Channel Pushes NetApp To Huge Sales, Earnings Gains

NetApp finished its fourth fiscal quarter of 2010 off with a bang, posting a huge growth in sales and profit to cap off a year which saw the channel portion of its business continue to expand.

Indirect channel sales accounted for 71 percent of sales during the quarter, a proportion which has never been higher and which is expected to only grow into the future, the storage vendor said.

NetApp reported total sales of $1.2 billion for its fourth fiscal quarter of 2010, which ended April 30. That was up 33.2 percent compared to the same quarter of 2009.

Income during the quarter did even better. The company reported income of $141.5 million, up 112 percent over the $68.4 million reported during the same quarter last year.

For all of fiscal 2010, sales were $3.9 billion, up 15.4 percent over the $3.4 billion reported for 2009. NetApp reported income for the entire year of $400.4 million, or over five times that of the $64.6 million it reported a year ago.

For the fourth quarter, NetApp’s hardware revenue grew 49.9 percent over last year, while its software entitlements and maintenance revenue grew 5.6 percent and its services revenue grew 14.2 percent.

Tom Georgens, president and CEO of NetApp, said an indirect sales channel push and a recovery in technology spending combined to drive the company’s strong growth in sales and profit.

About 71 percent of NetApp’s sales during the fourth quarter went through indirect channel sales, Georgens said. ’That number has been inching up and inching up,’ he said. ’And I expect it will continue to do so.’

Sales of NetApp products through its two primary distributors Avnet and Arrow hit a new record at about $1 billion, which was up significantly over last year, Georgens said.

NetApp’s direct sales business also grew in terms of absolute dollars, but not as much as its indirect sales, Georgens said.

’A few years back, we made the decision to work more with the channel,’ he said. ’We changed how partners make orders, and added bundles. This (record) isn’t all about products. It’s about focus.’

Next: Making The Channel Work For NetApp

NetApp’s direct salespeople have been assigned to work with channel partners, and get compensated the same whether they do so or not, Georgens said.

’A lot of our guys aren’t going to make their numbers unless they bring in channel partners,’ he said. ’Our objective is to make our partners as involved as possible.’

An increasing reliance on indirect channels is not impacting NetApp’s bottom line, Georgens said.

’The gross margins of the two parts of the business are comparable,’ he said. ’But if we can get our partners to be more self-sufficient, it cuts the cost of sales for us.’

For now, NetApp’s biggest issue is increasing its coverage into new geographies and markets, an issue that can only be resolved with channel help, Georgens said.

’If we can transfer our win rate from customers who know us to customers who don’t know us, we can continue our growth,’ he said. ’And we need the channel to do that.

NetApp provided guidance for the first fiscal quarter of 2011.

The company estimated revenue during the quarter to reach between $1.11 billion and $1.14 billion, up from the $838 million it reported during the first fiscal quarter of 2009.

NetApp also expects first quarter 2011 earnings to be between 31 cents per share and 35 cents per share, more than double the 15 cents per share it reported last year.