Reports emerging from this week’s NetApp’s Financial Analysts’ Day show the storage hardware veteran is changing its identity to present itself as a hybrid cloud data services company.
But according to William Blair analyst Jason Ader, “NetApp remains a ‘show-me’ story —in particular with respect to meeting its cloud targets and growing share in a crowded on- premises storage market.”
Wells Fargo senior analyst Aaron Rakers said NetApp emphasised the importance of its Cloud Data Services (CDS) unit. He quoted this claim from Anthony Lye, who runs CDS: “NetApp’s Cloud Volumes is the #1 shared storage platform (NFS, SMB), which is sold as a first party solution by Microsoft and available on GCP and AWS.
“The Spot acquisition brings compute and storage optimisation with a portfolio of services that provision, run, and scale applications in multiple clouds. With CloudJumper, NetApp can provide a virtual desktop service (VDS) and a managed virtual desktop service in the cloud. The company’s Cloud Insights solution then provides real time analytics across these services.”
CEO George Kurian said: ‘NetApp’s strategy is to bring the simplicity and flexibility of cloud to the enterprise data center and to bring enterprise data services to the public cloud.” He noted that 93 per cent of enterprises now have a multicloud strategy and 87 per cent have a hybrid cloud strategy.
NetApp expects to drive revenue growth via all-flash array share gains and CDS expansion, Rakers reported. “The company now expects CDS ARR (Annual Recurring Revenue) to reach $250-$300m exiting F2021 (+141 per cent y/y at midpoint), $400-$500m exiting F2022 (+64 per cent y/y at midpoint), and >$1B exiting F2025. This compares to NetApp exiting F1Q21 with ARR at $178m.”
NetApp pointed out 80 per cent of its engineers are software engineers. All-in-all, Rakers thinks “NetApp will benefit from its continued work to establish a software-first narrative.”
Ader also highlighted NetApp’s CDS-first story. “To hammer home its bullish outlook on the cloud opportunity – and its current momentum – the company initiated a cloud ARR target of $1bn in fiscal 2025.”
“Management sees cloud services as complementary versus cannibalistic to its business,” he wrote, “with the firm already seeing its cloud technology bringing new logos and workloads into the fold.”
He said NetApp provided “incremental detail on the two strategic priorities outlined in recent quarters: 1) expanding the scale and scope of its cloud business, aided by the recent acquisitions of Spot, CloudJumper, and Talon and its deep partnerships with CSPs; and 2) returning to enterprise storage market share gains, primarily through differentiation in all-flash arrays (AFAs) and object storage.”
Ader reported NetApp will have “a mid-range storage refresh (from hybrid systems to AFAs)”. Timings were not mentioned. Also, “Management noted that AFAs still only account for about 25 per cent of NetApp’s installed base systems, leaving significant runway for AFA refreshes over the next several years.”
Ader said NetApp’s Brad Anderson “commented that he expects virtually all performance workloads will move to all-flash in the near term while an increasing percentage of capacity-based systems will move to all-flash in the future as the cost of NAND flash comes down.”
NetApp estimates nine per cent CAGR for the AFA market, and 13 per cent CAGR for object storage. It sees object storage growing as a cold data tier for all-flash array data and as archiving data for verticals such as media and entertainment, and oil and gas.
“Management noted that NetApp has grown its object storage sales a striking 50 per cent annually over the last five years, largely under the radar of investors,” Ader wrote.