NetApp: Full Speed Ahead On Public/Hybrid Cloud, All-Flash Storage

‘Customers need to simplify and modernize existing data centers and deploy traditional applications quickly and confidently. At the same time, customers are also accelerating their use of cloud, adopting modern application architectures like Kubernetes and microservices for new workloads and deploying data-rich applications like machine and deep learning,’ says NetApp CEO George Kurian.

Increased sales across the board, including in the cloud and all-flash storage array markets, handed NetApp a fiscal first quarter 2022 worth bragging about.

NetApp beat expectations across nearly every measurable part of its business to provide a very strong start to what is expected to be a very strong full fiscal year, NetApp CEO George Kurian (pictured) said Wednesday during the company’s quarterly financial analyst conference call.

Kurian, responding to an analyst’s question about whether NetApp can sustain the kind of growth it experienced during the quarter, said the company is positive about the future.

[Related: NetApp CEO Kurian: All-Flash Storage, Hybrid Cloud Continue To Be Business Drivers]

“We think we can sustain product revenue growth each of the quarters of this year,” he said. ”And particularly, our flash segment is very, very strong. We see really good momentum there. There is no reason to fear anything but real good confidence about where we are.”

NetApp just finished a phenomenal quarter, Kurian continued.

“In Q1, we grew our all-flash business by 23 percent, overall product revenue by 16 percent, and cloud [revenue] by 155 percent year on year,” he said. “We raised our fiscal year to 8 [percent] to 9 percent growth, and anticipate delivering close to $5 in earnings per share. These are all record numbers. Operating margins, full-year earnings per share for the company. So I feel very, very good about where we are.”

Kurian, during his prepared remarks, said NetApp is seeing growth because the company benefits from two key customer priorities: cloud and digital transformation.

“Customers need to simplify and modernize existing data centers and deploy traditional applications quickly and confidently,” he said. “At the same time, customers are also accelerating their use of cloud, adopting modern application architectures like Kubernetes and microservices for new workloads and deploying data-rich applications like machine and deep learning.”

NetApp’s Data Fabric strategy makes the company uniquely positioned to solve businesses’ most significant challenges in modern and traditional applications, and in on-premises and hybrid, multi-cloud environments, Kurian said.

“As I’ve said many times, our public cloud services not only allow us to participate in the rapidly growing cloud market, they also make us a more strategic data center partner to our enterprise customers, driving share gains in our hybrid cloud business,” he said.

NetApp is seeing so much uptake in its cloud business that for the first time it is breaking out its public and hybrid cloud numbers separately, with hybrid cloud including all the revenue streams from its enterprise data center business, including product, support and professional services.

NetApp’s public cloud revenue grew 155 percent year over year in its first fiscal quarter 2022, driven by increased adoption of the company’s Cloud Volumes, Cloud Insights, and Spot by NetApp lines, Kurian. Public cloud annual recurring revenue during the quarter grew to $337 million, an increase of 89 percent over last year, he said.

NetApp is continuing to broaden its public cloud services beyond storage and data management services to help customers extend, migrate, automate and optimize the infrastructure and data management capabilities for enterprise and cloud-native applications, Kurian said.

“Customers use NetApp public cloud services because we enable them to use more cloud at less cost,” he said. “In Q1, we announced Spot PC, a fully managed, secure and cost-effective cloud desktop as a service for Azure Virtual Desktop and Windows 365. Additionally, we acquired Data Mechanics to accelerate the road map for Spot Wave, an infrastructure and application automation and optimization platform for high-growth big data and machine learning workloads in the cloud.”

NetApp also introduced Spot Ocean to automate cloud infrastructure for containers, and evolved Spot Ocean into a suite of DevOps solutions with Ocean Continuous Delivery and Ocean Insights. The company last year also introduced Astra Control, a set of storage and application-aware data management services for cloud-based Kubernetes workloads to extend the data fabric to the cloud-native world, and in the first fiscal quarter made Astra a deployable on-premises software solution, Kurian said.

“Our strong customer momentum and the uniqueness of our public cloud services position furthers my confidence in our ability to reach our goal of $1 billion in public cloud ARR [annual recurring revenue] in fiscal year ’25,” he said.

The company’s hybrid cloud revenue grew 8 percent year over year, led by a 23 percent increase in its all-flash array business to an annualized net revenue run rate of $2.8 billion, Kurian said.

“Based on our strong revenue growth, I am confident that we again gained share in the storage and all-flash markets,” he said.

NetApp’s strong first quarter results underscore the company’s value to customers in a hybrid, multi-cloud, data-driven digital world, Kurian said.

“We are confident that we are well positioned with the right portfolio and strategy to solve our customers’ most pressing challenges,” he said. “With focused execution and demonstrated leadership in hybrid multi-cloud, we are reshaping the industry. We made a number of innovation announcements this quarter, and we will continue to bring industry-leading capabilities to market, further enhancing our differentiated position in cloud and software.”

Mike Berry, NetApp executive vice president and chief financial officer, said during his prepared remarks that while the global supply chain situation remains fluid, NetApp’s supply chain and procurement team continues to work closely with the company’s partner ecosystem to keep backlog and customer lead times at normal levels.

“Towards this goal, we will continue to invest incrementally into inventory and longer-term commitments to help mitigate any potential supply risks,” Berry said. “Aiding this effort is the fact that we have a singular software platform that powers all our key storage products, which provides us added flexibility to work with our contract manufacturers and customers to meet end demand.”

For its first fiscal quarter 2022, which ended June 2, NetApp reported revenue of $1.46 billion, up 11.9 percent over its first fiscal quarter 2021. That was at the upper part of the company’s previous guidance of $1.37 billion to $1.47 billion.

That included $1.38 billion in the company’s hybrid cloud segment, which consisted of $730 million in product revenue, $578 million in support revenue, $71 million in professional and other services. The company also reported revenue of $79 million in its public cloud segment.

Forty-three percent of the company’s revenue came from the Americas commercial market and 11 percent from the U.S. public sector. About 77 percent of sales were via indirect sales channels, the company said.

For the quarter, NetApp reported GAAP net income of $202 million, or 88 cents per share, up significantly from last year’s $77 million, or 35 cents per share. On a non-GAAP basis, the company reported net income of $263 million, or $1.15 per share, up from last year’s $163 million, or 73 cents per share.

Looking ahead, NetApp raised its fiscal 2022 guidance over previous guidance to show it expects revenue to grow by 8 percent to 9 percent over fiscal 2021. The company also expects its full-year public cloud annual recurring revenue to reach $450 million to $500 million, which will keep it on track to reach $1 billion by fiscal 2025.

NetApp also expects earnings per share of $4.85 to $5.05, which at the midpoint would be a year-over-year increase of 22 percent.

For its second fiscal quarter 2022, NetApp expects revenue to range between $1.49 billion and $1.59 billion which, at the midpoint, implies a 9 percent increase year-over-year. The company also expects earnings per share in the quarter to range between $1.14 and $1.24.