CRN Exclusive: NetApp CEO Kurian On Growth In A Flat Storage Market And The Chance To Become The No. 1 Vendor

Growing NetApp Even When The Storage Market Stalls

The storage industry is seeing what may be a plateau, with sales either falling a bit or rising a bit depending on the quarter even as revenue increasingly shifts from the old-school vendors to the cloud and hyper-scalers.

NetApp is the exception. The Sunnyvale, Calif.-based company is bucking the trend by growing its storage revenue through focusing on sales of what it calls "strategic technologies" such as flash storage and the cloud. The company also just released its first entry into the hyper-converged infrastructure market, an appliance called HCI, and is building a strategic relationship that will make NetApp's NFS technology a native part of the Microsoft Azure cloud, signaling that NetApp still has plenty of room to grow.

CRN spoke with NetApp CEO George Kurian about whether the company can maintain its growth momentum in the face of a slowing storage industry, and about whether the company might actually, finally become the No. 1 storage vendor.

Here's insight into these and other important NetApp issues from the company's CEO.

NetApp's storage revenue is growing. But given that the entire storage industry revenue as a whole is relatively flat and most of the growth is coming from the hyper-scalers, how long can NetApp expect sales to grow?

We continue to see the momentum continuing through the second half of this fiscal year and accelerating through the back half of this year. Product revenues were very strong, up 14 percent year on year. And our innovation pipeline and portfolio is excellent. … We gained market share in every segment in which we participate. And clearly, the work we are doing to continue to focus our portfolio of innovation on the strategic solutions that our customers want is paying off. Strategic solutions were 69 percent of our net product revenue, up a strong 23 percent year on year on large, growing numbers.

So we feel very, very good. We've got sustainable differentiation in our technology portfolio that's really hard for our competition to catch up and match. We've got the industry's best hybrid cloud strategy. And we have a very disciplined distribution model that is demonstrated in the results. So we feel very confident about the future.

OK, but what I'm really trying to understand here is that, while NetApp is growing while the storage market as a whole is relatively stable, is that sustainable?

The storage market as a whole is composed of many segments. As I said, our strategic portfolio is focused on the segments of the storage market that are growing. And we are not only heavily overweight in those segments, we are also gaining share in those segments. And that's why we are growing as opposed to our legacy competitors. I think you should ask them about their storage business.

I will. And speaking of legacy competition, as NetApp outgrows the storage industry as a whole, do you see it becoming the largest storage vendor at any time in the near future?

We're clearly the best performing, and we are gaining share in every market segment that we participate in. We are pretty deliberate about the places we choose to participate. And in the segments that we're in, like solid-state arrays, converged infrastructure and the hybrid cloud, there's no question we've got a really good lead on the competition. And we are either the most differentiated, or No. 2 closing in on No. 1.

When will NetApp be No. 1 overall, then?

It depends on our execution and our competitors' performance. But we're clearly focused on working hard to close that gap. And you're seeing that in the results that we're posting.

During NetApp's second quarter, I see software maintenance and hardware maintenance revenue fell year over year, while product growth was strong. What happened?

Those were in line with what we had said. Software maintenance and hardware maintenance comes off the balance sheet, and is affected by the renewals business. We were actually ahead of what we had expected. And as we said on our last earnings call, the combination of better execution of renewals, which we have already seen, as well as the point-of-sales services business growing alongside product revenues, should return our services business to positive territory soon.

How are sales of NetApp's new HCI hyper-converged infrastructure offering?

We don't break it out. We are pleased with the demand that we saw. And we have paying customers already. But the product [just started shipping] a week ago. We feel very good about the differentiation of our solution, and we have really strong demand for it.

One of the surprises at the NetApp Insight Conference was SolidFire founder Dave Wright (pictured) returning from several months of sabbatical to run across the stage to unveil the latest HCI product. What is his role at NetApp going forward?

Dave is a welcome part of the NetApp technical community. He's working with us on some forward-looking technical directions for the company. We'll disclose more at the appropriate time.

So you're still not talking publicly about his overall role at the company?

Not at the moment. We're excited to have … a person of his talents and his capabilities back at NetApp.

What's the latest on the FlexPod converged infrastructure, designed jointly with Cisco, in terms of sales volume or revenue?

Very good momentum with FlexPod as the market-share data shows. FlexPod's up 20 percent [in revenue terms] year on year. We see strong adoption of the newer innovations that we bring, like the all-flash FlexPod, to the market. And we have continued to work with our partner community, our resellers, to expand the success of FlexPod.

So we're very excited about the momentum we're seeing. With Cisco, NetApp and FlexPod, we are clearly outpacing the full-stack vendors on what is supposed to be their home turf. And so, a really strong partnership and success.

How about FlexPod sales in volume terms?

We don't break that out. … From a capacity and a footprint standpoint, you are well aware of the fact that FlexPod is No. 1 in the market for converged infrastructure, representing the efficiency of the NetApp and [Cisco] UCS to serve customer demand.

Will the new Nflex converged infrastructure, designed jointly by NetApp and Fujitsu, come to the U.S. market?

For the moment, we're focused on the Fujitsu relationship succeeding in EMEA: Europe, Middle East, and Africa. That's where the two companies are focused on executing.

Any acquisitions in the last quarter we might not have heard about?

No. We announced Greenqloud, the orchestration platform, last quarter. We're executing on using that technology to power our hybrid cloud Azure NFS-as-a-service, which should be [shortly] in private preview with customers. We're excited about our momentum with the hyper-scalers as well.

Where will the Greenqloud technology be integrated in terms of the overall NetApp portfolio over time?

Today, it's a part of the cloud services that we offer through the hyper-scalers. You'll see us integrate it across more of our portfolio over time. And as we do that, we'll share details as they become available.