NetApp revenues are up, driven by all-flash array sales, making Q1 fiscal 2025 the company’s third successive growth quarter.
Revenues were $1.54 billion, which is 8 percent higher than a year ago, with a $248 million profit, a 66.4 percent increase from the previous year. NetApp generated $669 million in product revenues, a 13.4 percent increase, and its all-flash array annual run rate rose by 21 percent to $3.4 billion.
CEO George Kurian commented: “We started fiscal year 2025 on a high note, delivering strong revenue growth and setting records for first quarter operating margin and EPS … I am confident in our ability to capitalize on this momentum as we address new market opportunities, extend our leadership position in existing markets, and deliver increasing value for all our stakeholders.”
He added: “We are raising our FY25 outlook for both revenue and profit.”
Quarterly financial summary
- Consolidated gross margin: 71.3 percent vs 69.6 percent a year ago
- Operating cash flow: $341 million vs $453 million a year ago
- Free cash flow: $300 million vs $418 million last year
- Cash, cash equivalents, and investments: $3.02 billion
- EPS: $1.17 vs $0.69 a year ago
- Share repurchases and dividends: $507 million in stock repurchases
Kurian said NetApp experienced momentum in flash, block, cloud storage, and AI. He commented: “Both our capacity flash and block-optimized all-flash array families exhibited strong growth year-over-year, addressing an expanded TAM and driving share gains.”
He expanded on this in the earnings call, saying there were “really strong results across the board … in the block storage part of that portfolio, which is pure share gain against competition. We are demonstrating the price performance leadership against the high-end product of our competitors, as well as the price performance and feature set leadership against the midrange products of our competitors.”
In the performance flash block storage market, Kurian said: “We compete in that part of the market against frame arrays. It could be the Dell PowerMax or a large frame array from Hitachi [Vantara] or HPE.”
According to Kurian, QLC flash is being used in “the refresh or the migration of a very, very large 10K install base of hard drives, both ours as well as our competitors’, to that flash product portfolio … The total installed base of 10K drives is enormous. It was roughly, from a volume perspective, somewhere around 35 percent to 40 percent of the total storage market for a very long period of time. And so there’s a huge installed base to go refresh.”
Kurian noted strong performance in AI-led sales, saying: “While we believe the large opportunity for enterprise AI is still ahead of us, we are seeing good momentum today, with our AI business performing well ahead of our expectations. In Q1, we had over 50 AI and data lake modernization wins.”
He believes that NetApp is “in the early innings. It is when that inferencing trend, as well as large-scale generation of data come into play, that you’ll really see the inflection in data storage.”
“Inferencing is expected to be the preponderant majority of the storage market for AI and the enterprise AI landscape. It’s about 80 percent, maybe 90 percent of the total market. And RAG (retrieval-augmented generation) is expected to generate about 8x more data than the data that is fed into the RAG pipeline. So there’s a lot of new generation going to happen when and if these applications become mainstream.”
CFO Mike Berry commented about growth in general in the earnings call, saying: “Customers are prioritizing spend on strategic projects and so that part of our business continues to do really well … What we haven’t yet seen is large-scale datacenter refreshes, which would signal a broader base economic recovery and confidence in the business.”
He said customers want to use innovative AI tools in the public cloud, “where broader frameworks that combine databases, data warehouses, data lakes, together with AI models are progressing at a really rapid rate.”
But the necessary unstructured data sits in both on-premises storage as well as in the public cloud. “We are able to make that entire workflow much, much more secure and easy to manage, which is a part of the reason why we saw strength both in the data foundation for AI as well as in the cloud storage portfolio, where we’re seeing our ability to create a non-siloed, unified architecture come through for us.”
The public cloud portion of its revenues was $159 million, 3.2 percent higher than in the year-ago quarter. Kurian said: “Our highly differentiated first-party and hyperscaler marketplace storage services remain our focus and top priority. These services continue to grow rapidly, increasing roughly 40 percent year-over-year and performing ahead of our expectations at each of our hyperscaler partners.”
Berry said: “We expect cloud to return to a pattern of consistent growth through the rest of the year.”
Hybrid cloud revenues grew more strongly than public cloud, up 7.8 percent, to $1.38 billion. Flash arrays represented roughly 60 percent of NetApp’s hybrid cloud revenues. About 40 percent of NetApp’s installed base has adopted flash with the majority still using disk drives.
The Keystone storage-as-a-service offering experienced 60 percent year-on-year revenue growth.
Kurian thinks storage suppliers are doing better than broad systems vendors, saying: “The pure play storage players are outperforming the integrated system vendors. And so you look at a broad range of the integrated system vendors, they have struggled now for many quarters in their storage business, and it remains to be seen whether that is a strategic focus for them going forward.”
These are vendors, we understand, such as Hitachi Vantara, HPE, and IBM, but not Dell, with Kurian saying: “With GenAI, the two market players that have the installed base, Dell and us, are super well positioned.”
NetApp’s revenue outlook for the next quarter is $1.64 billion +/- $75 million and a 5 percent increase year-on-year at the midpoint; a lower increase than the current quarter’s 8 percent. Full year guidance is now $6.58 billion +/- $100 million, 4.9 percent up on fiscal 2024 revenues at the midpoint, and an increase from its previous $6.55 billion guidance last quarter.
EVP and CFO Mike Berry is retiring and a search is under way for his successor.
