Dan Warmenhoven, CEO, Network Appliance

As Network Appliance Inc. (Nasdaq: NTAP) took over the Millennium Hotel in Manhattan this week to launch its new products and vision, Byte and Switch caught up with NetApp CEO, Dan Warmenhoven (such a domestic sounding name, Warm-in-the-oven, he must be nice), to find out whats new.

Byte and Switch: Is the new FAS900 SAN/NAS series a sign of NetApp moving up market? (see NetApp Does the Storage Two-Step).

Warmenhoven: No, this is the conclusion of our transformation. The market perception is that we are a mid-range storage provider, but most of our deployments are now in the 48 terabyte range, there’s nothing mid-range about 48 terabytes.

Byte and Switch: Is the majority of your business still with technology and Internet companies?

Warmenhoven: Two years ago 70 percent of it was technology and Internet, but we’ve moved to a much broader enterprise base of customers… Now, two thirds of our total business comes from energy, financial services, telecommunications, major manufacturers, life sciences, and the federal government – and we are continuing to expand into new verticals.Byte and Switch: Can you explain why you have decided to enter the SAN market, when your messaging for almost 10 years has been that SANs suck?

Warmenhoven: Actually I’ve never felt that way. But the technology evolved in such a way that customers have been forced to make a choice between the two. Now they can buy one product and use it in either mode. It’s analogous to sharing between Windows and Unix, only now it’s between NAS and SAN.

Byte and Switch: The investment community has been pushing the company to move into the SAN market for some time. Is your decision to do this largely about appeasing Wall Street, rather than offering something your customers genuinely want?

Warmenhoven: In this market, if you don’t listen to what your customers want, you’ve had it. They want to buy SAN technology from us, and we are giving it to them. For specific case studies, check out the SAS and Siemens Industrial Solutions and Services deployments of our new technology.

Byte and Switch: In this economy all companies are looking at how to lower their costs. What is NetApp doing to keep its costs down?Warmenhoven: In August last year we undertook an 8 percent downsizing and we have been generating cash and improving our gross margins every quarter since. I don’t see further reductions, but we are being frugal – there was no sales kickoff this year, for instance.

Byte and Switch: Given your late move into the SAN market, would you be open to making acquisitions to increase your share here?

Warmenhoven: First of all, we aren’t late because the SAN market is still in its infancy; and as far as acquisitions go, we will look at all interesting new technologies but we haven’t seen anything that’s a good fit for us right now.

Byte and Switch: What is your software strategy, in the light of EMC Corp.'s (NYSE: EMC) move towards managing multivendor storage? Will NetApp ever manage other vendors' storage?

Warmenhoven: The difference between us and EMC is that we have always been a software company, hence our 62 percent gross margin. Under the management umbrella, I do not believe any disk vendor will be able to provide the breadth the customer is looking for. Our view is to partner with all the software companies out there – Veritas Software Corp. (Nasdaq: VRTS), Computer Associates International (NYSE: CA), BMC Software Inc. (NYSE: BMC), IBM Tivoli – and provide APIs to them and vice versa in order that the customer can choose. By the way, all these APIs are also available to EMC if they choose to use them; my guess is they won’t.[NetApp PRs announce that we have time for one more question.]

Byte and Switch: EMC is also said to be embedding a switch in to the next generation of its Symmetrix array. How do you see yourself competing here?

Warmenhoven: I believe the storage market will run in three separate but complementary parallel lines – disk, software, and switches – for some time to come. We have built too many barriers for crossover. Take Brocade Communications Systems Inc. (Nasdaq: BRCD): If it offered a switch plus the storage, all its OEMs would move away from it – and they are the majority of its business today.

[NetApp PRs call time.]

Byte and Switch: Thanks Dan! Look forward to more time with you again soon.— Jo Maitland, Senior Editor, Byte and Switch
www.byteandswitch.com