NetApp CEO Kurian Touts Cloud Innovation For Return To Growth

NetApp is counting on its cloud innovations, including its Keystone technology for consuming storage any way customers want as well as its relationships with public cloud companies, to help it continue to recover from its poor first fiscal first quarter.

NetApp and its investor community seem to have renewed confidence in the storage vendor a quarter after poor financial results caused many to express concerns about the company's future.

While NetApp's second fiscal quarter 2020 revenue came in just short of analysts' expectations, its solid and growing all-flash storage array and cloud businesses packed more than enough punch to bring earnings well above expectations.

NetApp's share price showed how well the company recovered from its first fiscal quarter 2020 when the Sunnyvale, Calif.-based company pre-announced unexpectedly low revenue and income because of what the company termed as a poor macroeconomic environment.

[Related: CRN Exclusive: NetApp CEO George Kurian On Keystone, Clouds And Competition]

Those macroeconomic headwinds are still there, NetApp CEO George Kurian on Wednesday told financial analysts during the company's second fiscal quarter 2020 quarterly financial conference call.

"Despite the ongoing macroeconomic uncertainty and the potential for continuing unpredictability in enterprise purchasing behavior, the fundamentals of our business are strong. … Both macroeconomic and enterprise spending indicators show continued weakness," he said. "While we cannot predict when conditions will improve, we are planning our business assuming no change in these external factors for the foreseeable future."

NetApp's future looks strong as it continues to focus on developing technology to build hybrid multi-cloud environments for customers, Kurian said.

He cited last month's NetApp Insight conference in Las Vegas as a way to show how far the company has moved in that direction, particularly with the introduction of NetApp Keystone, the latest addition to its Data Fabric strategy that introduces the ability to treat all storage, whether on-premises or in multiple clouds, the same regardless of whether it is purchased or consumed as a service.

Insight made it clear that NetApp's strategy, innovation, and experience is helping solve real pain points for customers looking to manage complex hybrid multi-cloud IT environments, Kurian said.

Insight saw NetApp move to revolutionize customer experience and simplify the business of hybrid multi-cloud with NetApp Keystone, Kurian said.

"NetApp Keystone creates a consistent experience from public cloud to the data center helping customers transform IT to operate with cloud-like ease and flexibility everywhere," he said.

NetApp Keystone does this in three ways, which customers can mix and match, Kurian said.

The first is by allowing customers to consume NetApp technology as a consumption-based cloud service through the world's biggest public clouds for customers looking for true elastic scaling without needing to manage their own infrastructures, he said.

The second is to consume NetApp technology via a subscription service to provide a cloud-like experience with their own on-premises infrastructure.

The third is a new simplified ownership experience for businesses who prefer to own and operate the technology in their own data centers.

"Customers and partners choose NetApp because of our unique ability to offer a full range of capabilities needed to build their data fabric," he said. "NetApp Keystone compliments this with a consistent cloud-like customer experience across the public cloud and on-premises. Let me be clear. Our approach to cloud is giving us access to new buyers and workloads as well as increasing the relevance of NetApp to companies both large and small. Cloud gives us both opportunity in the public cloud and makes us more attractive for on-premises deployments."

Kurian said NetApp's cloud data services business in the quarter rose 167 percent year-over-year, and that the second fiscal quarter was the first full quarter for Azure NetApp Files, which brings an Azure-consistent to storage procurement, support, and billing.

The company's Cloud Volume Services is also available in all three leading hyperscalers to give customers who have not in the past deployed NetApp on-premises storage the ability to take advantage of the company's technology via public clouds.

"Customers and partners are choosing NetApp because of our Data Fabric strategy and our unique relationship with the hyperscale cloud providers," he said. "Our cloud data services not only give us access to customers and workloads that were heretofore inaccessible with our traditional solutions. They improve our competitive position for on-premises opportunities. Only NetApp has the strategy, innovation portfolio, and customer experience to help customers succeed in hybrid multi-cloud IT."

For its second fiscal quarter 2020, which ended October 25, NetApp reported total revenue of $1.37 billion, down just under 10 percent from the $1.52 billion the company reported for its second fiscal quarter 2019. That was $10 million lower than analysts' expectations, according to Seeking Alpha.

That included product revenue of $771 million, down from last year's $913 million; software maintenance revenue of $254 million, up from $236 million, and hardware maintenance and other services revenue of $346 million, down from last year's $368 million.

On the product side, NetApp's strategic product revenue was $442 million, down from last year's $485 million. The company's mature product revenue also fell to $329 million from last year's $428 million.

About 56 percent of total revenue came from its Americas business, down from 57 percent last year. About 79 percent of total revenue during the quarter came from NetApp's indirect channels, up from 77 percent last year.

NetApp did not break out its all-flash storage sales for the quarter, but did say those sales rose 29 percent over those of the previous quarter to give the company an annualized net revenue run rate of $2.2 billion.

On a GAAP basis, NetApp reported net income of $243 million, or $1.03 per share, up slightly from last year's $241 million, or 93 cents per share. That beat analysts' expectations of 80 cents per share.

On a non-GAAP basis, net income was reported at $257 million, or $1.09 per share, down from last year's $280 million, or $1.06 per share. That beat analysts' expectations of 94 cents per share.