NetApp Paints Rosy Picture

Says its high-end systems are taking off, raises guidance for annual revenue

November 16, 2006

3 Min Read
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Network Appliance CEO Dan Warmenhoven says his company's financial results last quarter show it is making a splash in the enterprise, claiming its high-end FAS6000 system "took off" in its first full quarter of availability. (See NetApp Posts Earnings and NetApp Scales Up.)

Although he refused to give much detail on FAS6000 sales, he hinted that it played a role in NetApp beating its previous estimates despite a decrease in total systems shipped last quarter. NetApp reported revenue of $652.5 million and earnings per share of $0.28. Those numbers represented a 35 percent increase in revenue, above the 32 percent to 34 percent increase it forecasted last quarter. (See NetApp: 'We're Winning'.)

NetApp also raised its guidance for fiscal 2007, which ends next April. It now forecasts year-over-year revenue growth of 33 percent to 34 percent, up from previous guidance of 32 percent to 33 percent. For this quarter, it forecasts a 30 percent to 31 percent increase in revenue over last year.

"The FAS6000 really took off this quarter," Warmenhoven said today on NetApp's earnings call. He declined to give a percentage of the company's revenue from the high-end systems, but did say about one-third of the sales were NAS heads that customers used to upgrade older FAS900 systems.

NetApp execs have maintained the FAS6000 will bring it into bigger deals. President Tom Mendoza said NetApp scored a $4 million deal with a company in the San Francisco Bay area, which he declined to name.Warmenhoven played down the impact the FAS6000 is having on its largest customer, Yahoo, despite Wall Street analysts' contention that Yahoo's new search advertising system will give NetApp a major boost. Yahoo launched its "Panama" advertising project in October, and says it will ramp over the next year.

One insider says Yahoo ordered dozens of FAS6070 high-end systems totaling around 21 Pbytes, which could bring NetApp around $30 million to $40 million in revenue spread over three or four quarters.

Still, Warmenhoven played it coy when asked about Yahoo. "I'd say Yahoo this quarter was slightly below the norm," he said when asked. "Their big infrastructure update is not yet underway."

When asked if the deal played a role in the uptick in guidance, he said, "Not all all."

Other news from the call:

  • SAN vs NAS: Block storage accounted for 38 percent of revenue, up from 35 percent in the previous quarter. Warmenhoven said Fibre Channel SANs made up 28 percent of revenue, iSCSI was 16 percent, and 6 percent of revenue came from systems with both.

  • IBM: Revenue through NetApp's OEM deal with IBM totaled 3 percent of its revenue for the quarter, up from 2.8 percent from the previous quarter. IBM agreed to OEM most of NetApp's storage products in April 2005. (See IBM, NetApp Ink OEM Pact.)

  • Decru: Sales of encryption devices fell off a bit last quarter after a $10 million deal with a federal agency in the previous quarter. Decru sales accounted for 2 percent of sales in the quarter, down from 2.5 percent in the previous quarter. Network Appliance paid $272 million for Decru in June 2005. (See NetApp Buys Decru.)

Dave Raffo, News Editor, Byte and Switch

  • World Cellular Information Service (WCIS)

  • IBM Corp. (NYSE: IBM)

  • Network Appliance Inc. (Nasdaq: NTAP)

  • Yahoo Inc.

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