NetApp CEO: No Spending Shortfall

Customers are decoupling storage from server purchases, which explains why EMC and NetApp earnings were up and why Sun and HP were flat or down.

August 20, 2004

2 Min Read
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Poor IT spending? What poor IT spending? That's the question Dan Warmenhoven, CEO of Network Appliance, is asking a day after his company posted strong revenue and earnings for its first quarter.

Bucking the trend of several other major IT manufacturers, Sunnyvale, Calif.-based storage vendor NetApp on Tuesday reported revenue of $358.4 million, up 38 percent from $260.5 million posted for the same quarter last year. Earnings hit $46.9 million, or 13 cents per share, up 73 percent from last year's $27.1 million, or 8 cents per share.

Speaking to CRN Wednesday, Warmenhoven said two trends helped differentiate his company's financial report from that of HP, which reported a loss in its storage business, and Sun, where storage revenue is up just a few percentage points over the previous year.

First, he said, surveys of enterprise customers have concluded that IT spending should be up about 5 percent this year compared to last. However, many vendors were expecting increases in IT spending of 10 percent to 12 percent.

Second, Warmenhoven said storage growth has been strong for companies such has his and EMC which specialize in this space, but it has been essentially flat for server vendors such as HP and Sun. "Server vendors are concerned about their storage attach rate," he said. "But I feel customers are separating their storage buying decision."A big part of NetApp's growth is coming from the channel, Warmenhoven said.

About 46 percent of the company's revenue came from indirect channels this past quarter, compared to 43 percent in the previous quarter. Quarter-to-quarter revenue growth during that time was 6 percent, he said. Sales through Arrow and Avnet, both of which distribute NetApp's products, grew 8 percent during that time, he said.

The company has been improving its training and support of the channel, and is nearing its goal of providing its channels with products and support on the same day they are released to its direct sales, Warmenhoven said. "We think of the channel as an extension of our own sales and support facilities," he said.

Sales of the company's FAS250 and FAS270 SAN and NAS appliances, the bulk of which go through the channel, rose 9 percent in the first quarter to account for 46 percent of the company's NAS Filer business, he said.

Also on the product side, NetApp is showing strong growth in its SAN, IP SAN, NAS and software products, Warmenhoven said. Its strongest hardware growth comes from its NearStore line of ATA-based storage appliances, which grew 25 percent quarter-to-quarter. The company also is emphasizing its software offerings as a value-add to its hardware business, he said.0

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