Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.ina.AI.
[00:00:40] Speaker B: Hi everyone. Welcome to another episode of Titanium Economy podcast by aina.
Today we have Anand Sanghi, the head of America's at Vertif, with us.
Anand, welcome to the podcast.
[00:00:53] Speaker C: Thank you.
[00:00:54] Speaker B: Just a few tidbits about Anand. Anand's been in this role since 2023. Before that, Anand led Vertif organization in Asia. Anand, as I understand you led Japan, South Korea, you led Southeast Asia, Australasia, India, quite a large portfolio. And before that you were at multiple different roles in Emerson and before that, Copland. Anand has a degree in engineering from IIT and an MBA from im.
Anand, it's a pleasure to have you on board here.
[00:01:23] Speaker C: Thank you for having me.
[00:01:24] Speaker B: Thank you for taking the time. So Anand, before we dive in, want to spend some time and understand a bit more about Vertive. What do they do?
[00:01:32] Speaker C: Yeah, well, I think the simplest way to talk about Vertiv and I do this to all my new hires in our bootcamp. I say we keep the world running.
I think it sounds a little pompous, but it's true, really. I mean, if you think about today's world, everything is driven by data. Everything is a critical system. So as you think about critical infrastructure, we basically enable that. We provide the power and cooling for digital critical infrastructure. I know it sounds like a mouthful, but basically you have the compute stack of the telecommunications stack. All of that requires power and cooling. So that's what we provide at a high level. We also provide infrastructure solutions. You start thinking about where that goes, you can look at a large data center place where you process data, store it, transmit it. You have thousands of servers all in big racks, right? So there's a lot of power that's required. So we provide the power. Everything we call from grid to chip. And there's a lot of heat that's generated to provide the cooling to take away that heat. And we provide services around it. It is not an afterthought. It's part of the core business, right? So that's what we do. But critical infrastructure also extends to things like semiconductor plants, things like radar installations in an airport, hospitals. So anything that requires critical power to be on all the time, we are there.
[00:02:48] Speaker B: Fabulous. And Anand, if I look at the last year, it's public knowledge, but you've seen stellar growth.
Could you just talk a bit about what were the drivers for this growth?
[00:03:01] Speaker C: Yeah, the biggest driver obviously was related to AI. Right.
So with the launch of generative AI, what happened is there's a significant increase in the amount of demand for GPUs and new types of chips.
These chips required a lot more power to deliver to them in a rack. So what we call densification. So historically the amount of power that went into Iraq could be 3, 4, 5, 6, 10 kilowatts. Okay. In two years that's gone up to 140, 150 kilowatts per rack. It's projected to go to 600 to a megawatt in a rack. Right. So significant shift in the amount of power that's required for this compute stack for AI and likewise cooling. So those were the drivers for our growth and we were well positioned for it.
[00:03:47] Speaker B: Absolutely. And then just Anand, thinking about Vertif and the overall industrial sector now, industrial sector is huge.
Multiple different segments, subsegments, very different kind of companies.
If I focus about vertiv in that entire space, how does Vertiv differentiate itself and especially in this era of unprecedented AI led growth.
[00:04:12] Speaker C: Yeah, it's a great question. We always joke about it. A lot of our history and heritage is obviously Liebert as a company, which is the founding company acquired by Emerson, then Emerson exited us and here we are as Bertif in that transformation, we've also gone from being an industrial to, to be more a tech company.
So when you say what's happened to us, really that's been a big pivot. Right. We are not just an industry anymore, we are really a tech industrial.
And the profile changes. All the things that you talk about in the titanium economy apply to us. Trained technicians, advanced manufacturing, what's happening right here in the Americas, the growth of manufacturing. How do you support this new compute stack?
We're in the midst of all of that and it's led with technology, led with innovation. We are doing so much design work now, which gets us ahead of the competition. So we're not just an industrial company, we're really a technology company enabling the critical infrastructure of today's world.
[00:05:10] Speaker B: Yeah, that's a very interesting topic. Now, just to sort of focus a bit more about the strategy part of it. As you think about the AI landscape, how would you summarize what your strategy is now and going forward in this evolving world?
[00:05:25] Speaker C: It's really, really very simple.
The first problem statement that happened as this kind of integration of silicon and chips came into existence was we have so much heat to take out from so little space. Right. So the first problem was, guys, who's the world's foremost expert in handling this, and it was us. So people came to Vertiv and said, you know, precision cooling was invented by Liebert 65 years ago. That's a heritage. But here we are, as the foremost company, could solve that problem. But as we started doing that, we realized that there was a very close correlation between the load profile, the power profile of how a GPU or a chip behaves today, and the amount of power that's required in that space. So the power and cooling piece started interacting and you start thinking systems. So our strategy basically saying, guys, how do we ensure we work so closely with the ecosystem, with the silicon providers, with the hyperscalers, with the colos to make sure the infrastructure is always ready to be two generations ahead of when the silicon comes? Right. So that innovation drives it. And then you couple that with scale, you need to be able to rapidly grow around the world, global and services integral to it. It's not an afterthought. So when you put those things together, that's the magic formula.
[00:06:37] Speaker B: Got it. I like the word precision cooling.
We use precision in a lot of industrial terms, but that's the first time.
Now, you spoke about data centers. Now that's been a pillar of growth for you, right. And Virtus integrated data center portfolio stands out. Could you talk to a bit about what has been your strategy in building out that portfolio?
[00:07:01] Speaker C: Yeah, it's actually really deep customer relationships. When you're so close to your customer, you're talking to them all the time across the ecosystem, you understand what are the unmet needs.
I talked about the fact that as you look across the thermal chain, you need to understand what it takes for you to take the heat from the chip to the cold plate, out into the rack, into the row, into the room, into the atmosphere.
[00:07:23] Speaker B: Right.
[00:07:23] Speaker C: Likewise, the power comes in from the grid or energy source could be something other than the grid, which is happening more and more all the way into the chip. So you get the powertrain and thermal chain and the interaction between the two is really critical. So there are very few companies in the world that can do that. And as we started doing it, we started identifying that there is more and more of a convergence between what's happening in the white space, which is basically everything around the rack, and what's happening in the broad infrastructure there's also a huge shortage of skilled manpower. There's a lot more need for speed and scale.
The unit of compute is now an entire AI factory. So we said, guess, how do we enable an AI factory? And which is what led us to saying, guys, how do you create a solution set that you can deploy with speed and scale globally, ensure high quality, high reliability? Which led to our infrastructure solutions. One core solution.
[00:08:16] Speaker B: Very, very interesting. And I think just shifting our focus on some of the areas of opportunity right now. Just continuing with the AI thread now. AI driven growth is the fundamental driver right now. As you think about the future, which part of that AI ecosystem you expect to accelerate more versus what you've already seen?
[00:08:36] Speaker C: Yeah. So the first generation of build out was really people building out the large training models.
That's a given.
You had to go out and build these mega campuses which are able to create the LLMs that are backbone of AI. So that's happening, but the monetization then starts happening when enterprises use it, when consumers use it. I'm sure you have multiple, whatever your favorite is of a program that you're using to drive AI usage. So we have our own versions of that. So we are seeing all of that. So across the ecosystem started the hyperscalers, obviously the large corals were built for the hyperscalers. Now you're seeing more and more enterprises, you're seeing the IT alliances, people around the world who are deploying it for others. And now we are seeing customers thinking of on prem. Some of them started with AI labs, but the usual suspects, right. Look at financial institutions, look at health care, look at federal, look at retail. People have large proprietary data sets. The whole thing with sovereign. Right. So we're seeing it across the board and I think the mix will shift. We'll continue to see the build outs of the large language models, but you'll also see more private data clouds, you're going to see more inferencing on the edge. So it's across the spectrum, very interesting.
[00:09:52] Speaker B: And I think as you think about this demand going forward and then you've looked at both organic capacity expansion and inorganic. I think could you talk to the factors that you take into account when you decide, hey, are we going to do this organically or are we going to look at an M and A opportunity?
[00:10:12] Speaker C: Yeah. So at a macro level, obviously it's a portfolio discussion. Right. Okay. How do you deploy capital?
The organic part is relatively straightforward.
JIO and the leadership team, we have a very structured process for our siop and then we sit down and say, guys, okay, this is what we're seeing in terms of pipelines and demand. And then you go back into scenario planning based on that. We also have an aspiration for share gain in select markets. How do we go and drive that growth? So based on that, we come up with saying, guys, okay, we need to provision for X amount of capacity or we're spending so much money on innovation. These are all the new products that we're creating. Based on that, what should be our fair share. So that piece is the easy part. So that leads to your organic investments. You look at working with customers and specific programs, you look at geographic locations, you look at product sets, and you work through your competitive environment. The usual classic business strategy and discussion. The inorganic part is also interesting because we have a strong balance sheet. We generate cash, we can deploy that cash effectively. So we get to see a lot of potential targets. And we are very selective. First of all, it's a very disciplined process. So, you know, run caught up in the ego of how much you want to spend. But guys, is it worthwhile?
Especially when you're looking at adjacencies where you can grow or you can accelerate organic growth by having an add on that gives you an edge. Right. So there's a very strategic rationale for it. And that's how we go. And that you can see that in acquisitions. The whole white space piece with Great Lakes or the services piece with project, especially on liquid cooling. When you go back and look at digital services, look at analytics, look at orchestration, how do you optimize data centers?
So that's how those pieces came into place.
[00:11:53] Speaker B: Now that's interesting. I think. So moving into the second question, which you laid like services, like your acquisition of Vale and Purge, basically put services front and center. Can you talk about what is your vision for services and how has investment thesis changed going forward in the past year?
[00:12:13] Speaker C: Yeah, services is always a superpower. The good news or how you want to look at it. I ran services in Asia and India for many years. JIO ran it in Europe before his president role, before my president role in Asia. So very close to. It's a key part of our value proposition for our customers. When we sell an equipment or a solution, it's expected to work reliably over 15, 20 years. Right. So we have that close intimacy with our customers. We have more than 4,000 service engineers around the world. We have more than 300 locations from which we operate. Right. So that's key to our core, to our success and growth.
As you're Looking at the huge growth in our business, you want to make sure that you're growing services to retain your proximity to that customer in the same ratio.
And the richness of our services now with liquid cooling, with what we're seeing with medium voltage over what we're seeing with Ersh hvm, which is a different part of our business that deals with electrical reliability services or high voltage maintenance, allow us to ensure that we continue to stay ahead of the curve. Right. So that's where these acquisitions came about. And the next game here now is how do you drive digital twins? How do you drive optimization? How are you using AI to be predictive and condition based maintenance? How do you get ahead of the curve? Right. So that's where we're getting into and many of our customers now are deploying around the world, they're looking at standard models. So you get into this whole life cycle optimization as well as how are you able to orchestrate across their fleet.
So there's a lot more work happening around that.
[00:13:50] Speaker B: That's very interesting.
Now, as you talk about innovation for the customers and standardization, I think the next question is pretty much R and D. Yeah. Right. So could you talk a bit about how R and D is shaping your competitive advantage in the market and what changes can we expect going forward?
[00:14:11] Speaker C: Yeah.
You know, as we became avertive and you know, one of the key tenets of Dave's leadership philosophy was always that you got to invest ahead of the curve. No matter what you do with fixed costs, you continue to accelerate investments in R and D.
So that was a huge boost. So we've been doing that for several years now. And actually if you look at this year and next year, probably upwards of 20% kg in our ER&D spend. Right. That's really driving our innovation agenda. The number of new products we're launching every year today is a multiple factor. What we used to in the past, we also compress the time cycle. This is very, very key. If you look at the chip time cycle now you're seeing a generation of chips coming out every year. Right. Our business was not in a one year cycle for new product introductions. Well, we've compressed that the 12 month cycle for us to be able to develop and launch a new product creates huge advantage for us. So R and D is at the center of innovation.
And then when we do that, we also look at it in terms of global manufacturability, being able to be nimble with your supply chains, scalability, serviceability. Right. So that gives the customers confidence that working with us will get them a solution that's innovative, but also that can be deployed and supported for years to come.
[00:15:28] Speaker B: That's interesting about the whole morphing of industrial R and D cycle with the semicycles, which are faster and hopefully not as capex intensive, but it's a marked change. As you spoke about now, demand surges, AI is here to stay. Demand surges will happen. Now, as you think about the future, what trends and what kind of metrics are you keeping an eye and eye on in terms of what changes in the market?
[00:16:00] Speaker C: Yeah, you know, two viewpoints here.
The metrics are the easier ones. Right? Clearly, like I talked about before, we have our pipeline. So you start with the pipeline. What am I seeing in my pipeline? And the way we look at our pipeline is it's a qualified pipeline. When a salesperson comes in with an opportunity, we put it in the pipeline. But then you go back and say, guys, okay, does that customer have land in power?
Is the customer doing it for themselves? Are they building for others? In which case, do they have an anchor tenant? Do they have capital? Right? So you go through a qualification process, gives you some confidence in the shape of that pipeline.
So we can look at the growth in the pipeline, we can look at the time to close, we can look at win and loss rates. So that gives us a perspective on what we are seeing. So that's the easy part.
The second part of it is you go back and validate externally saying, guys, okay, the customers are deploying, what silicon are they deploying? So we know all the flavors, right? We know the players in the industry. So you go back and add those flavors up and say, okay, based on what they're telling us, it's in the order of magnitude of gigawatts, right? That gives you a second metric. So you get two checkpoints. And the third piece then for us is to go back and say, guys, what is our ability to ramp up or down? So as we're seeing that flexing point, okay, are we investing ahead? How far ahead, if not, can we kind of get capacity in place at the right times? Right? So all of that happens. The good news is that, you know, we've all been through multiple cycles in our life, right? Like you said, I spent a lot of time in Asia. I went through the 97, you know, global crisis, we went through the 2000.com SARS, we went through the next 2008 Covid.
So you get those cycles. Some of it technology driven, some of it is macro driven, some of it is random events. But this one feels a little different. I think while there might be ups and downs, I think fundamentally this is the beginning of the next industrial revolution, in some ways the digital revolution. So it has legs to it.
[00:17:54] Speaker B: Got it. Now, exciting times. Anand, I think before we let you go more on a personal note, you've had three plus decades of experience in the industrial. Yeah, industrial and the tech sector, right. In your own journey, what has been the most defining moment in terms of the leadership or the leader that has shaped?
[00:18:14] Speaker C: Interesting.
You know, at heart I'm still a middle class Indian boy who kind of grew up and went out. Right. So a lot of my values have been shared by my parents.
I've also been lucky to have great mentors.
When I was in Hong Kong, I had a phenomenal boss. Likewise in Hong Kong, Singapore.
It's always been about kind of stepping ahead and thinking, what can you do as a leader? Right? What's going to be your legacy? How can you do good for the world?
So that defines it in some ways. You can call it your purpose or whatever else.
And for me, leadership has always been about enabling my team.
How do you make sure that they're empowered? How do you make sure that you're motivating them to have impact?
How do you drive growth? But it should purpose led, you know, otherwise growth for the sake of growth is, is easy, but you got to make sure that it has a meaning to it and do all of that with humility.
[00:19:12] Speaker B: Fabulous. Well, Anand, thank you for this very candid podcast. It's our pleasure to have you.
[00:19:19] Speaker C: Thank you.
[00:19:19] Speaker B: Thank you for the time.
[00:19:20] Speaker C: Thank you. Appreciate it.
[00:19:27] Speaker A: Thanks for listening to INA Insights. Please visit INA AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
