NetApp Fiscal Q1: Channel Reaches New High, FlexPod Shows Strong Growth

NetApp on Wednesday reported a nearly flat first fiscal quarter in terms of revenue with a big drop in earnings compared to last year, but investors loved what they heard and snapped up the company's shares in after-hours trading.

The continuing bright spot for NetApp, however, remains the indirect channel, which accounted for a record portion of the company's revenue.

NetApp reported revenue of $1.445 billion for its first fiscal quarter ended July 27, 2013, which is nearly flat when compared to the $1.458 billion the company reported for the first fiscal quarter of 2012.

[Related: NetApp, Cisco Unveil Joint FlexPod Channel Program ]

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The company also reported income of $64 million, or 17 cents per share, down about 54 percent from the $140 million it reported last year.

Nick Noviello, NetApp executive vice president of finance and CFO, said those results were in line with expectations, the revenue coming in at the midrange of earlier guidance and income exceeding guidance.

Investors certainly liked what they heard and drove up NetApp's share prices in after-hours trading by over 5 percent.

For the quarter, product revenue fell 7 percent compared to last year to $898 million, while software entitlements and maintenance revenue rose 10 percent to $219 million and services revenue rose 11 percent to $328 million. About 86 percent of the company's revenue came from NetApp-branded products and services, and 14 percent came from OEM channels including revenue from IBM and Fujitsu.

About 54 percent of revenue came from the Americas, with total revenue from the territory falling 2 percent over last year.

Tom Georgens, president and CEO, said NetApp is seeing ever-larger customer deployments.

During the first fiscal quarter, 125 customers deployed over 10 petabytes of NetApp storage, four customers deployed over 100 petabytes and one customer was approaching 1 exabyte of storage. "No one manages large data architectures like NetApp [does]," Georgens said.

The channel was a bright spot for NetApp in the quarter.

A total of 78 percent of first-quarter revenue came from indirect sales channels, up from 76 percent in the same period of last year. On the distribution side, sales through Arrow accounted for 16 percent of total revenue, up from 15 percent last year, while Avnet accounted for 14 percent, up from 11 percent last year.

NEXT: Channel And NetApp Work Well Together: Parrish

Julie Parrish, senior vice president of worldwide sales at NetApp, said the channel accounts for all the growth of its business through the FlexPod relationship with Cisco. FlexPod sales were up 90 percent over last year, and NetApp and Cisco in June unveiled a new FlexPod partner program, Parrish said.

"I think the channel will continue to deliver huge benefits for us," she said. "Not always in a greater and greater percentage of our business, but in terms of the customer value we deliver."

Channel partners should see continuing benefits from other NetApp initiatives including the June release of NetApp's latest storage operating system, Data Ontap 8.1.1, as well as the company's new cluster mode technology.

NetApp in the first quarter saw a tripling of deployments of Data Ontap 8.1 over last year, while deployments of its cluster mode technology rose 40 percent over the fourth fiscal quarter. "For partners, this is a testimony about the importance of our technology and the stickiness of NetApp," she said.

Parrish also said that Arrow's sales of NetApp products breached the $1 billion market in fiscal 2012, and that Avnet's sales in the last four fiscal quarters have already breached that mark as well.

Looking forward, NetApp said it expected second fiscal quarter revenue of between $1.5 billion and $1.6 billion, up from the $1.5 billion it reported in last year's second quarter. The company also expects earnings per share to be between 23 cents and 28 cents, down from last year's 44 cents.