NetApp: Fiscal 1Q13 Financial Results
Losing market share vs. EMC as softness continuing in EMEA
This is a Press Release edited by StorageNewsletter.com on August 16, 2012 at 2:52 pm| (in US$ million) | 1Q12 | 1Q13 |
| Revenues | 1,458 | 1,445 |
| Growth | -1% | |
| Net income (loss) | 139.5 | 63.8 |
NetApp, Inc. reported results for the first quarter of fiscal year 2013, which ended July 27, 2012.
Revenues for the first quarter of fiscal year 2013 were in line with our prior guidance and totaled $1.445 billion, compared to revenues of $1.458 billion for the same period one year ago.
For the first quarter of fiscal year 2013, GAAP net income was $64 million, or $0.17 per share, compared to GAAP net income of $140 million, or $0.34 per share for the same period a year ago. Non-GAAP net income for the first quarter of fiscal year 2013 was $156 million, or $0.42 per share, compared to non-GAAP net income of $222 million, or $0.55 per share for the same period a year ago.
"NetApp produced non-GAAP earnings per share above and revenue in line with our prior guidance. In Q1, we announced further innovations in Data ONTAP 8.1 that will enable customers to achieve an agile data infrastructure environment to cope with their dynamic business requirements," said Tom Georgens, president and CEO. "We continue to deliver on multiple fronts, advancing our technology and partnerships. With our best-of-breed partnering strategy and ongoing innovation-led solutions, we enable our customers to scale their business without limits."
Outlook
- Revenue for the second quarter of fiscal year 2013 to be in the range of $1.5 billion to $1.6 billion.
- GAAP earnings per share for the second quarter of fiscal year 2013 to be approximately $0.23 to $0.28 per share. Non-GAAP earnings per share for the second quarter fiscal year 2013 to be approximately $0.45 to $0.50 per share.
- Share count for the second quarter of fiscal year 2013 will decrease to approximately 370 million shares, and will include an estimated 700 thousand shares from the Company’s outstanding convertible notes. Share count does not include the Company’s outstanding note hedges which are expected to offset 80% of the dilution from the convertible notes at maturity or conversion.
Business Highlights
- Fundamental to growth strategy is a commitment to innovation leadership across all facets of the storage industry with a goal to help propel its customers’ and partners’ business success.
- In its first quarter of fiscal year 2013, this focus on innovation spanned across products, solutions, technologies, and its culture. NetApp strengthened its reputation as an innovation leader with the latest offering of Data ONTAP, the storage OS. It provides the foundation for customers who require an agile data infrastructure to thrive in today’s always-on global economy. Additionally, NetApp unveiled new products, technologies, and programs that enable further penetration into the data center, help customers of all sizes capitalize on data growth to fuel their success and help channel partners expand their businesses. NetApp also continued to strengthen its relationship with leaders like Cisco and Microsoft. Finally, NetApp was recognized around the world for its culture, which continues to provide competitive differentiation that makes NetApp a preferred company to do business with for both customers and partners.
Highlights for the quarter include:
Agile Data Infrastructure
Makes IT Intelligent, Immortal, and Infinite
NetApp, in collaboration with its partners, is transforming how customers architect and manage their data storage infrastructures differently to be more agile in order to fuel business success. With the latest release of Data ONTAP, NetApp is helping IT departments respond to changing business requirements, maintain nondisruptive operations, and grow their businesses. Data ONTAP 8.1.1 is another milestone in innovation agenda that is the basis for delivering new approaches to managing data for business impact.
Midsize Business Customers
Accelerate Growth and Leverage the Cloud
NetApp unveiled the new FAS2220, the latest member of its entry-level product portfolio which will provide midsize customers with new technologies and increased value, enabling customers to start right, keep it simple, and grow smart. The FAS2220 builds on the recently introduced FAS2240. Additionally, NetApp introduced an expanding ecosystem of VAR partners to provide midsize businesses with cloud backup and DR services built on NetApp solutions, along with new channel enablement programs designed to help partners grow their businesses.
FlexPod Momentum Continues
With Premium Partner Framework
Cisco and NetApp launched a global channel initiative to accelerate market momentum of the FlexPod converged infrastructure solution that to date has almost 1,300 customers. The new FlexPod Premium Partner Framework will reward FlexPod channel partners for investing in sales capabilities and services practices. The new framework is a testament to NetApp’s continued focus on enabling its partners’ success as it will deliver increased differentiation, streamline multi-vendor interactions, and enhance profitability.
Customers Gain Greater Business Value From Big Data
NetApp and Hortonworks announced a joint development project to make Apache Hadoop solutions more enterprise ready, helping customers simplify access to their data and gain deeper business insights to make the right decisions. NetApp also unveiled the Open Solution for Hadoop Rack, offering customers greater choice and flexibility to deploy Hadoop in the enterprise. Finally, it introduced enhanced data protection and simplified management capabilities to help customers accelerate their big data innovation on the E-Series platform.
Awards and Milestones
Serving customer needs earns NetApp the Microsoft Private Cloud Partner of the Year Award for 2012. NetApp is focused on delivering solutions that address customer challenges and help partners fuel their businesses. This recognition from Microsoft reinforces NetApp’s commitment to storage and storage management solutions for Microsoft environments that enable organizations to reduce costs, increase agility, improve efficiency, and utilize proven platforms.
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 on several different Best Places to Work lists around the world. Rankings included #2 in Australia, #2 in Europe, #3 in Canada, #5 in the United Kingdom, #19 in India, and several local awards within the United States.
NetApp positioned in Leaders quadrant. Gartner, Inc. placed NetApp in the Leaders quadrant for storage resource management and SAN management software. Gartner asserted that vendors in the Leaders quadrant "have the highest combined measures of ability to execute and completeness of vision."
Comments
Net income decreases from $180.7 million from the former quarter to $63.8 million.
Revenue for the quarter is down 1% Y/Y and 15% Q/Q. Consequently NetApp is losing market share against rival EMC growing much faster. In its most recent three-month period ended June 2012, storage sales increased 7% Y/Y and 3% Q/Q at $3.8 billion for the leader of the industry.
Abstracts of the earnings call transcript:
Tom Georgens, president and CEO:
"Our APAC and U.S. Public Sector were the strongest geographies year-over-year. APAC grew 9% from Q1 a year ago. Business in APAC was mixed, with some countries turning in strong double-digit growth and others not performing as well.
"In U.S. Public Sector, our state, local and higher-end businesses continues to be strong, but we continue to be affected by lower spending in other segments. After a strong performance in fiscal year '12, we experienced a decline in America's commercial and we continue to see softness in EMEA.
With around 125 customers over 10 petabytes, 4 over 100 petabytes and the largest approaching 1 exabyte, nobody has demonstrated the ability to manage data at scale like NetApp.
"At the controller level, NetApp has offered Flash Cache since 2009. We have seen strong adoption of Flash Cache, having sold over 17.5 petabytes of flash storage accelerating over 1 exabyte of hard disk drives.
"The mix of direct and indirect channels remains steady from Q4 with 78% of revenue coming through the channels and OEMs. Together, Arrow and Avnet contributed 30% of our total revenue, consistent with last quarter and up 15% from a year ago.
"The OEM contribution was 14% of total revenue. Our OEM business remains steady, slightly down from Q1 a year ago, but up 3% from Q4 of last year.
"Our FlexPod business grew almost 90% year-over-year. To date, we have almost 1,300 FlexPod customers and are seeing a clear ramp in repeat business."
Nick Noviello, CFO:
"NetApp branded revenue of $1.24 billion and OEM revenue of $209 million were each down slightly on a year-over-year basis. OEM revenue was up sequentially.
"However, the weak macro environment and FX impacted this revenue as well as our branded revenue, which was down 18% from Q4.
"The effects of lower business volume was evident across all geographies in Q1 on both a sequential and year-over-year basis. Asia Pacific remained a bright spot, with 9% year-over-year revenue growth.
"Cash from operations was $229 million for the quarter and free cash flow was 12% of revenue, up from 10% a year ago."
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