NetApp: Channel Plays Prominent Role In Record 3Q Revenue

Storage vendor NetApp reported a strong third fiscal quarter in terms of revenue growth, but said that its earnings during the quarter fell by over 35 percent.

Indirect sales channels figured prominently in NetApp's revenue growth, while the drop in earnings was attributed to a one-time increase in the costs associated with new customer acquisitions.

NetApp on Wednesday said revenue for its third fiscal quarter of 2012, which closed January 27, totaled $1.6 billion, up 23 percent compared to the $1.3 billion the company reported during its third quarter of 2011.

The company also reported income of $120 million, or 32 cents per share, down 35 percent compared to the $186 million, or 46 cents per share, reported for the same period last year.

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Investors seemed to accept NetApp's explanation for the drop in income by sloughing any concerns and bidding the company's share prices up over 8 percent in after-hours trading.

For the quarter, NetApp reported a 28 percent growth in revenue from its indirect sales channels compared to last year, said Julie Parrish, the company's senior vice president of worldwide channel sales.

As a result, about 78 percent of NetApp's total revenue came from channel partners, Parrish said.

"This is the ninth consecutive quarter for year-to-year revenue growth of over 20 percent for NetApp," she said. "The channel is a big part of that growth. Over the last nine quarters, at least 70 percent of our revenue was driven by the channel."

NetApp's midsize enterprise business is 100 percent channel-driven, Parrish said. In this part of the market, NetApp's new FAS2240 SMB storage appliance, introduced last fall, saw 10 percent quarter-to-quarter growth in terms of shipments, Parrish said. Sales of the company's FAS3000 series to midsize enterprises rose 22 percent year-to-year in the third quarter, she said.

On the enterprise side, channels accounted for 70 percent of the business, with quarter-to-quarter growth of FAS6000 series storage appliance shipments reaching 40 percent, Parrish said.

The channel has also accounted for about 80 percent of sales of NetApp's Clustered Mode scalable storage technology, which was unveiled about six months ago.

NetApp's sales through U.S. distributors Arrow and Avnet rose 29 percent over the third quarter of last year, Parrish said. However, U.S. public-sector sales fell over last year, thanks to a drop in sales to the Department of Defense and to intelligence agencies, she said.

NetApp's sales of storage products as part of its FlexPod reference architecture, which provides guidelines to channel partners on how to combine server, networking and storage in a converged infrastructure, did well during the quarter, Parrish said. However, because FlexPod is a reference architecture and now a salable SKU, the number of systems sold as part of a FlexPod offering cannot be quantified.

"But FlexPod as an architecture has been sold to close to 500 customers," Parrish said. "There's a pretty even split between the FAS3000 and FAS6000 arrays. We have about 120 to 130 partners globally involved with FlexPod."

Looking forward, NetApp on Wednesday said it expects fiscal fourth quarter 2012 revenue to be between $1.645 billion to $1.725 billion, or up 15 percent to 21 percent compared to last year. Fourth-quarter earnings per share is expected to be between 38 cents and 43 cents per share.