NetApp swaggers over competitors with rampaging flash array results

NetApp is growing revenues solidly with a booming flash array business, competitors in perceived disarray, and its Data Fabric concept resonating with customers looking to the public cloud.

Its first fiscal 2019 quarter revenues were $1.47bn, 12 per cent more than a year ago*. There was a profit of $283m, 58.7 per cent higher than the year-ago $166m. Product revenue was $875m, up 20 per cent annually, software maintenance was $229m (up 3 per cent y-o-y) and $370m came in from hardware maintenance and other services. This was flat y-o-y. Gross margin was 66 per cent.

All-flash revenues exhibited an annual $2.2bn run rate, up 50 per cent year-on-year. Installed base flash array penetration is around 14 per cent; it was under 10 per cent a year ago; implying there is a lot of potential flash array demand inside its customers.

Financially it is in rude health, with free cash flow being 18 per cent of revenue and increasing 22 per cent year-on-year. Some $605m was spent on share repurchases and cash dividends. NetApp closed the quarter with $4.8bn in cash and short-term investments.

CEO George Kurian’s release quote said: “Enterprises are signalling strong confidence in NetApp by making long-term investments to enable the NetApp Data Fabric across their entire enterprise.”

NetApp CEO George Kurian.

NetApp said its cloud data services run rate was $20m.

SolidFire array revenues were $47m according to IDC. The all-flash EF series and ONTAP arrays brought in $433.4m according to senior Wells Fargo analyst Aaron Rakers. HCI revenues were not identified.

What did the earnings call tell us? Kurian said NetApp was starting the fiscal year: “in a stronger position than we’ve been in for years. Revenue, gross margin, operating margin and earnings per share were all above our guidance.”

Kurian said: “as businesses become more data-intensive and builds more data-intensive environments like machine learning, high performance storage and data services are benefiting from spending intention.” HCI product revenues were not separately identified in NetApp’s results. Asked by Rakers about this and NetApp’s HCI product progress, Kurian said: “With regard to whether we will breakout HCI or not, we’ll provide you that clarity when we do it.” Take that, Aaron.

He added: “At this point, HCI is a part of our product revenue. We have seen a broader number of competitive engagements and we are winning our share, right? … We’ve had good competitive wins. … we have some really exciting product announcements at NetApp Insight, and you’ll see how we build NetApp HCI into our compelling Data Fabric story there.”

NetApp Insight will be held in Las Vegas, October 22-24., and it should also contain news about the object storage StorageGRID product.

Kurian talked about the effect of lowering 3D NAND flash prices: “As prices ameliorate for 3D NAND, which we are starting to see clearly, that performance [disk] drive, the 10-K drive segment will concede to the all-flash array segment.”

Then he moved on to the competing suppliers, saying: “I think, the legacy competitors are in a variety of states of challenge. I think, if you look at the large players like EMC or HP, they’re still trying to rationalize their lead flash portfolio, because none of their products is complete.

“If you look at players like IBM and Hitachi and Fujitsu and Oracle, they basically conceded and are no longer in sort of new deployment considerations. They’re essentially defending the installed base and the start-ups are challenged.

“They have essentially been fast on product innovation, and they don’t have the market reach to compete. So it will be, I see some sense of consolidation coming up in the marketplace and we will benefit from that, because we’re very well-positioned.”

One questioner asked about NetApp’s view on composable infrastructure and HCI, to which Kurian replied: “Our solution has many of the elements of composable in it.”

We might hear more about that in October.

Next quarter revenues are expected to be between $1.45bn and $1.55bn, a 5.6 per cent rise on the year-ago Q2’s $1.42bn at the mid-point.

<b>*</b> Note; the fiscal 2017 first quarter revenues have been recalculated to $1.32bn based on NetApp’s adoption of the new accounting standard ASC 606. Originally they were $1.33bn, with profits of $136m, also retrospectively recalculated to be $131m.

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