Big Deals, Dynamic Channel Drive NetApp's 2011 Revenue, Earnings

NetApp on Tuesday reported a strong growth in sales and earnings for its fourth fiscal quarter and full-year 2011, driven by a record number of multi-million-dollar deals during the quarter combined with largest-ever participation in NetApp's business by its channel partners.

However, the company said, continued revenue growth in the first quarter of fiscal 2012 will likely be paired with a slight drop in earnings.

"Q4 put an exclamation point on a very strong 2011," said Steve Gomo, NetApp executive vice president and CFO, during the company's post-earnings analyst call.

NetApp said revenue for its fourth fiscal 2011 quarter, which ended April 29, was $1.4 billion, up 22 percent compared to the $1.2 billion it reported for fourth fiscal quarter of 2010.

The company reported earnings of $160.6 million, or 40 cents per share, up 11 percent compared to the $145.1 million, or 40 cents per share, it earned last year.

For all of fiscal 2011, NetApp reported revenue of $5.1 billion, up about 30 percent compared to the $3.9 billion it reported last year. The company also reported full-year earnings of $673.1 million, or $1.71 per share, up 68 percent over the $400.4, or $1.13 per share, it reported last year.

Tom Georgens, NetApp president and CEO, said during the analyst conference call that NetApp had a record number of $1 million-plus and a record number of $5 million-plus deals during the quarter.

Georgens also cited strength in the company's channel as a factor in its fourth quarter and full-year 2011 results. "We continue to expand the largest and most diversified channel partner base in our history," he said.

Julie Parrish, senior vice president of global partner sales for NetApp, told CRN that about 77 percent of NetApp's bookings, and at least 75 percent of actual revenue, come from channel partners, which is the highest participation by the channel in NetApp's history.

The increasing participation by solution providers in NetApp's business, combined with the company's 2 percent rise in global storage market share and 4 percent rise in global midmarket storage market share are related, Parrish said.

"That kind of underscores the sentiment I hear from channel partners that they're happy working with us," she said.

Georgens said that NetApp's growth came despite what he called a "pricing jungle" where his company and its competitors sometimes need to get very, very competitive on pricing to win deals. "Overall the pricing environment is very competitive," he said. "But no more so than a year ago."

During the question and answer phase of the conference call, Georgens on a couple of occasions was forced to say nice things about NetApp's primary competitor, EMC.

When asked whether the January introduction of EMC's new VNX unified storage appliance line is impacting sales of NetApp products, Georgens said the only impact was to help better differentiate the unified storage offerings of both vendors from what the competitors are doing.

"It creates separate for EMC and us from the rest of the pack, but not vis-a-vis with each other," he said.

Georgens was also asked how the acquisition of storage vendors by server vendors, such as Hewlett-Packard's September acquisition of 3Par or Dell's February acquisition of Compellent, impacts NetApp, which is focused only on storage.

Server vendors are hobbled by their server business, forcing them to acquire innovative companies to build their storage business, Georgens said. However, he said, that does not lead to best-of-breed solutions. "At the end of the day, NetApp and, I hate to say, EMC, will be the innovators," he said.

Next: Looking Forward

NetApp is closely watching the development by IBM, which is a long-term OEM customer of NetApp's, of a unified storage platform that could compete with that of his company, Georgens said.

IBM has aspirations to offer unified storage products, and there is a desire in that company to build the technology internally, which might not be good news for NetApp, he said. "But I think there's a lot of satisfaction among IBM's customers with our products," he said.

Both Georgens and Parrish confirmed that NetApp has no plans to take products from its March acquisition of Engenio to the channel, but will instead maintain Engenio's OEM strategy.

But while NetApp will not compete with its Engenio OEM partners for sales of that product line, it will work with its direct and indirect sales team to sell more NetApp technology, particularly its V-series of storage virtualization appliances. to customers of its OEM partners, Georgens said.

He also said that, while NetApp could see an uptick in smaller acquisitions going forward, it would pursue large deals such as Engenio on an opportunistic basis. "Compared to where w were, we have to greater appetite to do deals, or lesser appetite to do deals," he said.

Looking forward, NetApp expects revenue for its first fiscal quarter of 2012 to be about $1.5 billion plus or minus 3 percent, or about 26 percent to 34 percent higher than in its first fiscal quarter of 2011. The company also expects earning during the first fiscal quarter of 2012 to be between 31 cents per share and 36 cents per share, down slightly from the 38 cents per share it reported last year.

Parrish declined to discuss any upcoming major changes in NetApp's channel program. However, she did say that NetApp will look for ways to help get its partners to focus more on helping customers architect their storage infrastructures rather than just selling solutions.

"MDFs (market development funds) and rebates for the rest of the year will be focused on helping partners drive architectures," she said. "Channel programs traditionally focus on solutions, or on being a one-stop shop. We want partners to be focused on architecting solutions."