NetApp CEO Kurian: Growth Driven By Sales Of Strategic Products, Especially All-flash Storage

NetApp's strategy of focusing on a number of key strategic products, particularly on its all-flash storage business, is paying off for the company.

The Sunnyvale, Calif.-based storage vendor on Wednesday posted results for its fiscal fourth quarter 2018 and full-year fiscal 2018 that were all within or above NetApp's guidance range, said CEO George Kurian.

Kurian told CRN that what particularly pleased him was the growth in NetApp's strategic products business, which consist of all-flash storage, converged infrastructure, hyper-converged infrastructure, and hybrid cloud.

[Related: NetApp Expands Multi-Cloud Strategy With Google Cloud Relationship, Unveils First End-To-End NVMe Arrays]

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"Strategic products, which represents the focus of the company's innovation portfolio, is now 76 percent of net product revenue, and grew very strongly at 25 percent year-on-year," Kurian said. "It really represents the accelerating momentum that we're seeing with our strategic roadmap for customers."

Meanwhile, not only did NetApp expand product revenue, but its gross margins from the strategic products grew 350 basis points year-on-year to a really good number, Kurian said.

"We are very, very pleased that we are delivering expanded innovation to the market and capturing the value from it," he said.

A big part of that innovation stems from NetApp's focus on software, Kurian said. "Our value has always been in software," he said. "I think an increasing percentage of our margin dollars are represented by the value of our software."

Sales of NetApp's mature products, which are more hardware-focused, have stabilized, Kurian said. Those sales grew 4 percent year-over-year.

"This sets up the new fiscal year exactly as we wanted it, with strategic products continuing to outpace the rest of the market substantially, and mature products as well as services revenue stabilized," he said.

Kurian said the key driver of growth in the fourth fiscal quarter came from being aligned with where customers are moving. In particular, he said customers are looking for architectures which allow them to use data to accelerate business performance.

"It is because of our alignment with that strategic direction of customers that we are winning in every conceivable segment that we participate in," he said. "We have gained shares in this fiscal year in every product market in every geography that have competed in."

NetApp does not yet break out sales of its new HCI hyper-converged infrastructure line, Kurian. "But what I can tell you is, SolidFire and SolidFire HCI is part of our strategic products," he said. "And I can tell you that the early customer momentum and wins that we have had resonate with the enterprise differentiation of our platform. So we expect a lot more from hyper-converged infrastructure this year."

About 80 percent of NetApp's business went through indirect channels, a number that has been consistent throughout the fiscal year, Kurian said. "We feel grateful to our channel partners for their role in making NetApp successful, both in flash as well as in converged systems," he said. "We are excited to have the channel come to our Channel Connect conference in June where we will have many other ways for them to grow their business with us."

NetApp on Wednesday reported that revenue for its fiscal 2018, which ended April 27, reached $5.91 billion, which was up 7.1 percent over the $5.52 billion the company reported for fiscal 2017. A key part of that growth was all-flash storage sales, which during the year grew 43 percent year-over-year to reach $2.4 billion.

Kurian, who seldom refers to competitors by name, did react to the fact that he was talking to a CRN reporter who on Wednesday was attending the Pure Accelerate 2018 conference sponsored by rival fast-growing all-flash storage vendor Pure Storage.

"Since you're at the Accelerate conference, I would just tell you that we are far bigger and growing faster percentage-wise than your host," he said.

Kurian said NetApp feels it can sustain its fast-paced all-flash storage sales growth for the foreseeable future. "Clearly, the numbers are a lot larger now than they were a few years ago," he said. "But if you look at our performance, we have sustained a high double-digit, north of 20 percent, growth rate for may quarters now. So we feel really good about the differentiation."

For its fiscal 2018, NetApp also reported GAAP net income of $76 million, or 28 cents per share, down from the $509 million, or $1.81, the company reported for fiscal year 2017. Non-GAAP net income for the year was $957 million, or $3.47 per share, up from last year's $768 million, or $2.73 per share.

For its fiscal fourth quarter of 2018, NetApp reported revenue of $1.64 billion, up from last year's $1.28 billion. GAAP net income for the fourth quarter was $271 million, or 99 cents per share, up from the $190 million, or 68 cents per share it reported last year. On a non-GAAP basis, the company reported net income of $288 million, or $1.05, for the quarter, up from $239 million, or 86 cents per quarter.