00:00We're getting back to the AI hard disk drive story, Irving.
00:05It's great to have you back on the show.
00:06You know, like investors still believe in that story, AI hard disk drive.
00:11Your stock is under some pressure.
00:14Just reflect on like the moment that you tried to outline in this earnings print.
00:19Yeah. Well, first of all, thank you very much for having me back.
00:23If you look at the results that we delivered in Q4, fiscal 26, they were very strong.
00:28We had over 40% revenue growth, gross margin was above 54%, very strong cash flow generation as well.
00:36If anything, probably the expectations were very high in terms of the increased amount of exabytes that we could supply
00:41into the market.
00:43But if you take a step back, really the fundamentals for ongoing revenue growth, margin expansion, cash flow generation remain
00:50very strong.
00:51On the demand side, demand from hyperscalers, neoclouds, physical AI remains very robust.
00:58And we continue to see over 25% CAGR demand from a demand perspective over the next five years.
01:06Similarly, on the supply side, we have a very robust roadmap that we have put in place that will be
01:12able to meet this demand.
01:13And so it's pretty much a function of just quarterly transitions that we're going through.
01:20Irving, what you're touching on there is, you know, storage is distinct in many ways from what's happening in memory.
01:26In some ways, highly analogous, right?
01:28There is a pricing story there.
01:31There is a demand outpacing supply story and your industry facing the balancing act of expanding output, manufacturing capacity on
01:42a permanent basis or not.
01:44How are you managing all of that?
01:46Yeah.
01:47So first of all, thank you for highlighting that.
01:49There's a clear distinction between memory, which is like NAN and DRAM versus storage, right?
01:55Because memory and like compute is being recycled all the time for different workloads.
01:59But the data that's being generated continues to be stored.
02:02It isn't getting deleted.
02:04So the amount of data storage requirements is just compounding over time, which puts a lot of more demand on
02:09our products on an ongoing basis.
02:13And how we're trying to solve for that is really through technology.
02:17We're not investing in increasing the number of drive units we're producing.
02:21We continue to invest in technology to increase the amount of hits and media that we produce
02:26because that's the big driver of capacity in a drive.
02:30So we are currently shipping a 32 terabyte hard drive as our top of the line drive.
02:36But starting this quarter, we'll be shipping a 40 terabyte drive.
02:39So that's an ability to drive over 30% capacity to customers without adding any unit capacity.
02:45Could you go into how that works?
02:47You know, bring a 40 terabyte drive to market, the engineering complexity of it.
02:52And how much do the customers have to sort of re-architect their infrastructure to accommodate for that new generation
03:00of HDD?
03:02Yeah.
03:02Well, hard drives, actually, as an engineer, I always view hard drives as a marvel of engineering.
03:07We use two-thirds of the periodic table in our products.
03:10So as we move from capacity point to capacity point, there's a lot of re-engineering that goes on into
03:15the recipe of our media designs,
03:18the recipe of our head design.
03:19So it's quite an engineering feat.
03:21Obviously, we have great teams that have years of experience doing that.
03:24At the same time, we work very closely with our customers to make sure we go through very robust qualification
03:30processes
03:31because customers are very sensitive to the quality and reliability of their data storage capability.
03:38The other sort of highly analogous factor that is in front of you is long-term agreements.
03:45With the memory market, we see long-term agreements coming in as well.
03:48So you have these in place like 2029, 2030, 2031.
03:53How do you know how to price an agreement today going that far into the future?
03:59It's a really good question.
04:00We do have LTAs in place locked in until 29.
04:04We have customer demand.
04:06Customers are coming us to put LTAs in place to support demand for 29, 30, and 31.
04:11They have really good visibility in terms of the storage requirements that they need
04:16because they're looking at the entire AI infrastructure stack, everything from GPUs to CPUs to HBMs to NAND to storage.
04:24And they realize it has to take a much longer-term time horizon in terms of how they plan.
04:29So we are working very closely with them.
04:31We're definitely locking in the sort of exabyte supply that they need.
04:35But what we're working through with them is still the commercial construct of how we would price something further up
04:40in time.
04:40Right.
04:41So let me look at it another way.
04:43Somebody comes to you and says, Irving, I'm a big customer and I want to lock you in until 2031.
04:49Why might you say no?
04:52Well, what we are saying, Ed, is if you need 600 exabytes of storage in 2031, we will deliver that
04:58to you.
04:59How we actually price it, we're still in negotiations with them where we might have a base price for a
05:04percentage of that volume
05:05and then a tiered pricing structure as we increase the capacity we deliver to them.
05:10I don't mean to trivialize this in any way, but it's the hard disk drive moment.
05:16Make hard disk drive great again.
05:18What's that been like for you to put the technology at the forefront of discussion at the moment?
05:24Well, it's really exciting.
05:26I mean, people thought that hard drives were a thing of the past, but it's shown to be a fundamental
05:31piece of the AI infrastructure stack
05:33with 80% of all storage in the cloud and AI is continuing to reside on hard drives both today
05:39and going forward.
05:40So it's a very exciting time for us.
05:41It's a great challenge.
05:42And I always tell my teams it's a great responsibility that we have to deliver to the industry to enable
05:47this once in a lifetime opportunity that AI is creating.
Comments