NetApp Q2 Business Slips, Guidance Flat, But Big Hopes For New Solutions

NetApp's quarterly revenue and earnings slipped slightly over last year, and guidance for the next quarter indicates things will not get better quickly.

However, the storage vendor is counting on a wide range of new technologies, including its newly-announced hybrid cloud solutions and its new FlashRay all-flash storage array to help meet the needs of customers as the way they build their IT infrastructures going forward.

NetApp on Wednesday reported second fiscal 2015 revenue of $1.54 billion, which was flat compared to the $1.55 billion reported in the second fiscal quarter of 2014.

[Related: NetApp Plans Big Management Software Push For FlashRay All-Flash Storage]

GAAP income for the second fiscal quarter was $160 million, or 49 cents per share. That was down from last year's $167 million, or 48 cents per share.

On a non-GAAP basis, income for the second fiscal quarter was $226 million, or 70 cents per share. That was down from last year's $232 million or 66 cents per share.

NetApp CEO Nick Noviello said during his prepared remarks during NetApp's Wednesday financial analyst call that 92 percent of NetApp's revenue came from sales of its branded solutions, up 2 percent over last year. OEM sales, on the other hand, fell 22 percent over last year, continuing a multi-quarter shift in NetApp's revenue.

Indirect channel sales accounted for about 80 percent of NetApp's total revenue, which was down slightly due to the drop in OEM sales, which NetApp counts as indirect sales, Noviello said.

Arrow accounted for about 24 percent of NetApp's overall revenue, while Avnet accounted for about 17 percent, he said.

"Excluding OEM, indirect sales revenue was roughly flat year over year," he said.

During the question-and-answer portion of the financial conference call, NetApp Chairman and CEO Tom Georgens was asked about how NetApp's move to assign more of the company's services people to help channel partners, as first reported by CRN, would impact the channel.

Georgens responded that NetApp wants to be "crisper" in terms of its channel strategy, including focusing its professional sales team on accounts that either demand NetApp handle services or which require engineering help that only NetApp can provide.

"It's a big opportunity for (our channel partners)," he said. "We don't want to compete with them on services... so they're in a much better position to grow the business for NetApp."

NEXT: Looking Forward To New Solutions But Flat Sales, Earnings

Georgens, during his prepared remarks, said NetApp's new products and solutions, many of which were unveiled at the company's recent NetApp Insight conference, are helping prepare the company for the future.

The number of nodes connected to NetApp's Clustered Data ONTAP operating system during the second fiscal 2015 quarter tripled compared to the same period last year. NetApp enjoyed a 65 percent attach rate with its Clustered Data ONTAP in sales of its high-end arrays and a 50 percent attach rate in mid-range array sales and saw the attach rate in the entry-level arrays double over last year, he said.

The total number of systems shipped in the recent quarter grew 6 percent over the same period as last year, while the number of FlexPod reference architecture-based solutions grew 50 percent, Georgens.

NetApp also saw the amount of flash storage shipped in terms of capacity double that of last year, he said.

New from NetApp this quarter was the FlashRay all-flash storage array, which this month just started shipping, Georgens said.

Georgens said the new SteelStore backup appliance line, which NetApp two weeks ago acquired from Riverbed, is now shipping with the NetApp logo. The company plans to release an Amazon machine image version of the SteelStore later his quarter, he said.

When asked during the question-and-answer period about the impact of NetApp's new Cloud ONTAP, the hybrid cloud-focused version of the Data ONTAP storage operating system, Georgens said that Cloud ONTAP is not a point product, but is really just Data ONTAP for the cloud.

"Yeah, it will cannibalize some business (from Data ONTAP)," he said. "But it will bring more business to the cloud. ... It's part of a much broader strategy."

Looking forward, NetApp expects revenue of $1.56 billion to $1.66 billion, which is about flat with the $1.61 billion the company reported for the third fiscal quarter of 2014.

Earnings are slated to range from 52 cents per share to 57 cents per share on a GAAP basis, or 74 cents per share to 79 cents per share on a non-GAAP basis. This compares to last year's 55 cents per share on a GAAP basis and 75 cents per share on a non-GAAP basis.

However, last year's third fiscal quarter is a weak comparison. NetApp executives said at the time that the quarter's revenue was weak due to a huge drop in sales to the Federal government.

PUBLISHED NOV. 12, 2014