Western Digital Corporation (WDC) Earnings Call Transcript & Summary

All right, everybody. Welcome back to B2B event by Nu Ag Business. I'm Ivan McLean, your B2B Marketing Manager here at Nu Ag Business. And we have a great episode for you today. Today, we're going to be featuring WD Red and the drive behind AI NAS. But before we get there, we're going to go through a little bit of house cleaning, I'm going to explain the ON24 interactive webinar portal that you see there and how you can interact with us today. And then also, I'm going to give you a little bit of information on New business. But first, for your interaction to some things and explain it to you. First, we have great people from WD. We got Brad Warbiany on the back end, answering all your questions throughout the entire webinar. So go ahead and ask us a question at any time. He'll have your answers for you just as soon as he can. B, so here is our request to quote. So if you're really liking what you're seeing and want to put in a quote, we'll get that over to our account executives here at Newegg Business right away. Just go ahead and that request to quote here in this box. Then you have our media player. This is where you see our wonderful faces for the whole event. And this is a fun one. This is the reactions button, give us thumbs up, thumbs down, hearts, clappy things let us know how we're doing throughout the whole presentation. We love to see that, and it really helps us know that we're doing a good job. So hit those little likes and whatnot as many times as you like. Then if you want to get in contact with me, myself, I'm your point of contact here at Newegg Business or Marc or Brad at Western Digital, you can see the speaker bio box and all of our contact information there. Then if you're liking what you're seeing, please feel free to refer a colleague, a friend, a family member, anything like that at any time, even if they can't join us right now? [Audio Gap] the presentation this in our B2B events. In the information in this content box. These have great links for you today. You can shop WD Red where you have some amazing bundles and promo codes just for the next couple of days, you can sign up for a new ag business account. You can register for our next webinar with ASRock Ai Center or you can watch previous episodes from events. We've been doing this about 3 years now. We have a lot of great episodes in there. And then, so here at Newegg Business, you get the same great things that you love about Newegg, but with the tools and service built for how business buys. And I'm going to go through a couple of things here. I'm sure you saw our little commercial, but the great thing about Newegg Business, you can get a real person on the phone. It's not going to be an AI chat bot, you can send us an e-mail. If you can't find it on the website, give us a call, we'll help you source it because we have one of the widest sourcing networks out there. Then also, we do volume discounts. So if you're buying in bulk on select items, we can get you a better deal for the more you buy, buy more, save more. And then if you have that really unique custom quote, contact us, call us, give us an e-mail let us know and we'll get you as soon as possible, as soon as 24 hours with in some cases, then we have our great partner at Credit Que, who is also helps you with net terms and other payment options. Feel free to go there for an instant approval. Then we have our own in-house net 30 terms for those PO purchases. So feel free, we can apply for that at any time with a Newegg Business account. And then also, we cover tax-free purchasing. We'll give you that tax free, just submit your documents, we'll turn off the tax, and we'll go from there for all you VARs and MSPs out there and resellers. Then for all the agencies, government, education, enterprise, if you need that control over your purchasing, we have -- we can integrate you into our e-procurement punch out or our e-procurement platform, such as Ariba, Coupa, Jager, Workday, all of those, we can integrate for you as well. And the great thing, we have a brand new VAR partner program. So this is for VARs and MSPs. You get a lot of special features. You can go to our brand-new website, neweggbusiness.com in the search header links, you can find our VAR partner program. This is a brand new from new ag business, check it out. You have a lot of great features that will help those VARs and MSPs and how we can help further service you. Then for all of you here that will stay within for at least 30 minutes of the webinar, you will be entered in to win a $100 Newegg Business gift cards. So make sure you stay tuned, make share you answer to the poll question and also the last but not least, here on the features the way to interact is our service and makes this show better for you. So with all of that out of the way, we have Marc Tanguay, the Technical Product Marketing Manager from Western Digital. Marc, why don't you stay hi?

Again, I'm Mark from WD and product marketing manager for the full portfolio of WD hard drives, everything from our cloud data center hard drives with Ultrastar to WD RED for NAS products. And Also, I'm a former NAS product manager. So it's been exciting to see everything that's been happening on -- with AI on your NAS, helping you to bring intelligence out of your local documents and information. So really excited to talk to everyone about that today.

Awesome, Marc, we're really excited to have you here today. And so we're going to kick this off with our first poll question. All right. What is driving demand for enterprise NAS storage, a, reduced focus on data security b, growth of private AI and LOMs, c, smaller AI training data sets D, lower AI storage requirements or RAM costing $1 million. All right. We're going to wait for 50% of you to answer before we're going to go on. And Marc, so why don't you tell us a little bit about yourself. We've been really excited to have you here with WD today.

Yes. So what we'll do is we'll talk a little bit about what -- give an overview of what we're going to cover today. And so most of us are familiar with using your AI of choice to help you be more productive, to really help you create content and documents at work, everything from that to helping you find a reservation at a local restaurant to take your business client out to. So so much of the focus is really on cloud AI and what the AI services are doing. Not a lot of discussion about what you can do locally with your own documents and content. And so we're really going to start off with the differences between your cloud AI and then your NAS I will talk about everything that's happening from a market dynamic standpoint, at hyperscale, and then we'll bring it down to NASscale on your local desktop and then wrap up with why WD Red drives are really ideal for your AI workloads?

Awesome. Marc, it looks like 50% of you have answered the question, and here's the results. It looks like 0% said, a, C, 6% D and 12% of you said is E. So the correct answer of that one was, a, actually, so you guys got to get a little better on your answering your questions. All right. Go ahead, Marc, kick us off into your first section.

All right. Thanks. So apologies in advance here, but we have to start with a legal disclaimer. WD being a public company. I may make forward-looking statements that involve risks or uncertainty. So short version here don't make any investment decisions based on what I present to you today without doing your own independent research. So if you virtually sign yourself away here, we can go ahead and just jump right into the presentation. Thanks for that legal notice. All right. Let's kick it off today. Again, the topic is about local AI NAS, but let's first start at a higher level and just kind of compare a little bit about differences between cloud AI and local AI and really just to give a quick overview on the differences. So cloud AI, whether you're using cloud or chat GPT or CoPilot or Gemini it's really all about creating and understanding. It's pulling from a source of information that's really the entire web and documents that have been created before -- it's going through things like text files and chat forums on the website to really build out its learning language and its LLM models. What it's not doing is sourcing and going through all of your personal content. And that's really the primary difference on local AI. So when I said personal, that can be your own personal stuff or, of course, your work content, but it's not in sourcing and indexing through. So cloud AI services don't know things about your customers or your business challenges, whereas local AI is working through your team's content your information and you own all of that information. So at a very high level, that's the difference between cloud AI services and local AI services that are running on NAS. We're going to dive a little bit deeper into both. And let's start off with the hyperscale, the scale outside, and we'll take a look at AI data centers and also cloud data centers. And so if we started a better pull question might have been, how many have you used hard drives today on a daily basis to start off with. It would have been interesting might have had a lot of you answer no, I don't really work with hard drives, I might have used them in a NASsystem that I have or what is building a gaming rig for personal use years ago. But what you might not realize is that every interaction you have, whether it's creating a document through office, online or if it's on your phone, every interaction that you have whether you're chatting with a message, creating an e-mail, taking a photo, drafting documents, making your schedules with your calendars, tasks, notes watching streaming videos, replaying this webinar, for example, that all is sourced on a hard drive in a cloud data center today. And there's a good chance it's living on a WD hard drive as well. So whether you knew it or not, chances are you're interacting with a hard disk drive for your storage multiple times per hour, if not greater than that. So HDDs are really the capacity backbone of everything digital today and all the operations that are happening in the cloud and behind the scenes, chances are stored on perpetuity on a hard disk trap. Now let's take a look at the AI data pipeline and the workflows in the AI data center. So again, this is a hyperscale and the reason we're going to walk you through this is that you can -- we can then take -- when we take it a step down, down to the desktop level, you'll kind of understand the differences of what's happening in the AI data center versus what's happening on your local AI NAS. And so if we start off with -- there are really 2 main forms of AI that are -- or 2 workflows that are happening today. And one of them is the creation of what we call the data lake. And so that's really the foundation for all the information that AI is acting on when you type in a prompt and AI is looking back at the information that's in its data lake. And that can be billions of parameters now in the models. But that information started as we said at the top of the presentation, it started from just general purpose information, all the information in the Internet and chat forums in text form, so books and information. All that was brought in on to hard disk drives, it was cleaned and prepared. It's made ready to move up closer towards the point of compute. We all hear about GPUs and how rare and expensive they are. And then at the point of compute, which happens at #3 for both training and then as we move into step 4, which is for inference, which is predicting information and generative and creating information. There are a lot of expensive components in this step for cloud AI models. You're not going to see those same expenses. It's all included in the NAS model that you're going to work with Newegg for. So that's another big difference as well. All of that output in content and information, whether it's training models or its inference information that comes out in the form of documents or answers it's going to be returned and stored back on hard distress. So this whole loop is compounding and generating information. That same model is going to occur at the local level as well. So we'll address it when we get there, but it kind of changes the way that you need to think about your NAS storage, how much storage capacity do I actually need. So we'll talk more about that when we get down into that section of the presentation. Just to show a quick example of how content is created and how much information is actually created in the cloud AI system. I -- just for this presentation, I created a prompt that said, create a 15-second full HD video with 3 short seems that you'll see here. This was my entire prompt. This was the output. We'll go ahead and show the video, Ivan.

Here we go. [Presentation]

Awesome.

Yes, I'm not sure why she put the package right back on the shelf, maybe it's because you change your order and you're going for a higher capacity, but that was the output. You don't need to really know the numbers here on this slide, a lot of different numbers going on, but the key takeaways here, this is all about compounding and creating more data. So the final output that video file was 15 megabytes for that short 15-second video clip. To get to that 15 meg file, we created almost 2 gigabytes of data. So about 125x the actual output of the file size was used in just the creation of that information. So that's really what's driving all of that the storage demand inside of the AI data center, it will be less impactful. You won't need as much storage at the local AI NAS level, your -- certainly, your output from the cloud side would be this 15 meg file. But you'll see as we go through the presentation here, we'll talk about how the AI running on the NAS will create its own learning model that will continue to grow. It will create its own documents and file sizes, doesn't have the GPU horsepower to create a video like we did here. you're still going to be doing that with your cloud AI. So again, in summary, it's not just either or you're not going to use your NAS AI to replace your cloud AI, you're going to continue to use your cloud AI, but there are so many benefits coming from the local NAS AI on your own data and your own information that it's going to help you become even more productive. So you're going to use both systems together. And with that, let's move to a poll question.

All right, everyone, our next poll question. how does WD see the role of NAS evolving with private AI and local LLMs, a, less relevant than cloud storage; b, secure local platforms for AI data replace an external drive or d, use only for VACA. We're going to wait for 50% of you before we move them forward. All right, Marc, sounds like AI is really evolving to where you have a lot of local storage and you're also working in the cloud, what else can you touch on that?

Yes. And again, I think the main point is, again, it's not one replacing the other. It's just using the adding on local AI on your NAS to really increase your team work productivity and we're -- it's exciting. It's a great lead-in and transition into what we're just going to talk about next upcoming, which is what can you do with your local mass for AI and what are some of the advantages. So we'll get to that in just a second here.

All right. It looks like 50% of you have answered. And 6% said less relevant. 90% said secure local platform, 3% that replace external drives. And the answer on that one was b, all got it right for them and good job, everybody. And Marc kick us off to the next section.

Okay. So now we've covered the cloud in the hyperscale range and what's happening with AI. Now let's dive down to the desktop to the edge, what we call local mass AI data storage. And just as we showed with the prior slide with the cloud that all the interactions that you had from your phone, from your computer, with your documents going into the cloud and touching a hard drive, it's really the same storage process for local NAS. Quite a bit of difference in your local NAS that you have control of your own documents. And -- but anything that you create and capture, whether you're working on an office online system, Google Docs and those things, you can you can create your documents, have them stored in that cloud. You can also have a replica copy of your documents made and stored on your local business NAS, and that's where you can really start to see the productivity and the gains and the information from having a local AI-enabled NAS operate. And we'll talk about how local AI NAS can also really help increase team productivity with store and a sharing files. But the whole NAS products years ago, it was really just a backup target or it was a simple file share, and it's really becoming much more of a productivity tool than it had been in the past. So the idea here is that you store your information and the AI running on your NAS is doing the work in the background for you. You don't need to initiate something, you don't need to go back in and refile your documents. It's really tremendous in the way that it's automated. It's really like having an agent specifically built for file management, file indexing as well. And it will -- you'll see when you use an AI NAS, you can see that how quickly it's responding and it's responding with information that's just pertinent to your content is unlike the large language model it's operating in the cloud AI, this is really learning from your documents and your information to your team. So it's going to be able to better understand your customers, your unique business challenges, the type of work output that you create, whether they're quotations or invoices. And so a lot of information, but it's designed so that the AI running on the NAS is going to be really, the air traffic controller kind of going through and indexing and sorting that information and making it available for the AI to act on. So now let's kind of take a look at some of the differences between local AI and cloud running your local AI. There are some your cloud AI services. So first, your data remains on site. There are always questions available in its AI. So will my information be used for the public will that company be selling my information or feeding the ads based on the documents that I've put up into the cloud. So none of those things are going to happen on your local AI. There's also no recurring costs, so no monthly, yearly per token cost, no token limits as well as what you're operating on your local NAS. You're only bound by time and storage capacity. The local AI will operate even when the network is off-line. So all the intelligence and processing is happening on the device itself. It's not as powerful as the NVIDIA GPUs, of course. So it's not able to create videos like the one that I showed earlier today. But again, you don't have the cost and it is its own local processing system unto itself. There are lower latency for your local data without Internet delays and disruptions. And really, the key piece here is greater control and privacy of your own information. So if you have information that can be specific, whether it's health care information or customer or client information as well that you don't want to share with the public cloud you can safely store that on your local pads. So now let's get into [Audio Gap] you can realize from running local AI on your NAS. So the first thing is it's really what we call a private knowledge assistant. So across all of your documents, whether their document files, text files, PDFs, your notes business files. You can get really quick summaries and faster answers running on local AI NAS again, because when you talk about your cloud service, unless your company is paying subscriptions, to just your business storage, the cloud AI is not going to have the full content library, the full file system of the documents that your team has been creating. Your local AI NAS, if you're using that as -- even as a second storage point, in addition to your cloud storage, it will operate on everything that you're creating, every invoice, every communication. So we can really have a full knowledge about your particular business and how it runs and operates. It's going to improve over time, of course. I'm not certain about the time to training to really where it gets to be ultimately productive, but the more content that you have stored the more you're using, certainly the results are better. It was able to search across all fines for things like context as well. So you might prompt your local AI NAS find the Peterson file or which is our customer A, customer B. And it will have indexed and really through all of the content and information that you have in your documents and in your photos as well. So we'll do what we call Smart Media Management if your business is like photos or videos or you use photos or videos for your product content as well for your marketing efforts. It can go ahead and intelligently go ahead and tag that information. So if you're searching information for a product that was 4 or 5 years ago, you can easily pull up that information just through things like contextual [indiscernible], not just text only. You can do a great job with summaries of information that's been created as well. So you can use it to help draft. And you can also use it to help pull information that you can then feed into your cloud AI as well if you're comfortable doing that. So again, it can be -- it can really refine and help your AI searches using your cloud system as well as your local NAS one. Video Intelligence. So many of you in your personal homes have Ring cameras as well. And we've seen a lot of intelligent video services through companies like Ring that tell you that is Amazon delivery drivers, delivering to package to your front door step. Well, at your small office or business, you can also use your NAS for video surveillance purposes as well. And the video systems there are really becoming quite sophisticated to where we'll do object detection and recognition. So people, packages, vehicles and things like that can be detected inside of many of the NAS vendors VMS systems now. And this is really the biggest one for me personally. If you look at my desktop, I have all the files that I've been working on for that week or that month. And then at some point, over the weekend, I'll go back in and have to literally drag and drop every single file into this right folder. So I have to think about the document, think about my folder tree structure. And what you can see now from a lot of these AI NAS systems is they can do that automatically. So you can just store your document into a route inbox. And what it will do is the AI on the NAS, we'll go ahead and index and classify that will take out its metadata tags and tag that file with that information. And then the great thing is here, we've seen a lot of advancements in actually refiling and reindexing that information, putting it into a folder structure either by client or by department like marketing or finance, and they can actually intelligently file, reorganize all of your files for you. So really looking forward to taking advantage of that one would save me hours a month. Let's move on to a poll question.

All right. What capacity planning consideration is most important for AI NAS deployments over the next 3 to 5 years? A, plan only for current needs; b, use historical growth estimates only; c, account for future AI data growth; or d, upgrade storage every year. Marc, I too -- all my files at work, at home, it is a nightmare trying to find anything through Windows search. And having an AI go into all my files, remove duplicates, categorize everything, tag everything, so I can just be like, hey, I need this and it find what I need instead of going through all of those search trees and Windows exploring in and out of drives, in and out of folders, where did I put that, this sounds like a huge time saver especially if you have data coming in from all different angles and all different types.

Yes. That's right, Ian. And then just look, when you're asking everybody on every team has someone who, like me, keeps all their files on the desktop. And then when I'm not available, someone is looking for that file and where is that? Did the Marc put it in the right place. Well, if I could just let my NAS do that for me, that would save me a lot of trouble. So looking forward to that.

All right. So it looks like 50% of you have answered and the results are. Wow, 90% of you said, c and c is the correct answer. Good job, everybody. All right, Marc, take us on to the next section.

All right. So next, we're going to move into WD Red. And here is a video to introduced this. [Presentation]