Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. We're getting back to
Speaker 1: the AI hard disk drive story. I thing. It's great
Speaker 1: to have you back on the show. You know, like
Speaker 1: investors still believe in that story AI hard disk drive.
Speaker 1: Your stock is under some pressure. Just reflect on the
Speaker 1: moment that you tried to outline in this in this
Speaker 1: earnings print.
Speaker 2: Yeah.
Speaker 3: Well, first of all, thank you very much for having
Speaker 3: me back. If you look at the results that we
Speaker 3: delivered in Q fourth it's called twenty six, they were
Speaker 3: very strong. We had over forty percent revenue growth, grass
Speaker 3: margin was above fifty four percent, very strong cash flow
Speaker 3: generation as well. If anything, probably the expectations were very
Speaker 3: high in terms of the increased amount of exo bikes
Speaker 3: that we could supply into the market. But if you
Speaker 3: take a step back, really the fundamentals for ongoing revenue growth,
Speaker 3: margin expansion, cash flow generation, we mean very strong. On
Speaker 3: the demand side, demand from hyperscalarists, neo clouds, physical means
Speaker 3: very robust, and we continue to see over twenty five
Speaker 3: percent kig or demand from a demand perspective over the
Speaker 3: next five years. Simdenly on the supply side, we have
Speaker 3: a very robust roadmap that we have put in place
Speaker 3: that will be able to meet this demand. And so
Speaker 3: it's pretty much a function of just quarterly transitions that
Speaker 3: we're going through.
Speaker 1: I think what you're touching on there is you know,
Speaker 1: storage is distinct in many ways from what's happening in memory,
Speaker 1: in some ways highly analogous. Right. There is a pricing
Speaker 1: story there, there is a demand outpacing supply story, and
Speaker 1: your industry facing the balancing act of expanding output manufacturing
Speaker 1: capacity on a permanent basis or not.
Speaker 2: How are you managing all of that?
Speaker 3: Yeah, So first of all, thank you for highlighting that
Speaker 3: it's a clear distinction between memory, which is like nan
Speaker 3: and d RAM versus storage. Right, because memory and like
Speaker 3: computers being recycled all the time for different workloads, but
Speaker 3: the data that's being generated continues to be stored.
Speaker 2: It isn't getting deleted.
Speaker 3: So the amount of data storage requirements is just compounding
Speaker 3: over time, which puts a lot of more demand on
Speaker 3: our products on an ongoing basis. And how we're trying
Speaker 3: to solve for that is really true. Technology. We're not
Speaker 3: investing in increasing the number of drive units we're producing.
Speaker 3: We continue to invest in technology to increase the amount
Speaker 3: of hits and media that we produce, because that's the
Speaker 3: big driver of capacity in a drive. So we're currently
Speaker 3: shipping a thirty two terrabyte hard drive as on top
Speaker 3: of the line drive, but starting this quarter will be
Speaker 3: shipping a forty terra byke drive. So that's an ability
Speaker 3: to drive over thirty percent capacity to customers without adding
Speaker 3: any unit capacity.
Speaker 1: Could you go into how that works, you know, bring
Speaker 1: a forty terabyte drive to market, the engineering complexity of it,
Speaker 1: and how much do the customers have to sort of
Speaker 1: re architect their infrastructure to accommodate for that new generation
Speaker 1: of HDD.
Speaker 2: Yeah, well, hard drives.
Speaker 3: Actually, as an engineer, I always use hard drives as
Speaker 3: a movel of engineering. We use tutas or the periodic
Speaker 3: table in our product, so as we move from capacity
Speaker 3: point to capacity point, there's a lot of re engineering
Speaker 3: that goes on into the recipe of our media designs,
Speaker 3: the recipe of our hit design. So it's quite an
Speaker 3: engineering feed. Obviously, we have great teams that have years
Speaker 3: of experience doing that. At the same time, we work
Speaker 3: very closely with our customers to make sure we go
Speaker 3: through very robust qualification processes because customers are very sensitive
Speaker 3: to the quality and reliability of their data storage capability.
Speaker 1: The other sort of highly analogous factor that's in front
Speaker 1: of you is long term agreements with the memory market.
Speaker 1: We see long term agreements coming in as well. So
Speaker 1: you have these in place like nine thirty two, twenty
Speaker 1: thirty one, how do you know how to price an
Speaker 1: agreement today going that far into the future.
Speaker 3: It's a really good question. We do have ltas in
Speaker 3: place locked in till twenty nine. We have customer demand.
Speaker 3: Customers are coming us to put ltas in place to
Speaker 3: support demand from twenty nine, thirty and thirty one. They
Speaker 3: have really good visibility in terms of the storage requirements
Speaker 3: that they need because they're looking at their entire AI
Speaker 3: infrastructure stack, everything.
Speaker 2: From GPUs, the CPUs to.
Speaker 3: HBMS to storage, and they realize you have to take
Speaker 3: a much longer term time horizon in terms of how
Speaker 3: they plan.
Speaker 2: So we are working very closely with them.
Speaker 3: We're definitely locking in the sort of exerbyte supply that
Speaker 3: they need, but what we're working through with them is
Speaker 3: still the commercial construct or how we would price something
Speaker 3: further out into right.
Speaker 1: So let me look at it another way. Somebody comes
Speaker 1: to you and says, serving I'm a big customer and
Speaker 1: I want to lock you in till twenty thirty one.
Speaker 1: Why might you say no?
Speaker 3: Well, what we were saying at is, if you need
Speaker 3: six hundred exobites of storage in twenty thirty one, we
Speaker 3: will deliver that to you. How we actually price it,
Speaker 3: we're still in negotiations with them where we might have
Speaker 3: a base price for a percentage of that volume, and
Speaker 3: then a stop tiar pricing structure as we increase the
Speaker 3: capacity we deliver to them.
Speaker 1: I don't mean to trivialize this in any way, but
Speaker 1: you know, like it's the hard dis drive moment, you know,
Speaker 1: make hard dis drive great again. What's that been like
Speaker 1: for you to put the technology at the forefront of
Speaker 1: discussion at the moment?
Speaker 2: Well, it's really exciting.
Speaker 3: I mean people thought that hard drives were a thing
Speaker 3: of the past, but it's shown to be a fundamental
Speaker 3: piece of the AI infrastructure stack with eighty percent of
Speaker 3: all storage in the cloud, and AI is continuing to
Speaker 3: recite on hard drives both today and going forward. So
Speaker 3: it's a very exciting time for us. It's a great
Speaker 3: challenge and I always tell my teams. It's a great
Speaker 3: responsibility that we have to deliver to the industry to
Speaker 3: enable this once in a lifetime opportunity that AI is creating.