NetApp: Fiscal 4Q12 Financial Results

Roughly half of EMC storage, poor guidance

This is a Press Release edited by StorageNewsletter.com on May 28, 2012 at 3:09 pm

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(in US$ million)	4Q11	4Q12	FY11	FY12
Revenues	1,428	1,703	5,123	6,233
*Growth*		19%		*22%*
Net income (loss)	160.6	180.7	673.1	605.4

NetApp, Inc. reported results for the fourth quarter and fiscal year 2012, which ended April 27, 2012.

Revenues for the fourth quarter of fiscal year 2012 totaled $1.70 billion, up 19% compared to revenues of $1.43 billion for the same period one year ago.

For the fourth quarter of fiscal year 2012, GAAP net income was $181 million, or $0.47 per share, compared to GAAP net income of $161 million, or $0.40 per share, for the same period a year ago. Non-GAAP net income for the fourth quarter of fiscal year 2012 was $252 million, or $0.66 per share(2), compared to non-GAAP net income of $237 million, or $0.59 per share for the same period a year ago.

Revenues for fiscal year 2012 totaled $6.23 billion, up 22% compared to revenues of $5.12 billion for fiscal year 2011. GAAP net income for fiscal year 2012 totaled $605 million, or $1.58 per share, compared to GAAP net income of $673 million, or $1.71 per share for fiscal year 2011. Non-GAAP net income for fiscal year 2012 totaled $926 million, or $2.41 per share, compared to non-GAAP net income of $866 million, or $2.20 per share for fiscal year 2011.

"With a strong product offering and well established partner ecosystem, NetApp delivered our ninth consecutive quarter of over 20% year-over-year product revenue growth. Our ability to generate cash remains robust as the fourth quarter was our best ever quarter in terms of cash flow from operations," said Tom Georgens, president and CEO. "As the innovation leader in the industry, and the only company offering a unified scale out platform, we are the clear choice for enterprises as they re-architect their data centers to provide agility while reducing complexity and cost."

Outlook

Outlook for the first quarter of fiscal year 2013 reflects the normal slower seasonality of the first quarter and increasing uncertainty in the broader macro environment.
Revenue for the first quarter of fiscal year 2013 to be in the range of $1.40 billion to $1.50 billion, which equates to a sequential decline of approximately 12% to 18% and a year-over-year decline of approximately 4% to an increase of 3%.
First quarter fiscal year 2013 GAAP earnings per share will be approximately $0.10 to $0.15 per share. It estimates that first quarter fiscal year 2013 non-GAAP earnings per share will be approximately $0.34 to $0.39 per share.
Share count for the first quarter of fiscal year 2013 will decrease to approximately 380 million shares, including an estimated 7 million shares from the company’s outstanding convertible notes.

Business Highlights
In its fourth quarter of fiscal year 2012, innovation provided customers and partners with the storage foundation that is enabling them to capitalize on data to help grow their business. During the quarter, NetApp and Cisco built on the momentum of the FlexPod design architecture by unveiling new architectures to allow customers and partners to accelerate their transition to the cloud. Additionally, customers around the world continued to use NetApp storage efficiency technologies to leverage existing investments, reduce costs, and help support growth.

Highlights during the quarter include the following:

More Than 850 Customers Build on the NetApp and Cisco
FlexPod Architecture to Leverage the Cloud
NetApp and Cisco unveil new FlexPod architecture optimized for smaller workloads. Design architectures priced and sized for smaller workloads with 500-1,000 users allow customers to invest only in the infrastructure they require and enable simple and rapid scaling to meet growing demands as their business needs change. With the new entry-level solution, customers are able to maximize their investments with the ability to scale architectures by adding incremental capacity as their needs grow for larger application workloads.
NetApp and Cisco help customers accelerate transition to Microsoft private cloud with new validated FlexPod solution. The new design architecture for the Microsoft private cloud is designed to meet demand for choice and flexibility as more customers transition to the cloud. It helps customers reduce infrastructure and application deployment time from days to hours while helping achieve greater utilization of physical and virtual resource pools. Additionally, FlexPod is a validated data center infrastructure to support Microsoft System Center 2012.

SOFTBANK Utilizes NetApp Technology
to Help Transform IT Infrastructure
and Contribute to Japan’s Recovery Process
Following 2011 Earthquake and Tsunami
By leveraging NetApp technology to consolidate and transform its entire IT organization, SOFTBANK Group was able to deliver a range of internal and external cloud services called White Cloud that served as a catalyst for the company’s continued growth. Its newly transformed IT infrastructure also enabled the company to deliver several of its cloud service offerings either at discounted rates or free of charge to businesses, public agencies, and nonprofit organizations just days after the disaster. Additionally, SOFTBANK Group was able to extend its internal virtual desktop service to 14,000 of its displaced employees in a matter of weeks rather than the originally planned one-year timeline.

Customers Can Harness big data Environments
with Enhanced NetApp E-Series Platform
New enhancements to the E-Series platform enable NetApp’s ecosystem of OEM partners to more effectively serve their customers’ growing big data requirements and serve as the platform for many of NetApp’s own big data solutions. The platform provides improved management capabilities along with new data protection technology to help customers optimize overall performance.

Awards and Milestones
Customers, Partners and Employees Help
NetApp Make Its Debut on FORTUNE 500 List
NetApp was named a FORTUNE 500 company by FORTUNE Magazine, the annual ranking of America’s largest publicly and privately-held companies for which revenues are publicly available. NetApp’s inclusion was based on the company’s fiscal year 2011 revenue of $5.1 billion. The ranking marks the latest milestone in NetApp’s history and is a testament to the value that NetApp delivers to its customers, partners, shareholders, and employees.

20 Years of Innovation
Drive Customer and Partner Success
April 2012 marked a major milestone for NetApp as the company celebrated its 20th anniversary. What began in 1992 with an idea sketched on a placemat has grown into an industry-leading $6B+ company with over 12,000 employees who are committed to building a model company. This 20-year achievement is a result of the vision of founders, the dedication of its employees, the strength of its partnerships, and the success of all its customers. Innovation has driven NetApp’s growth throughout its history, and this spirit of innovation remains strong as the company looks forward to continuing to help customers in the future.

NetApp Continues to Earn Recognition
as a Great Place to Work

Built on a culture of innovation committed to partner and customer success, NetApp was ranked #4 on Crain’s Chicago Business’s 2012 Best Places to Work list. The annual list recognized NetApp as the region’s highest-ranked technology employer.
NetApp Awarded 5-Star Partner Rating in CRN’s 2012 Partner Programs Guide
NetApp’s commitment to its partners’ success is core to the company’s overall growth strategy. The CRN 5-Star Partner rating is further validation that NetApp’s channel program is one of the best in the market today.

Comments

Here is a comparison between the storage business
of EMC and NetApp - being in storage only.

EMC is definitively the number one the worldwide storage market since more than ten years in term of revenues, NetApp continuing to occupy the second place behind the leader in storage subsystems, including services for both companies.

For their last fiscal year ended December 2011 for the first one and April 2012 for the other, revenues are $14.7 billion and $6.2 billion respectively, NetApp representing 42% of its rival.

EMC makes a lot of hype to prove that the company is growing exponentially. It's true for its global revenues, up 17.6% in 2011 - at $20 billion - from 2010. But if you look inside the figures, its growth is mainly pushed by VMware (32.0%). For storage it was 15.9% Y/Y, not a bad result, but less than NetApp at 21.7%, for their respective most recent fiscal years.

Looking now at their last fiscal quarter (one month later for NetApp), EMC grew 3.0% Y/Y and declined 12.8% Q/Q. Its rival got much higher growth: 19.3% and 8.7% respectively for the two periods.

We compare here the evolution of the two companies for their storage revenues since 2007 in $ millions:

FY	EMC	Y/Y growth	NetApp	Y/Y growth
2007	10,610	NA	3,303	NA
2008	11,632	9.6%	3,406	9.7%
2009	10,659	-8.3%	3,931	15.4%
2010	12,699	19.1%	5,123	30.3%
2011	14,715	15.9%	6,233	21.7%

For each the last four years, NetApp enjoys a higher growth than EMC. Since three years, its sales increase each year by more than $1 billion to excess $6 billion for its 20th anniversary.

NetApp will have to wait a long time to approach the level of revenues of its competitor but its higher continuing growth proves that its storage activity is better managed. More than that, EMC spent billions of dollars these last years to expand by acquiring storage companies, 69 since 1994 and high-priced ones (Data General, Legato, Data Domain and Isilon). The invesment to get these two latter ones, $4,450 million, is superior its total storage revenues in last quarter.

On its side, NetApp acquired only a total seven firms, the highest investment being - only - $480 million for LSI/Engenio.

Will NetApp continues to grow faster than EMC? It's not sure. The company is pessimistic for its next three-month period, with revenues to be in the range of $1.40 billion to $1.50 billion, a sequential decline of 12% to 18% and a Y/Y decline of 4% to an increase of 3%.

EMC didn't reveal its outlook for next quarter. It stated: "Consolidated revenues are expected to meet and potentially exceed $22.0 billion for 2012." It represents an incredible 49.5% yearly growth. But how much for storage only?

Abstracts of NetApp's earnings call transcript for 4FQ12:

Nick Noviello, CFO:
"NetApp branded revenue grew 14% sequentially in Q4 and 9% for the full year, and revenue growth trends for both SEM and service revenue remained stable. Total OEM customer revenue declined 17% sequentially in the quarter, which corresponds to a seasonally slow first quarter for many of our OEM customers.
"Full year E-Series revenue was just under $700 million (...).
"We closed the year with a record $5.4 billion of cash and investments."

Tom Georgens, president and CEO:
"In Q4, we generated a record number of transactions, over 5 million, and had the highest Storage 5000 new customer acquisition quarter in over 3 years.
"Our two largest partners, Arrow and Avnet, grew to 31% of Q4 revenue, up from 26% last quarter. Arrow hit a new milestone, surpassing $1 billion in revenue for the fiscal year.
"(...) we shipped a record number of 2000 series systems in Q4, with units up 43% sequentially and 23% year-over-year. As expected, units of the 3000 were down slightly in Q4 as a result of the transition to the newly refreshed 2000 series.
"After increasing year-over-year unit counts by 2.5x last quarter, our 6000 series units in Q4 were up again sequentially, up 58% year-over-year and just about double for the full year.
"Since its release in November, we have been encouraged with the progress of ONTAP 8.1. And with over 6,000 systems installed, we are pleased with its rapid adoption.
"With an over 50% attach rate in our 3240 and 3270 systems and 0.5 terabyte of flash embedded in every 6000 system, NetApp is on the forefront of flash integration. In addition, our R&D pipeline contains projects to further exploit the use of flash on other layers of the stack, and our next release of ONTAP will contain additional flash-related offerings.
"FlexPod growth continues to be robust as we now have over 850 worldwide customers using this solution.
"Pricing remains elevated relative to pre-flood levels, and some of this has been passed along to end users. As drive supply continues to normalize, we expect over time to once again see price erosion from the drive vendors."