NetApp says flash and cloud integration enables it to build a moat around its core ONTAP business base, despite revenues becoming temporarily becalmed.
Its third quarter revenues of $1.56bn were up just 2 per cent annually, missing Wall Street estimates. The company forecasts no annual growth at the mid-point of its next quarter’s revenue guidance: $1.64bn.
CEO George Kurian told analysts in NetApp’s Q3 fy19 earnings call that he is confident NetApp will see growth resuming in 2020 because it has a three-way growth strategy based on flash arrays, HCI and multi (private + public) cloud offerings.
He said that the customer “requirement for hybrid multi-cloud capabilities is creating three significant market transitions: disk to flash, traditional IT to private cloud, and on-premises infrastructure to hybrid clouds.” NetApp has and is responding to each of these transitions.
All-flash arrays
First the good news, NetApp is doing well in the fast-growing all-flash market, growing 19 per cent year-over-year to an annualised net revenue run rate of $2.4 billion. Kurian said: “Wit only 15 per cent of our installed base currently running all-flash arrays, the runway for this secular transition remains in the early innings.”
He noted a” lot of weak large players in disk-based system that we will take share from; IBM, Hitachi, Fujitsu, Oracle, HPE, there’s a lot of them. And even Dell has a challenged mid-range portfolio and [high-end] portfolio. So, we feel good about our opportunities.”
Private cloud
Kurian stated: “The second major market transition we’re exploiting is the shift from traditional IT to private cloud. SolidFire and NetApp HCI are the building blocks for private cloud deployments, enabling customers to bring public cloud like experience and economics into their data centres.”
Kurian was asked by a call analyst: ”Are you prepared at this point to provide kind of a [SolidFire stand-alone and HCI] run rate that you think is reasonable or a percentage of product revenue?”
In the earnings call he declined a request by an analyst to name the [SolidFire stand-alone and HCI] run rate he thought “is reasonable or a percentage of product revenue?”
In response, he said the” momentum in our private cloud business that began in the October quarter [Q2] accelerated in Q3” and “We’ll tell you more as we head into fiscal ’20.”
NetApp is late to the hyperconverged market and has a mountain to climb here. Dell EMC and Nutanix appear to have sewn it up with dominating market shares.
Hybrid or multi-cloud
Kurian said the shift from on-premises infrastructure to hybrid clouds is “the third key market transition that we are taking advantage of to expand our business.”
He claimed: “Only NetApp is building a comprehensive set of cloud data services available across multiple clouds,” and: “Our cloud data services annualised recurring revenue is approximately $33m, up 22 per cent from Q2.”
“Roughly two-thirds of early Cloud Volumes Service customers are new to NetApp,” which means they could be sold other NetApp offerings.
The CEO said: “We are seeing accelerating momentum with our private cloud solutions, and our public cloud solutions are positioned to deliver strong growth in FY ’20.”
Isn’t this a little late?
“I would say we’re a bit behind where we expected to be in terms of the operational readiness of our service offerings with our cloud providers. We are, as we said, generally available with AWS. We are, you know, in controlled pilot production projects with both Azure and Google, and we expect them to be available imminently.”
New growth angles
Kurian believes: ”Our private and public cloud solutions enable us to reach new buyers. Our flash hybrid cloud infrastructure and AI solutions are serving as pillars of customers’ new architectures and we are seeing adoption of our cloud offerings as part of our customers’ foundation for moving applications and data to the cloud.”
Business might be lacklustre now because of worries in larger enterprises about tensions with China and the US public sector but, hopefully, these are short-term and will get resolved. Then NetApp will surge ahead.
