NetApp Q3: Channel Business Continues To Grow, CEO Georgens Tells CRN

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NetApp on Wednesday reported a fall in fiscal third-quarter 2014 storage revenue caused in large part to a drop in sales to the U.S. government, which is a large customer for the company, while earnings grew moderately to beat analysts' expectations.

However, that drop in federal sales, combined with a conservative outlook, turned off investors to the storage company, causing its share prices to slide by over 6 percent in the couple of hours after the close of the market.

For the third fiscal quarter of 2014, ended Jan. 24, NetApp reported revenue of $1.61 billion, which was down about 1 percent from the $1.63 billion the company reported for the same period last year.

[Related: NetApp Takes Build-It, Not Buy-It, Approach To FlashRay Flash Storage Strategy]

That included $1.02 billion in product revenue, down from last year's $1.06 billion. That led to a slight drop in software entitlements and maintenance revenue, while services revenue hit $368 million, up from last year's $340.8 million.

On a GAAP basis, NetApp reported fiscal third-quarter earnings of $192 million, or 55 cents per share, compared to $158 million, or 43 cents per share, for the year-ago quarter.

On a non-GAAP basis, NetApp's earnings hit $261 million, or 75 cents per share, up from last year's $243 million, or 67 cents per share. Analysts had been expecting non-GAAP earnings of 71 cents per share.

NetApp President and CEO Tom Georgens on Wednesday told CRN that 83 percent of NetApp's revenue comes from indirect channel sales, which is consistent with last year and up from last quarter.

NetApp's branded revenue rose nearly 2 percent over last year, while the company's OEM revenue fell about 23 percent. Given that OEM revenue counts as indirect revenue, this means a significantly larger part of NetApp's branded revenue comes from channel partners than in the past, Georgens said.

"New customer acquisition did better this quarter than last year, and the bulk of that is coming from the channel," he said.

During the question-and-answer period of NetApp's Wednesday financial analyst call, Georgens said that his company is not looking to significantly grow the number of its channel partners, but will instead focus on making those partners more profitable over time.

"We're focused on fewer better partners. ... Overall, the channel for us remains robust, remains strong," he said.

NEXT: OEM, Flash, And Why NetApp Is Not Looking To Be Acquired

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