How NetApp Turned a Profit Amidst Transitioning Storage Market

NetApp recently reported mixed financial results in the second fiscal quarter of 2020 as its total revenue dropped from $1.52 billion for the same period last year to $1.37 billion. The data storage company has now faced two quarters of declining revenues, but a positive is that earnings went up and above expectations despite uncertainties in the storage market.

When DSA asked NetApp’s Executive Vice President and CFO, Ron Pasek, whether they’re feeling the pressure from investors to accelerate revenue growth, he contested that there is reason to be optimistic about NetApp’s financial performance in the long-term. “We saw a 30% increase in revenue for NetApp’s all-flash array products in Q2 compared to the previous quarter, with a current $2.2 billion annual run rate. Although we did not grow the topline, we did increase earnings per share by 3% year over year.”

Without mentioning names, it’s interesting to note that the financials of some of the newer storage companies that have broken through $1 billion annual turnover are still loss-making, so NetApp has had to compete with these companies from both a pricing perspective as well as more generally.

Nevertheless, Ron believes that it is important for customers to choose a technology partner with a strong financial foundation, as well as one that demonstrates the ability to deliver revenue and disciplined use of capital in its business model.

As a Fortune 500 company with offices globally, Ron said that NetApp is well-positioned as both a technology innovator and a proven partner for customers’ long-term success on their journey of digital transformation.

“Companies that are currently operating at a loss will ultimately be required to generate a profit. At some point, these companies will be measured against NetApp’s level of profitability. In fact, it is NetApp’s level of profitability that allows us to continue to invest in the type of innovation that customers care about most,” he remarked.

Adapting to the Impact of Cloud Computing
Given how much the primary storage market is being affected by cloud, showing profitability is perhaps a vindication of NetApp’s strategy and adaptability over the years in order to remain relevant.

Ron explained that over the years, NetApp has been working on deepening its relationship with all the major hyperscalers, and the deep integration that it has achieved with the public cloud providers has given NetApp a sustainable competitive advantage in hybrid multi-cloud. “As a result, our Cloud Data Services business grew by more than 150% year-on-year. Likewise, our private cloud solutions grew by 28% year-on-year and are now at an annualised run rate of over $300 million.”

“As our CEO George Kurian often remarks, in today's environment, cloud sets the benchmark for customer experience. With that benchmark in focus, we have built and delivered the data fabric strategy to simplify and modernise our customer's data centres as well as enable their success in the hybrid cloud era,” Ron said.

Meanwhile, he also pointed out the fact that NetApp’s all-flash array business grew 30% sequentially to an annualised run rate of $2.2 billion. These higher margin solutions now make up 22% of NetApp's installed base and have helped the company offset challenges faced within the traditional storage market.

“We also recently launched NetApp Keystone, which reinvents the customer purchase experience. Keystone offers the agility, pay-per-use economics, dynamic scaling and operational simplicity that customers need to consume cloud on their own terms. In other words, Keystone is designed to meet the reality of a hybrid multi-cloud world where IT teams need greater choice, flexibility and freedom to run and pay for their data services however they want,” he added.

Bottom line, Ron remarked that their ability to adapt and pivot their strategy to meet market needs have certainly helped NetApp evolve from a traditional storage company to become the leading data authority in hybrid multi-cloud in the last decade.

What’s the Future for NetApp Customers?
According to Ron, in 2019, we saw the widespread and rapid adoption of hybrid multi-clouds as the de-facto architecture for all modern organisations. This included organisations heavily investing to transform their infrastructures, shifting from on-premises to leverage public cloud services, moving from traditional IT to private cloud, and modernising disk-based data centres to flash. Often, these implementations happened all together in fast-moving complex environments that are difficult to monitor, manage, understand, and control. 

“Moving forward, we expect customers to prioritise simplicity in 2020, not only in how systems work, but from every aspect across technology, customer experience, and beyond.” He concluded, “To support customers’ demand for simplicity, NetApp has ongoing focus on delivering greater simplicity in our solutions and how our customers consume them. We’re proud of the recent launch of NetApp Keystone, our response to the need for simplicity in software and hardware consumption for complex IT environments. We are committed to continuous innovation, including simplification, in order to empower our customers to optimise their data and fuel their digital transformation journey.”

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