NetApp revenue rides flash gravy train

NetApp is showing a legacy storage array vendor can still increase revenue impressively during these days of scant storage growth.

NetApp Wednesday night reported its fourth straight quarter of revenue growth, a year that followed a slump during the vendor’s transition period.

NetApp revenue of $1.42 billion last quarter jumped 6% year-over-year. NetApp product revenue of $807 million increased 14% — impressive growth in today’s storage market. Wall Street analyst expected NetApp revenue of $1.38 billion, roughly the midpoint of the vendor’s own forecast from three months ago.

We don’t know yet how much the overall storage market grew in the quarter, but IDC put storage market growth at a mere 2.9% in the previous quarter.

NetApp’s $175 million in profit also beat expectations and increased from $109 million last year.

NetApp predicted the growth will continue this quarter with a forecast of between $1.425 billion and $1.575 billion compared to $1.404 billion in revenue in the same quarter last year.

“We are undoubtedly out-executing our competition on all fronts,” NetApp CEO George Kurian said on the company’s earnings call. “Our second quarter results are a strong indicator that the transformation of NetApp remains on track.”

Kurian replaced Tom Georgens as CEO in 2015 during a NetApp slump caused by a poor flash strategy and slow customer upgrades from its flagship OnTap 7-Mode operating system to Clustered OnTap. NetApp was late to the all-flash array game, and its OnTap upgrade process required downtime to complete.

NetApp has put those problems in the past.

Kurian said NetApp’s all-flash revenue last quarter grew close to 60% over last year. Most of that came from its All-Flash FAS lineup, with its E-Series performance platform and cloud-friendly SolidFire all-flash arrays contributing. Kurian said NetApp is on track for around $1.7 billion in all-flash revenue for its fiscal year, which has six months left. NetApp is second in the all-flash array market behind Dell EMC.

Kurian said NetApp averages two all-flash displacements per day, taking out competitors such as Dell EMC, Hewlett Packard Enterprise and IBM. He said there is still a long way to go with flash growth, as only about 10% of NetApp customers are using all-flash.

“We are still in the early innings of flash adoption in our customer base,” Kurian said.

After a long slog, the bulk of NetApp’s customer base has moved to Clustered OnTap.

“The transition from 7-mode to Clustered OnTap is behind us,” Kurian said.

“As I noted last quarter, we have already transitioned our business away from the declining segments to the data-driven high-growth segments of all-flash arrays, converged and hyper-converged infrastructure and hybrid cloud.”

Actually, the NetApp revenue stream from hyper-convergence has barely started to trickle in. NetApp HCI began shipping in October and hardly contributed revenue last quarter. The vendor came late to hyper-convergence just as it arrived late to all-flash, but Kurian predicted the HCI product will attract new customers who will either ditch direct attached storage or switch from competitors’ hyper-converged products. NetApp HCI is based on SolidFire all-flash technology.

Kurian identified NetApp’s new NFS service native to the Microsoft Azure cloud as another reason for optimism. The Azure service is in private preview now, and will likely become generally available in 2018 to provide another NetApp revenue stream.

“The way I look at it, we are riding several long-term secular trends: data growth and the criticality of data in a digital business; major technological transitions like solid-state storage, converged infrastructure and the cloud,” Kurian said.

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