NetApp Growth Focused On All-Flash Storage, Hybrid Cloud Technologies

NetApp's move away from legacy storage technologies towards strategic technologies, such as flash storage and the cloud, continue to pay off.

The company's CEO George Kurian said new releases during the company's second quarter of fiscal 2018, which included the company's first hyper-converged infrastructure offering and a strategic relationship that will make NetApp's NFS technology a native part of the Microsoft Azure cloud, signal that NetApp still has plenty of room to grow.

"We are undoubtedly out-executing our competition on all fronts ... It seemed particularly exciting to see our cloud strategy pay off with our expanded relationship with Microsoft Azure and the industry's first Azure enterprise NFS service," Kurian said during the company's earnings conference call.

[Related: NetApp Expands Cloud Capabilities With NFS On Azure, Adds IBM Watson To Support Services]

Unlike competitors who continue to offer technology that puts data in silos, NetApp is helping customers utilize their data across their entire infrastructure from on-premises storage to the cloud, Kurian said.

"No one matches our expertise in data management (and) open ecosystem approach," he said.

That shift is reflected in NetApp's sales of its strategic product sets including all-flash storage, converged infrastructure, hyper-converged infrastructure, and hybrid cloud which together now account for 69 percent of total product revenue, up 23 percent over the same period last year, Kurian said.

That includes a 60-percent year-over-year growth in all-flash array sales across NetApp's All Flash FAS, E-series, and SolidFire technologies over last year to an annual run rate of $1.7 billion, Kurian said. This strengthens the company's position as the second-largest flash storage vendor, he said, citing IDC numbers.

During the analyst question and analyst period, Kurian said in response to an analyst question that flash storage sales have a lot of room for growth considering that only about 10 percent of NetApp's installed base has moved towards solid-state storage.

"We have a good opportunity ahead of us as flash becomes more and more affordable compared to disk," he said.

The new NetApp HCI hyper-converged infrastructure offering is poised for big sales, Kurian said. However, he said, NetApp HCI was only released last quarter, and so it is too early to discuss actual revenue. "We are excited by the demand we've seen with the product," he said. "It has exceeded our expectations."

NetApp HCI sales are ramping up, Kurian said, but the company will not provide guidance on sales until possibly fiscal year 2019.

NetApp also continues to see growth in sales of its FlexPod converged infrastructure, which was jointly developed with long-term partner Cisco, Kurian said. NetApp's converged infrastructure revenue was up 20 percent over the same quarter of last year, and was substantially ahead of sales from any other vendor.

Ron Pasek, NetApp executive vice president and chief financial officer, told analysts that the company has locked down supplies for SSDs and DRAM to endure a long-term constraint in supplies of those key components.

Pasek said NetApp has enough SSDs on-hand to meet needs well into the next calendar year. The company is still seeing some headwind on DRAM supply, as are its competitors. Those headwinds should dissipate in the first half of 2018, and not at the beginning of the year as previously expected, he said.

Kurian, responding to analyst questions, said NetApp will have a private preview of its enterprise Microsoft Azure NFS service, with general availability expected in the next fiscal year. "I think it will be an additional growth driver for the company," he said.

For its second fiscal 2018 quarter, which ended October 27, NetApp reported revenue of $1.42 billion, up 6 percent over the $1.34 billion the company reported for its second fiscal 2017 quarter.

Net income on a GAAP basis for the second quarter was reported at $175 million, or 64 cents per share, up significantly from the $109 million, or 38 cents per share, reported for the same period last year. On a non-GAAP basis, net income in the second quarter was reported at $233 million, or 81 cents per share, up from last year's $169 million, or 60 cents per share.

NetApp revenue beat analyst expectations by about $40 million, while non-GAAP earnings beat expectations by 12 cents, according to Seeking Alpha.

Looking ahead, NetApp raised its guidance, and expects net revenue to be in the range of $1.425 billion to $1.575 billion for next quarter. The company also expects earnings of $1.18 to $1.26 per share on a GAAP basis and between 86 cents and 94 cents per share on a non-GAAP basis.

Kurian said NetApp is riding several technology trends including fast data growth; the shift to new technologies such as converged infrastructure, hyper-converged infrastructure and the cloud; and the company's Data Fabric strategy to seamless managed data from on-premises to the cloud.

"We feel we have a lot of headroom to take the business," he said.