the macro, if you could characterize the performance for NetApp.

Question: Asiya Merchant - Citi - Analyst : As you [sit here in] calendar 3Q, George, I mean, what is -- if you look across your maybe your key end markets, and you could go by key customers because obviously, you have enterprise, you have government, commercial. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 6:10PM, NTAP.OQ - NetApp Inc at Citi Global TMT Conference Since the start of the year, maybe how has demand shaped up, if you sit back today reflect on how things have changed over the last, let's say, six to eight months. And then as you look ahead, what are some puts and takes to the end demand?

Question: Asiya Merchant - Citi - Analyst : And as you think about the outlook that you guys have provided, both more for the near term for (inaudible) fiscal '25, but then also your three-year outlook that you provided at your analyst event. What -- anecdotally, like what discussions are you having? Or what trends are you observing that enables you to give like the guide for the year? And then also as you think about it longer term.

Question: Asiya Merchant - Citi - Analyst : The question about AI comes up a lot. Obviously, that's top of mind, specifically as it relates to general purpose infrastructure. So outside of GPU intense servers, I think people want to ask like why do you think AI would be an incremental driver? And when do we actually see that inflect? Obviously, we haven't seen external storage grow at the same rate of server GPU TAM has exploded last year. When do you think there is a catch-up there? And when do you think we would see that inflection, if you think there's going to be a catch up with storage?

Question: Asiya Merchant - Citi - Analyst : When people talk about AI and they want to know if there's some killer app. Like I know you talked probably more of an influence in the latter part of your three-year model. Are we expecting any particular killer apps that would develop that would drive that spending and grow the actual TAM by, let's say, more than just the normalized growth of storage which tends to be like mid-single digits? (inaudible)

Question: Asiya Merchant - Citi - Analyst : Talking about competition. People are often concerned like you talked about Dell, Dell has AI servers. Obviously, they have a broad storage portfolio like yourself. But they also have the -- maybe they have a better chance to attach their storage and gain share as they ramp up their AI server offerings in the enterprise. What would you describe as NetApp's competitive differentiation here versus somebody who has a full stack offering like Dell?

Question: Asiya Merchant - Citi - Analyst : Flash as it relates to -- I mean, obviously, you posted strong growth here. What is happening there? And why is Flash getting more pervasive in the enterprise external storage side? What's the driver there? And do you see that sustaining especially as inferencing and some of the enterprises start adopting AI?

Question: Asiya Merchant - Citi - Analyst : And then when it comes to flash, help us understand, okay, where is NetApp? What differentiates NetApp from the likes of Dell or storage from some of your other peers?

Question: Asiya Merchant - Citi - Analyst : And then you talked about block storage. And I think at your analyst event, you talked about a TAM there for block storage that is almost two times that, if I remember -- on the file storage. So some of the questions that investors have is what's so unique about NetApp's block offerings? Why now? Why is this a big deal now? Why hasn't NetApp always been in block offerings?

Question: Asiya Merchant - Citi - Analyst : And then just the next question to that is just as you talked about margins, right? I mean, typically, files are considered more superior, if you may, type of storage block. Like how should we think about margins here, if your customers are previously using file, reconfiguring it for block and now you have a more competitive block offering? How should we think about the impact to your margins?

Question: Asiya Merchant - Citi - Analyst : I'm just going to quickly ask the audience if they have any questions, to raise your hand. Okay. We have one. Unidentified Participant I guess a question, you mentioned in your comments, which was virtual really helpful just the breakdown of the disc market historically by 15K, 10K and 7.2K. And you made a comment that 7.2K, which I believe is just synonymous with (inaudible), but you can correct me if that's wrong. But there's no flash product that can be competitive unless a vendor wants to go out there and reduce cost. I guess, what do you think the risk is that some competitor just tries to get super aggressive on flash pricing in the near future just to drive adoption of flash in an airline disc. And if that happens, do the other competitors in the storage market have to respond or not really, they can just continue to go after their own 10K basis for a very long time and just leave that low-margin opportunity to somebody else?

Question: Asiya Merchant - Citi - Analyst : Any other questions? If we can switch a little bit to the cloud side of the story, George, the public cloud portion of your revenues. You're starting to see that the growth there, especially on the first-party side of your business, I know there are some headwinds as it relates to the other part of the cloud business. So just help investors understand what's the sustainable growth trajectory here? And when does it become more meaningful for your financials?

Question: Asiya Merchant - Citi - Analyst : And the customers that are on your public cloud that are coming to you through their first-party cloud versus the ones that have on-prem, is there any difference in the amount they're buying, what they're buying, aside from obviously the business model where [once] you pay for it on a consumption basis. But just is there any difference in the workloads why some are coming to NetApp through the first-party cloud, some are coming to you directly.

Question: Asiya Merchant - Citi - Analyst : And then margins. Everybody is obviously concerned, you talked about flash pricing. How do you guys think about your margins as you think about flash and component costs getting inflationary and at least Citi's view is, our house view is calendar '25 will see further inflection in flash pricing. So how do you guys think about your overall margins on the product side of things and on the hybrid cloud offerings that you have?

Question: Asiya Merchant - Citi - Analyst : And is there any -- does the concept elasticity come into play here? So for external storage as it does -- with higher flash pricing, does it affect the mix or what people are buying? And does that in some way have an indirect impact on margins?

Question: Asiya Merchant - Citi - Analyst : All right. We're out of time here. So I just wanted to thank George and Kris for coming to Citi's Technology Conference. Hope the rest of your meetings go well. Thanks again, take care.