NetApp Sees Massive All-Flash Array Growth In Q1

A huge jump in all-flash storage array sales led to a solid quarter for storage vendor NetApp, with both revenue and earnings exceeding expectation.

NetApp on Wednesday reported 50 percent year-over-year growth in the company's annualized all-flash array net revenue run rate to $2.2 billion in first quarter of fiscal 2018. That, in turn, helped push the Sunnyvale, Calif.-based storage company to 20 percent growth in product revenue and 12 percent growth in overall revenue to $1.47 billion.

NetApp’s stock rose 2 percent to $84.25 in after-hours trading on Wednesday.

The quarter provides proof that NetApp is a real winner in the storage market, said CEO George Kurian.

[Related: NetApp To Launch VMware Private Cloud Reference Architecture For HCI]

"We're winning because we're helping customers advance their business through the use of data," Kurian told CRN.

The huge growth in all-flash storage represents the growing adoption of flash across the entire storage portfolio, Kurian said.

"It is consistent with what we have told the marketplace," he said. "Increasingly, as the cost of solid-state devices gets closer to [that of] hard disk drive devices, all primary storage for transactional workloads will run on solid-state devices. And that's what it looks like in our all-flash array business growing faster than our aggregate business."

However, Kurian said, while primary disk-based storage is decreasing as a percentage of overall revenue, its revenue still continues to grow.

It was the fifteenth consecutive quarter of all-flash storage market rate growth for NetApp, said Ron Pasek, the company's chief financial officer.

Pasek told CRN that NetApp also enjoyed a spike in enterprise license agreement in the quarter in part because of a change in accounting standards and how they recognize licensing sales. Those ELAs typically are three-year agreements, mainly on the software side, he said.

"We saw a pretty big pickup in the first quarter of the year," he said. "As an example, if we looked at all the ELAs we would have recognized last year, it was $20 million. And in Q1 alone this year, it was $90 million, $30 million of which we knew about, and $60 million of which was a little bit of a surprise. This really speaks to the fact that customers are committing to our technology. They want to go to market with digital transformation with NetApp and our Data Fabric. And they're willing to sign these rather large [multi-year] agreements."

Kurian called the boom in ELAs proof that NetApp's Data Fabric strategy is working.

"It's enabling customers to standardize on NetApp software and deploy the Data Fabric across their entire enterprise," he said. "And so we're excited at the really strong start to the year. And you'll see us continue that momentum through the course of the year."

NetApp has a lot to be proud of from an innovation perspective, Kurian said. "We introduce the A800, which is the industry's fastest all-flash array, and supports for the first time in the industry high-density 30-Tbyte solid-state drives as well as end-to-end NVMe on the network side over Fibre Channel and on the storage side with NVMe solid-state devices," he said.

NetApp also worked with Nvidia to unveil a joint offering aimed at applying and accelerating artificial intelligence in the enterprise, Kurian said.

"It combines the Nvidia DGX supercomputer and the A800 all-flash array so that customers can buy a pre-certified, extremely high-performance reference architecture and can accelerate the deployment of A.I. both with their own enterprise as well as across the public clouds," he said.

For its fiscal first quarter of 2019, which ended July 27, NetApp reported total revenue of $1.47 billion, up 12 percent over the $1.32 billion reported for the first fiscal quarter of 2018.

Net income on a GAAP basis for the quarter was reported at $283 million, or $1.05 per share, up significantly from last year's net income of $131 million, or 47 cents per share. On a non-GAAP basis, net income for the quarter was $281 million, or $1.04 per share, up from last year's $166 million, or 60 cents per share.

Revenue was above expectations, while non-GAAP earnings exceeded expectations by 24 cents per share, according to analysts surveyed by Seeking Alpha.

Looking forward, NetApp expects second fiscal quarter 2019 net revenue to be in the range of $1.450 billion to $1.550 billion. Earnings per share on a GAAP basis are expected to be in the range of 79 cents to 85 cents, or between 94 cents and $1 on a non-GAAP basis.