Q&A: NetApp CEO Kurian Talks About New Competitors, Tech's Transition And Industry Consolidation

Relaxed In The Face Of Major Storage Industry Changes

When NetApp this month reported second fiscal quarter 2016 revenue and earnings drops compared with the same period last year, it was in part proof of the storage vendor's success in getting customers to transition from its older 7-Mode architecture to its new clustered-storage, all-flash arrays and the cloud.

But while NetApp is ready to leave the painful transition behind, the company continues to face increasing competition from a large crop of nimble startups. Meanwhile, it is navigating an industry seeing massive consolidation, as exemplified by Dell's planned acquisition of NetApp's primary -- and much larger -- rival, EMC.

NetApp CEO George Kurian, who took over the company's reins just last June, sat down with CRN to talk about what NetApp is doing to live up to its coming role as the industry's largest independent storage vendor.

Revenue in the second fiscal quarter was down nearly 6 percent, and income for the quarter was down. What happened?

Our overall financial results for the second quarter were as expected. We continue to make progress, as we outlined to the market, in transitioning our business from traditional storage to the faster-growing parts of the storage market, such as scale-out, software-defined, flash, converged [infrastructure] and hybrid cloud.

As we told Wall Street, the growth rate of our new products has been very good. And we are pleased with the progress of those new products and the customer wins and the revenue traction that we have seen. The traditional storage environments, our 7-Mode storage as well as our OEM business, are in decline, as we indicated in the prior quarter. And so we will go through a period of transition before the new products will essentially be such an overwhelming part of our business that the traditional business is no longer material to NetApp. But that will take some time.

And so, we did what we said we were going to do.

Do you have a timeline of when you expect NetApp's sales of the newer storage technologies will overtake those of its traditional technologies?

Our clustered storage systems now are 70 percent of our new shipments. The traditional storage systems are 30 percent of our storage shipments. And those numbers are up dramatically on the clustered side from even a year ago.

And so we feel that we're making good progress in terms of the new shipments being transitioned over to our new platforms and our scale-out architecture.

We are acquiring customers at a good rate. So net new-to-NetApp customers are up 95 percent year on year. Unit shipments of clustered storage systems are [also] up 95 percent year on year. And that represents the differentiation of the technology that we have.

We don't have a forecast for how long the transition will take. It is based both on the adoption of our new technology [and] IT spending priorities [of] our customers.

How many actual net new-to-NetApp customers did NetApp sign during the quarter?

We're not gonna break that out, Joe. But I can tell you, it's a good number, and we feel good about the progress.

We're talking about large numbers. When you say, 70 percent of our shipments are clustered storage systems, those are obviously large numbers.

How has the channel changed for NetApp over the last year and the last quarter?

We have done two or three things with the channel that have shown really good traction. We rolled out the Clustered Data Ontap Transition Acceleration Program, called CTAP, to help our channel and our end customers migrate their environments from 7-Mode to Clustered Ontap. ... The percentage of our installed base systems that are now clustered storage systems [is] up 17 percent, and capacity almost 30 percent [over last year]. And our channel partners play a very, very important part of driving that success. ...

We also saw strong growth in our all-flash FAS systems. Our channel really likes our all-flash FAS story, and is driving a lot of success with that. The breadth of the offerings that we have, [as is] the differentiation and the long-term advantage that we offer customers around the hybrid cloud architecture called Data Fabric, is unparalleled in the industry.

What kind of impact is NetApp seeing from competition from the smaller startups like Pure Storage, Tintri, Tegile, SolidFire? How have they impacted NetApp's business?

We don't see any single competitor being able to sustain itself in the markets that we are participating in. You do see occasionally irrational deals that a few of them are doing in terms of sort of desperation.

I think we feel very pleased with the progress, the competitive wins that we've had in both the flash space as well as the hybrid cloud. There's no single startup that can compete with us in terms of being able to do what large customers want us to do: deliver solutions that are relevant and differentiated today and offer a road map to the hybrid cloud architecture of the future.

So we fell we're making make good progress in the designs and the deployments of what's [needed] today, as well as have unparalleled advantage going forward.

Has competition from the more established vendors changed much since the proposed merger of Dell and EMC, or the split of HP into two companies?

We see opportunity from the larger vendors, especially the proposed merger of Dell and EMC. It's causing certainly a large amount of uncertainty in the customers of each of those companies as well as in their channel partners. And we feel good about being able to capitalize on that uncertainty.

Customers want long-term commitments and road maps from their technology providers, and we're able to offer them that.

So what talking points does NetApp use in such competitive situations?

[There are three] things that we are seeing driving our success:

The first is the technical value proposition. We are able to offer a far more modern data center architecture than any of the large technology providers. The second is our open ecosystem that allows them to buy technology from us, and be able to interoperate it with any application stack, any cloud stack, any server infrastructure. The third is the track record that we've had with them, and the singular focus that we have on storage and data management.

All of those allow us to have a much more credible conversation than any of the other live companies in the market, and for that matter any other smaller ones as well.

With all the talk about the Dell-EMC deal, Hewlett-Packard splitting, IBM selling its x86 server business to Lenovo, people do wonder, what about NetApp? Are you talking to anybody about possible mergers or acquisitions?

We are focused on our customers and our partners, and we think that we have a unique role to play in the industry. The data management problem that customers have is a problem that spans the boundaries of traditional systems approaches that some of the other consolidation plays are having. And the ecosystem of both on-premises application software, equipment providers and cloud providers. And we think that we have a unique role to play to solve an enormously important problem for customers, and we're focused on that.