Q&A: NetApp CEO Kurian Explains Strategic Tech Shift, Discusses Cisco Relations As Dell, EMC Combine
NetApp In A Sea Of Change
NetApp just wrapped up its fiscal year 2016 with a drop in revenue and earnings the company attributed to a shift in its solutions mix from its more mature technologies to high-growth areas including flash storage and its Clustered Ontap operating system.
Even as it experiences this shift, the company is facing the prospect of becoming the leading independent storage vendor once Dell closes its planned acquisition of storage leader EMC. While some might call that acquisition a new source of pressure on a company like NetApp, which is seeing its storage business shrink, NetApp CEO George Kurian sees this as an opportunity, especially when it comes to the potential benefits of a stronger relationship with Cisco, which is both a Dell rival and an EMC partner.
Kurian took time to discuss with CRN these issues and more, including why NetApp has not made a big splash in the hyper-converged infrastructure market.
For a look at where is NetApp is, and where it is going, in today fast-changing storage business, turn the page.
NetApp's revenue and earnings were both down year over year. What happened there?
They're in line with our previous guidance. As we've said before, we are in the middle of transitioning our product portfolio from what we call the mature part of the storage industry to the strategic solutions that are part of customers' data centers moving forward.
If you look at the mix of our business, we have shifted the majority of our product revenues to the strategic solutions which are growing nicely. Clustered Ontap, all-flash arrays, the branded E-series [of arrays], and OnCommand Insight all had really good performance this quarter. Not only that, we saw accelerating momentum through the end of the quarter.
What the strategic solutions have not yet done, and we'll see them accomplish that soon enough, is to offset the decline in our mature business: The OEM business of the E-series, as well as our 7-mode product line.
When do you expect the increase in the strategic business to offset the drop in the mature business?
We don't have a precise forecast. The strategic solutions are now 61 percent of product revenue. That's up from 45 percent a year ago. And the majority of the declines in the mature segment are behind us. So we have less headwind from the mature segment every quarter, and the strength of the strategic business has been very good.
At the recent EMC World conference, Jeremy Burton (pictured), president of products and marketing at EMC, told me the company dismissed NetApp as a competitor starting after 2010 or 2011. How do you respond?
First of all, if you look at the roadmap for customers who are on hybrid clouds or building solutions that combine OpenStack as well as hyper-scale environments with on-premises computing, I would just say that EMC has no roadmap for them, and has been irrelevant and missing in that conversation.
The second is, if you look at our all-flash array portfolio, we are growing that business with a much higher rate of attach to Fibre Channel configurations. Three times what we have historically saw. Which means that most of the growth rate of our solid-state portfolio is coming at the expense of legacy SAN vendors like EMC.
You mentioned the attach rate to Fibre Channel. With concerns in the industry that Fibre Channel is not a growing part of the business, is that really relevant to the future of storage to connect to Fibre Channel?
I would say that flash is the new SAN. The traditional Fibre Channel frame array designs that people like EMC and Hitachi and HPE have built out are no longer relevant to the future. I think modular scale-out systems like we have and other vendors in the market are trying to build are really the future, with scale-out software, storage efficiency features, and high-performance networking and solid state components. That's really the new SAN. And our results are demonstrating that.
Many of our all-flash wins have come at the expense of traditional frame arrays.
Dell is in the process of acquiring your biggest competitor, EMC. Has NetApp felt any impact, positive or negative, from that pending acquisition?
We've clearly taken advantage of that. You can see the strength in our large customer business as well as in the number of displacements we've made of [solutions from] the two companies. I think as they go through their consolidation that the lack of clarity on their roadmaps as well as the fact that this merger does not really solve customer problems is really being felt by both their customers as well as their channel partners.
You mentioned you've seen success in large customers and in displacements of EMC and Dell solutions. Can you provide some evidence to show what you mean?
We are being invited into the heart of those customers' environments, from mission-critical high-performance storage to data management discussions, and win. As they think about the future of hybrid cloud roadmaps, the fact that we have an open vision for data management that combines on-premises environments with public [cloud] and hyper-scale environments is clearly differentiated from [Dell's and EMC's] closed vision.
And what do you mean by "open vision?"
It's important for customers to be able to take advantage of consistent data management capabilities from their technology providers, regardless of whether it's in their own data center or on our systems, or whether its on a private cloud, a managed service provider, or public cloud. And we are the only enterprise vendor working with the hyper-scale providers to enable that vision.
How has NetApp's Cisco relationship been doing, and has that changed at all since Dell announced its plan to acquire EMC?
We've always had a really good relationship with Cisco. We've made several announcements this quarter in terms of new innovations in FlexPod, with both all-flash FlexPod configurations as well as something called FlexPod Automation, which allows you to deploy and manage a FlexPod with very limited touch. It's sort of a fully managed FlexPod environment. Both of those are from joint investments in the program that's driving innovations to the market through our channel, called FlexPod Advantage. [They're] signs of our joint commitment to the franchise, and we see good things ahead.
Has that Cisco relationship changed since Dell's announced plan to acquire EMC?
It's always been a good relationship. I think we are both focused on winning joint customers together, and working with our channels.
OK, so pretty much no change then at this point …
I'll just say it's always been a good relationship, and we feel very good about where things are.
How has the revenue or number of installations related to FlexPod changed for NetApp over the last year changed?
FlexPod installations continue to grow. I think we've made over the course of the last year, as I said, several important innovations to advance the value of FlexPod. And we are re-invigorating our installed base with those innovations under the FlexPod advantage program. We feel we've spent a lot of time in some really important R&D innovations, and now is the time to capitalize on bringing those to customers together.
How many FlexPod installations were there in the fourth quarter compared to the fourth quarter of last year?
We don't break that out. I think I'll just say that, in aggregate, there's thousands and thousands of customers who use FlexPod from NetApp and Cisco.
NetApp used to break out the FlexPod numbers.
We're not breaking that out.
NetApp, as far as I know, does not have a hyper-converged infrastructure play. Nor does it have a fully pre-integrated converged infrastructure like EMC's VCE. For NetApp, is there a disadvantage to not having those?
I think there are two responses to that question.
First of all, we've done two things to allow customers to take advantage of the FlexPod product line up and down the stack. One of them was FlexPod Lifecycle Automation, like I mentioned, which substantially automates lifecycle management of FlexPod configurations so that you can literally go from receipt to deployment and serving data in less than an hour, which reduces the time to value substantially.
What's the second?
The second is that our partner Avnet introduced a service called FlexPod FSA that allows customers to get many of the benefits of a single point of contact as well as a single point of ordering and very short time to value through Avnet. We think that the channel has a really important role to play, and an ongoing role to play. And many of our channel partners stepping up are complementing the open approach we have to FlexPod.
Also, SolidFire, with its really simple, easy to deploy, and highly scalable automated management model, allows us to differentiate the solutions for customers [who might otherwise] consider hyper-converged solutions. We've had wins in the quarter where SolidFire has displaced hyper-converged solutions with a competitive approach. We've got good ways to address customers' needs with things we already have in our portfolio.
What are some things NetApp is doing with SolidFire now that that acquisition has closed, and what are some plans going forward?
We're focused on three important milestones with SolidFire. The first is integrating the [SolidFire] team into the company. We're very pleased. We brought across 99-plus-percent of the employees we wanted to bring across.
The second is our product roadmap and innovation focus. You'll see announcements of very exciting innovations from SolidFire and the next generation of Ontap in the next few weeks.
The third is expanding the go-to-market pathways as well as the access and knowledge of the NetApp sales team of SolidFire. This quarter, we are ahead of what we've said are our internal goals for SolidFire. So, a good start. We've got more work to do, but the wins that we've had, the quality of the wins, the relationships that we have expanded as a result of the SolidFire technology, have been stellar. We feel good about the early start.
What was the channel mix for NetApp in the fourth quarter?
It was about 74 percent. It's typically in a range of 70 to 80 percent, within the normal boundaries. And as I've said, the channel is a really important part of our go-to-market model. And we are excited about the progress that we have made with the channel this year.
NetApp held its annual sales kickoff at the same time and in the same city, Las Vegas, as EMC held its EMC World conference. Was that intentional?
We always hold our sales kickoff right after the start of our fiscal year. So whether EMC likes to hold its conference that week or not is immaterial to us.