NetApp Inc at Citi TMT Conference Transcript

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

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : I know you've been doing this for a while. So we've been asking all our customers -- all our corporates here that are presenting. You guys just reported results. When you think about how the storage markets evolved relative to, let's say, the start of the year, there were lots of demand indicators, there were puts and takes to the macro, tariffs, DeepSeek, all that stuff. As you sit here today and you kind of reflect back on how things are different relative to a few months ago when you thought about the demand outlook, help us understand how you think about demand. 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 03, 2025 / 4:50PM, NTAP.OQ - NetApp Inc at Citi TMT Conference

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : And then as you think looking ahead, and I know you guys put out fiscal year targets, which you reaffirmed at your last earnings just a week ago. So maybe help investors think about what are the puts and takes to that end demand?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. And then maybe first, let's stick to the Hybrid Cloud and then you can talk on the Public Cloud. But on the Hybrid Cloud, while the macro hasn't been changed, you're continuing to see strong momentum on flash, which tends to be the pricier storage, right, relative to HDD-based storage, but there are obviously secular trends there. What -- given the macro is kind of mixed, what confidence that this is still an area that will continue to grow despite all the macro headwinds that exist out there with geopolitical uncertainty and federal pressure, et cetera?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. And then if you can -- if you just double-click on that a little bit, like what are these workloads that you're seeing pulling the incremental, whether its data modernized -- data storage modernization or additional storage services that are needed for AI to have AI inferencing or training? Like what workloads are customers sharing with you or you're involved in these conversations and the sustainability of that demand as we start to see maybe perhaps broader enterprise AI adoption?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. On the flip side, when you listen to some of the other vendors that are out there, not necessarily storage, but compute, it tends -- AI tends to be very lumpy. There are some quarters where you see this big expansion of growth and then there's always some kind of transition happening, and then growth sort of heaters down a little bit or it's just very lumpy. So help me understand like when you talk to your customers, what kind of visibility do you have? And is it as lumpy for you guys? Or perhaps you have better visibility, perhaps it's more smoother? How are you guys thinking about it?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : And then there's this view that AI storage or storage has not been a big beneficiary. I mean, of course, we can see the CapEx numbers from hyperscalers you can put in the enterprise neo cloud providers or enterprises like Tesla and xAI, Oracle perhaps in there as well. And then -- but when you look at storage as a percentage of server compute, it's kind of like not grown as rapidly, whether I look at industry forecast, whether I look at your fiscal year forecast as well. Help us understand like do you see something that could suddenly accelerate the trajectory of growth from AI?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. And then you talked very positively about the flash performance and you've grown your share in the flash performance. And then -- so just if you can remind investors, what's driven that? How sustainable are those market share gains? And could we see further growth in those market share gains relative to other players who are maybe catching up now with some of their offerings?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. And then remind investors again about -- when I sat at your Investor Day, you had talked a little bit more positively about your block offerings, right, which previously you haven't participated in. Why is that it's a new -- why hasn't NetApp been there before, but the opportunity is pretty sizable as you go after it. And that's been sort of the growth story underpinning some of your growth. So if you can help level set, where are you in terms of that block offering? 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 03, 2025 / 4:50PM, NTAP.OQ - NetApp Inc at Citi TMT Conference How much more potential there is to continue to grow in that market?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. Let me just ask the investment community here. If they have any questions. If you do, please raise your hand. We have one here, so we can get the mic to you. Unidentified Participant Okay. Just want to ask a little bit about the margins, gross margin progression. Maybe you could talk a little bit about product gross margin. What's going on there? Why are you confident that comes back in the back half?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. Just on that one, George, I do hear about like NAND pricing. I mean, certainly, in our own internal city models. We talk a little bit about NAND pricing inching up. I think if you listen to NAND vendors, they do talk about as well supply-demand efficiency and better outlook after 1Q, which was pretty down. So just help us understand how that flows through and if -- how we should correlate like product gross margins? Or is there a correlation between product gross margins and just potentially higher -- slightly higher price NAND sequentially in the back half of this year?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. When you think about cloud, it's the Public Cloud portion of your business. It's obviously smaller than the Hybrid Cloud. It's growing at very strong rates. And I know there were some divestitures there. Just if you can remind investors how you're thinking about the Public Cloud portion of your business? What steps are you taking to make sure growth sustains here at these levels, excluding the divestiture? And then, of course, the margins on that are very, very accretive to the rest of the business. So what's -- how sustainable are those factors that would drive both top line growth and improved margin expansion?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : And just the pace of enterprise AI adoption impact Hybrid Cloud growth rates versus Public Cloud? Or is it kind of agnostic? Or just help us understand where do you see more of the AI workloads between these two segments that you have?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. And then sort of as you sit back, so AI can obviously be a demand driver for you guys, especially as you start to do more inferencing like you talked about, both on the Public Cloud where it maybe initiates initially and then moves on-prem. As you sit back and you think about margin expansion or profit dollar expansion as well, help us understand like could there be a scenario where you start to see margins expanding both in public and hybrid as a function of more AI inferencing? And when do you -- what's the line of sight to that?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : And then how does that translate into -- does that also come with more OpEx investments? Or does it translate into better operating leverage?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Right. We're asking all our companies if they internally use AI to drive some of those OpEx leverage or OpEx efficiencies that you're talking about?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. The competitive environment, if you can just talk a little bit about it. At one point, there's obviously pricing that has to pass through, whether its tariff related. I'm not sure that really affects NetApp as much. But just any kind of pricing pressures that you see, whether it's the underlying commodity costs that have to be passed through? And how do you see the competitive environment? Is there pass-throughs that is affecting kind of the way you're looking at pricing in the back half and the customers' reception to those higher prices?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. And then Dell, just in terms of what's going on in the market from a -- we have had peers like Dell talk a little bit more about Project Lightning, which are a little bit more software-defined and architectures that are also going around. So just high level, how you guys are thinking about the competitive landscape? What do you see as some of your peers coming out with? And how is NetApp positioned with that? And within that, if you can also address something that I hear from investors about HCI, hyperconverged infrastructure, what's going on there? And how is NetApp positioned as people are -- as enterprises are looking for alternatives to VMware? 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 03, 2025 / 4:50PM, NTAP.OQ - NetApp Inc at Citi TMT Conference

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay. So last year -- we have a few seconds here, George, like when I talk to investors, like what do you think is underappreciated about the opportunity to invest in NetApp shares?

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Great. Thank you, George. I appreciate it.

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Best of luck for the rest your meetings here.