NetApp CEO Says Channel Helped Company Show Strong Earnings

Dan Warmenhoven, CEO of the Sunnyvale, Calif.-based storage vendor, told CRN that 50 percent of NetApp's North American revenue, and 60 percent of its worldwide revenue, was attributed to the channel in the company's fiscal second quarter, which ended October 28. About 13 percent of the overall revenue came via two distributors, Arrow and Avnet, he said.

The company on Wednesday reported revenue of $483.1 million, up 29 percent compared to the $375.2 million reported for the same period last year. Income for the quarter reached $70.7 million, or 18 cents per share, compared to $55.3 million, or 15 cents per share last year.

NetApp is meeting with meeting with a number of its top solution providers this week, and telling them it expects channel sales to continue to grow, said Warmenhoven. "We're telling them we expect their revenue to grow 40 percent this year," he said.

To make that happen, NetApp is in the process of bringing its solution providers the opportunity to become service providers on the company's behalf, Warmenhoven said. To that end, the company has just wrapped up a pilot program which offered a limited number of partners training and self-certification opportunities around NetApp services, and is ready to roll the program out to partners worldwide, he said.

As part of NetApp's financial reports, the company did not specifically address the part of its business that comes from the agreement it has with IBM under which that company will resell the majority of NetApp's products as it currently accounts for under 1 percent of NetApp's revenue, said Warmenhoven.

However, he said that the relationship will grow quickly going forward. "When the IBM revenues are fully ramped up, eight to ten quarters out, they will account for approximately 10 percent of our revenue," he said. "That's significant. But that means 90 percent comes from our sales. So we expect 45 percent of our business to come from direct sales, 45 percent from our indirect sales, and 10 percent from IBM eventually."

Warmenhoven acknowledged that there will be some channel conflicts between NetApp's solution providers and IBM's sales. However, he said the IBM relationship will be mainly around incremental business for NetApp.

NetApp's data security business, while still small, is also expected to grow quickly, said Warmenhoven. It accounts for about 1 percent of NetApp's business this quarter. Warmenhoven said security revenue should hit about $15 million this fiscal year, and grow to between $35 million and $50 million in the next fiscal year.