NetApp CEO Sees Growth Ahead As Flash, Cloud Solutions Lead The Way

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George Kurian
George Kurian

NetApp's fiscal second quarter 2017 revenue and earnings were down but its share price rose more than 10 percent in after-hours trading as investors are starting to see growth in all the right places.

An all-flash storage business that is outgrowing the market and the near-complete shift away from mature products to higher-margin, strategic solutions is leading to optimism at NetApp that sustainable growth is around the corner, despite the emergence of Dell EMC as a "formidable competitor."

NetApp CEO George Kurian told investors that the company's focused and disciplined efforts yielded results for both its top and bottom lines. "These results demonstrate how we are focused on our commitments and dedicated to growth," Kurian said during the Wednesday earnings conference call.

[Related: NetApp Partners: Company Is Primed For Flash Storage, Cloud And The Next-Gen Data Center]

For the fiscal second quarter 2017, which ended October 28, NetApp reported revenues of $1.34 billion, down less than 1 percent from $1.45 billion a year ago.

On a GAAP basis, NetApp reported earnings of $109 million, or 38 cents per share, compared to last year's earnings of $114 million, or 39 cents per share. On a non-GAAP basis, earnings for the recent quarter were $169 million, or 60 cents per share, compared to last year's $181 million, or 61 cents per share.

Krista Macomber, senior analyst at analyst firm Technology Business Research, wrote that NetApp, in response to top-line and bottom-line pressures in the past three to four years, has executed on a number of restructuring activities such as reducing its workforce and focusing on key technology trends including flash storage and clod-based storage.

The changes resulted in a reversal of six consecutive quarters of year-to-year operating margin declines starting last year and have shown success in its investments in its solution and go-to-marketing evolutions, Macomber wrote in a research report on Wednesday.

"As mainstream, incumbent storage provider peers including Dell EMC and Hewlett Packard Enterprise (HPE) complete their stream of acquisitions and divestitures to transform their own businesses, and as niche peers including Nutanix put the pieces in place to execute for broader storage and data center market share, NetApp’s execution in this climate during the next six to 12 months will determine its future in customers’ next-generation data centers," she wrote.

Investors liked the results and NetApp's after-hours share price reflected that optimism.

Kurian told investors that 62 percent of NetApp's total product revenue now comes from strategic solutions, including all-flash storage arrays and Clustered Ontap solutions, with growth in sales of those solutions flat year-over-year because of the strength in last year's second quarter. About 86 percent of NetApp's FAS array shipments are deployed with the Clustered Ontap operating system, up from 70 percent last year, he said.

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