Channel Contributes To NetApp's Strong Fiscal Q2

The storage vendor on Wednesday reported revenue during its second quarter ended Oct. 27 rose 35 percent over the same period last year to $652.5 million. Earnings hit $86.9 million, or 22 cents per share, compared to $70.7 million, or 18 cents per share, for the prior-year period.

Dan Warmenhoven, CEO of NetApp, said indirect sales revenue accounted for a record-breaking 60 percent of the company's revenue during the second quarter and was up 11 percent over the previous quarter. About 12 percent of NetApp's revenue came from its two main distributors, Arrow Electronics and Avnet.

About 12 percent of NetApp's business in the quarter came from the Federal government, which placed a flurry of orders during what was its fiscal year-end, Warmenhoven said. A large part of the Federal business goes through the channel, he said.

Warmenhoven said he expects the channel to account for about 60 percent of total NetApp revenue going forward. However, he said the figure could decrease slightly as Federal government sales fall with the start of the new fiscal year.

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IBM, which in April 2005 signed an agreement to OEM all of NetApp's SAN and NAS hardware and software products, accounted for about 3 percent of NetApp's revenue, which was about the same percentage as the previous quarter, Warmenhoven said. "But IBM is booking a large percentage of its business in the [calendar] fourth quarter," he said. "So we expect the IBM part of the business to be very strong in the current quarter."

Looking forward, Warmenhoven said NetApp expects revenue in its third fiscal quarter to be 30 percent to 31 percent higher than last year's third fiscal quarter, with earnings to be about 17 cents to 18 cents per share.

For all of fiscal year 2007, Warmenhoven said the company should see revenue grow 33 percent to 34 percent over 2006, with earnings for the year to be between 73 cents to 76 cents per share.

A key driver of that growth is the market's continued acceptance of NetApp's new technology, Warmenhoven said. "Also, all our geographies are growing at about the same rate, and all our product lines are growing about the same rate, with our SAN business growing a little faster by design," he said.

NetApp, which earlier this month acquired data replication software developer Topio for about $160 million in cash, is still on the lookout for other small technology developers, Warmenhoven said.

"Topio is representative of the companies we are looking for," he said. "Great technology, but with small revenue. It's the same with our [June 2005] acquisition of Decru. We are looking for technology that can help our partners."