Healthy Profits For NetApp

NetApp reported revenue of $448.4 million for the quarter ended July 29, up 25 percent compared to revenue of $358.4 million for the same period a year ago. Net income for the quarter was $60.1 million, or 16 cents per share, compared to net income of $46.9 million, or 13 cents per share, for the same period last year.

Three months ago, NetApp officials said they expected earnings of 17 cents to 18 cents per share but earlier this month downgraded expectations to 15 or 16 cents a share. Thomson/First Call forecasted a profit of 15 cents a share, on $447 million in revenue.

NetApp CEO Dan Warmenhoven said the company's new FAS300 series of storage appliances, launched in May, was the victim of a lengthy sales cycle. Potential customers required an unusually long evaluation period during which they compared the new products to similar systems from NetApp and competitors, he said. The bulk of FAS3000 orders came in the last month of the quarter and should provide a healthy contribution to next quarter financials, said Warmenhoven.

Meanwhile, the company had strong growth in its entry-level FAS270 line, and flat to declining sales in its high-end products, on a quarter-to-quarter bases, said Warmenhoven. However, the company plans to unveil a new high-end product by year-end, he said.

The United States accounted for about 60 percent of the company's business, compared to 58 percent last year, Warmenhoven said. Revenue in the this market was up 29 percent over last year despite a weakening in NetApp's Federal business, he said.

About 50 percent of the company's revenue came from indirect sales, down slightly from last quarter, due mainly to the weaker Federal business, much of which goes through the channel, said Warmenhoven. However, NetApp's two distributors, Arrow and Avnet, accounted for 10 percent of the company's revenue, which he said was up.

Steve Gomo, NetApp CFO and executive vice president of finance, said about 35 percent of the company's overall revenue came from software and software subscriptions, while 12 percent came from services. Services revenue was up 12 percent from the same period last year, led by professional services, which saw revenue increase 72 percent over last year, he said.

Moving forward, Gomo said NetApp estimates that year-over-year growth in revenue for the current quarter will fall between 25 percent and 28 percent, reflecting a quarter-over-quarter growth rate of 5 percent to 7 percent. Net income for the second quarter is expected to be 17 cents and 18 cents per share, and will probably hit 74 cents and 77 cents per share for fiscal 2006. Revenue for the year is expected to be up 25 percent to 28 percent over fiscal 2005, he said.