News

posted on 22 May 2008 15:08

NetApp's Q4fy08 revenues grew 17 percent to $938 million but its GAAP net income was flat at $90 million compared to the year-ago quarter. NetApp's growth outpaced the storage market.

In the fourth quarter of fiscal 2008 GAAP EPS was $0.26/share compared to Q4fy07's $0.23/share on net income of $90 million. The Q4fy07 revenue number was $801 million.

Why didn't GAAP profits grow with revenue? Non-GAAP EPS did grow being $131 million ($0.38/share) versus $114 million ($0.30/share).

Full year 08 revenues were $3.3 billion, up 18 pecent on fy07's $2.86 billion. Fy08 GAAP net income was $310 millon ($0.86/share) which compares to fy07's $298 million ($0.77/share. This comparison suggests that something
happened in Q4fy08 to send the net income number downwards.

Dan Warmenhoven, NetApp's chairman and CEO, said: "NetApp posted a strong finish to the fiscal year, ending the fourth quarter with 17% growth in revenue and 23% growth in storage systems. With solid performance from most areas around the world, customers continue to validate that NetApp provides them with comprehensive storage and data management solutions at the lowest cost of ownership in the industry."

Okay, but why did GAAP profits not rise in line with revenues?

Some of it was due to increased operating expense. CFO Steve Gomo commented on non-GAAP expenses in the quarter: "our operating expenses totaled $437 million or 46.6% of revenue. These expenses increased 9% sequentially and 17% year-over-year. The largest sequential spending increase was in sales and marketing as a result of our increased sales capacity, our brand and awareness investment and services hiring. During the quarter, headcount increased 522 people on a net basis ending the quarter with 7,645 employees. Going forward our investment in operating expense will continue to emphasize sales coverage to enable us to grow faster."

Warmnhoven said, talking of the next quarter: "...we intend to invest in increasing sales coverage for more quota bearing sales people, more direct sales people, more of those that will assist direct partners. And, we intend to invest in awareness so that more potential customers consider NetApp to solve their needs because our win rates are high when we get considered but we need to get considered more often."

"That said, I should also point out that much of that investment was made in the quarter we just completed. In the past quarter our total expense grew at almost 9% over the prior quarter."

NetApp was the fastest growing among the top five leading storage software providers in 2007. According to IDC's Worldwide Quarterly Storage Software Tracker Q4 20073, NetApp grew more than three times faster than the storage software market in 2007 and gained share in each market segment in which it provides offerings. This marks the fifth consecutive year that NetApp grew faster than both the storage software market and the market leader (EMC).

COO Tom Georgens said: "... significant effort is being focused on expanding our customer base, especially our presences within the storage 5,000 which is what we call the 5,000 largest buyers of storage in the world. We divide the storage 5,000 in to three categories: high penetrated accounts; under penetrated accounts; and new to NetApp accounts. I’m pleased to report that business from under penetrated accounts grew 35% sequentially in Q4. We finished the year with over 100 net new to NetApp storage 5,000 customers and a couple thousand new midsized enterprise customers."

Talking about channel business - IBM resells NetApp products as its N Series - he said: "IBM was below 5% this quarter reflecting the seasonally lighter first fiscal quarter. For the full fiscal year IBM contributed over 4% of revenue and brought us in to more than 900 new to NetApp accounts. As we highlighted at our analyst day, we expect IBM to grow to 6% of total revenue in fiscal year 09."

He reckons NetApp is the installed base deduplication leader, saying: "In terms of de-duplication with over 60,000 systems actively running de-duplication on over 100 petabytes of physical storage we believe we have the largest installed base in the industry."

Talking of GX, the clustering version of the ONTAP O/S, he said: "While still small, sales of our GX platform grew 75% over fiscal year 07. Although GX is typically focused on performance and archiving environments we are also experiencing expansion in to more traditional verticals such as financial services. Q4 we did indeed announce our latest 7G version of Data ONTAP, there will be one more release of GX coming soon and all subsequent major releases of Data ONTAP will be based on the converged 7G and GX platforms, an integration that is already underway with specific emphasis on a yearly transparent upgrade path."

An insight into product futures came from Georgens: "Clearly our de-duplication in the VTL market is a key requirement. Our business has been quite successful without it, even this quarter, our VTL units are up 48% year-on-year. De-duplication isn’t the only feature that matters, but clearly it’s important and we need to get that into our portfolio. ... I think solid state technology and flash technology is going to be relevant and increasingly so as time comes on and we attempt to incorporate that into our products and leverage it as appropriate. But I’m not going to pre-announce anything at this point."

The outlook is quite cautious. Q1fy09 revenues are expected to be in the range of $845 - 875 million with GAAP EPS being $0.09 - 0.13/share. This is significantly down on Q4fy08 but the revenue number is 23-27% up on Q1fy08

Fy09 revenues are expected to be $3.79 - 3.95 billion with GAAP EPS of $.92 - 0.98/share. The company is predicting a poor start to its fy09 year but then a recovery to provide a continuation of its steady growth record. It expects to see a result from its increased sales and marketing headcount and a response to its awareness-raising ads.

^{[Chris Mellor.]}