NetApp Q3 2025: Cloud, AI Biz Grows, But Sales Execution, Government Create Headwinds

‘We had line of sight to achieve our sales targets until the end of Q3 when inconsistent execution resulted in some deals slipping out of the quarter. Recognizing this, we have instituted a higher level of scrutiny on deal progression through the pipeline with tighter controls on closing plans. We expect these actions will enhance our execution and improve our momentum. Already, a number of the slipped deals have closed,” said NetApp CEO George Kurian.

NetApp continues to grow its cloud, all-flash storage, and AI-related sales, although poor sales execution caused the company to miss fiscal 2024 third quarter revenue expectations.

NetApp CEO George Kurian (pictured) Thursday said in his prepared remarks during the company’s quarterly earnings conference call that he was disappointed with the company’s 2-percent year-over-year revenue growth performance during the quarter.

Although within our guidance range, we are not satisfied with our top-line performance,” Kurian said.

Kurian placed the blame on sales execution, particularly in the company’s all-flash storage business.

“We had line of sight to achieve our sales targets until the end of Q3 when inconsistent execution resulted in some deals slipping out of the quarter,” he said. “Recognizing this, we have instituted a higher level of scrutiny on deal progression through the pipeline with tighter controls on closing plans. We expect these actions will enhance our execution and improve our momentum. Already, a number of the slipped deals have closed.”

Despite the slip, NetApp saw the net annualized revenue run rate for its all-flash storage offerings grow about 10 percent to $3.8 billion, Kurian said. The company also saw quarterly revenue of its Keystone storage-as-a-service grow nearly 60 percent year-over-year, he said.

AI is becoming an increasingly important business for NetApp, Kurian said.

“We continue to see growth in demand for AI solutions, as the large market opportunity for enterprise GenAI begins to open, and customers seek a unified and structured view of their data assets,” he said. “In Q3, our AI business again performed ahead of our expectations, with over 100 AI infrastructure and data lake modernization wins. These wins spanned geographies, varied in size, and included a number of service providers deploying NetApp as the storage foundation for their AI-as-a-Service offerings.”

On the public cloud side, NetApp’s strategy stems from its highly differentiated first-party and marketplace cloud storage services along with intelligent data and operational services, Kurian said. Combined with NetApp’s hybrid cloud offerings, it lets businesses build what Kurian called a “seamless intelligent data infrastructure” across hybrid multi-cloud environments.

“First-party and marketplace cloud storage services again grew well over 40 percent from last year, driving total public cloud segment revenue growth of 15 percent,” he said. “Excluding Spot by NetApp, first-party and marketplace storage services made up over 70 percent of the Q3 public cloud segment revenue.”

When asked by an analyst for more insight into NetApp’s sales execution during the third quarter, Kurian said the company has a strong pipeline fueled by both secular growth drivers and company-specific growth drivers and a fully refreshed and differentiated product line.

“As we progressed through the quarter, we saw good momentum across our business, but at the last couple of weeks of the quarter, several of the large seven- or eight-figure deals that we had expected to close in the quarter began to take longer to get through procurement into order fulfillment,” he said. “And so what this required us to do is to inspect at a much higher level of detail in terms of our closing plan for every transaction.

“Already, what we have seen is many of the deals that pushed from Q3 have closed in Q4, particularly many of the largest ones in the quarter. And so we expect to bring this ongoing discipline through Q4, and then it becomes part of the normal course of business as we head into the implementation of fiscal year ‘26 sales plans,” the CEO said.

When asked by another analyst about the impact actions taken in the first weeks of the Trump Administration is having on NetApp’s business, Kurian said his company is seeing caution.

“In Q3 and continuing in Q4, we have seen a degree of caution in the European markets, particularly the ones like France and Germany where there are no governments in place,” he said. “We have seen a little bit more caution in U.S. public sector as part of our Q4 guide. In Q3, U.S. public sector performed according to plan. You are correct that January always is the first month of the calendar year for many customers, and so sometimes budgets take a little longer to get unfrozen. We have good line of sight into our pipeline, and we are progressing the deals according to plan.”

NetApp By The Numbers

For its fiscal 2025 third quarter, ended January 24, NetApp reported total revenue of $1.64 billion, up about 2 percent over the $1.61 billion the company reported for its fiscal 2024 third quarter. That missed analyst expectations by $60 million, according to Seeking Alpha.

Despite the increase, revenue for the quarter was $44 million below the midpoint of the company’s prior guidance.

This included product revenue of $758 million, up from last year’s $747 million, and services revenue of $883 million, up from $859 million.

Hybrid cloud segment revenue for the quarter was $1.47 billion, basically flat over last year’s $1.46 billion. Public cloud segment revenue for the quarter was $174 million, up from last year’s $151 million.

NetApp also reported all-flash array net annualized run rate of $3.8 billion, up about 10 percent over the $3.4 billion the company reported last year.

NetApp reported GAAP net income of $299 million or $1.44 per share, down from last year’s $313 million or $1.48 per share. On a non-GAAP basis, NetApp reported net income of $397 million or $1.91, down from last year’s $410 million or $1.94 per share. That was in line with analyst expectations for non-GAAP earnings per share, according to Seeking Alpha.

Looking Ahead

Looking forward, Kurian said NetApp’s mission is clear and its focus is sharp.

“Customers value our modern approach to hybrid, multi-cloud infrastructure and data management, which enables them to build an intelligent data infrastructure and leverage the power of their entire data estate simply, securely, and sustainably,” he said.

“Our portfolio has never been stronger or more tightly aligned to IT organizations’ top priorities. Although we didn’t perform to our standards in Q3, it remains true that broad-based customer preference for our solutions and our visionary approach for a data-driven future enables us to outgrow the market and take share. We enable customers to treat data as an enterprise-wide asset to stay agile and competitive in the age of AI.”

NetApp expects fiscal 2025 fourth quarter revenue in the range of $1.65 billion to $1.80 billion, GAAP earnings of $1.45 per share to $1.55 per share, and non-GAAP earnings of $1.84 per share to $1.94 share.

For all of fiscal 2025, NetApp expects revenue in the range of $6.49 billion to $6.64 billion, GAAP earnings of $5.49 per share to $5.59 per share, and non-GAAP earnings of $7.17 per share to $7.27 per share.