Q&A: NetApp CFO On Improved Financials, Handling Layoffs And Fighting The Startups

Financials, The Competition And The Channel

NetApp on Wednesday reported surprisingly strong first quarter fiscal 2016 earnings, despite a dip in revenue, with robust growth in sales of its higher-end storage solution -- including an improved move to transition customers to its Clustered Data OnTap solution after a couple of quarters in which that transition stalled -- that helped overcome slower sales of its older technology.

NetApp CFO Nick Noviello, in a conversation with CRN after the release of the quarterly financial report, said that NetApp did what it said it would do.

"This quarter was the first half of a rebuilding phase," Noviello said. "The quarter was good. We were inside the range of revenue guidance, and did better than our guidance on [earnings per share]."

Noviello also talked to CRN about the impact on NetApp's business from storage startups and from last quarter's layoffs, and explained why NetApp and close partner Cisco did not release their quarterly financial reports on the same day.

Turn the page and join the conversation.

Why should partners not be concerned about NetApp's recent financials?

Last quarter, we talked about the challenge related to the transition [to Clustered Data OnTap]. We expected partners will have concerns. ... Will we turn everybody overnight? No. Our channel partners need to understand the power of the transition, and the importance. So the first half is a rebuilding time for us.

This is a reasonable concern. But with what we've done with our Data OnTap and Clustered Data OnTap transition, we'll see the benefit of the channel working together with us.

NetApp last quarter said it would lay off about 500 employees. How does that impact the channel?

We announced a restructure in Q1, and estimated layoffs in the 500 range. It actually came in less, because we had the opportunity to redeploy some people. This is positioning us for the highest returns. If everyone was fungible, we wouldn't need to restructure. But if you pivot to new growth areas, some changes will happen. And we made it clear to employees.

We had changes in leadership in the last quarter or more, all the way to the CEO. Some fresh perspective is fine. ... Change is healthy. We're positioning ourselves for the highest growth.

What kind of impact is NetApp feeling from startups, particularly companies like (Mountain View, Calif.-based) Pure Storage?

First, the startup environment is hotter than ever. It's one that is rich in the media and a lot of things. But it's not necessarily rich in terms of business models, or in resiliency for customers. When I talk resilience with customers, they say we are helping them build for the long-term. They appreciate that.

Look at our technology. The number of customers who are new to NetApp who adopted our Clustered Data OnTap technology [in the first fiscal quarter] rose 225 percent over last year. Our existing customer base who moved to Clustered Data OnTap rose 130 percent over last year. These are the things that speak to NetApp being a long-term partner to customers. Customers are looking for efficiency and the ability to control their environments.

You have to have the right business model. There are things to worry about. This is a highly competitive environment. But we have a vision.

What is the state of NetApp's relationship with Cisco?

FlexPod has remained a really strong solution for both of us. We have been clear over time how we both benefit, and we're looking at where we can next.

And this is a meet-in-the-channel relationship for us.

For the first time in many years, Cisco and NetApp did not release their quarterly earnings report on the same day. What happened?

Every six years, because of the alignments of our fiscal calendar, we have to add a 14th week to the first quarter. And this is the first time this has happened in six years. Our quarter end was July 31. So our earnings release was [Wednesday]. There's no specific intent.

Certainly when our calls fall on the same day, we coordinate so we're not speaking at the same time.