NetApp earnings lifted by all-flash sales

Strong all-flash sales and a new niche acquisition highlighted the NetApp earnings call this week. The vendor on Wednesday reported net revenue of $1.33 billion, up 2% year over year and above the midpoint of its guidance range.

The new pickup is Reykjavik, Iceland-based startup Greenqloud for an undisclosed sum. As with its pickup earlier this year of storage memory startup Plexistor, NetApp did not disclose acquisition details. Greenqloud’s Qstack self-service stack allows enterprises to build, deploy and manage branded cloud infrastructure across multiple hypervisors and locations.

NetApp’s all-flash business contributed $1.5 billion in revenues, reflecting a 95% growth in demand for its All Flash FAS, EF and SolidFire all-flash arrays. In prepared remarks, CEO George Kurian said NetApp has been able to “substantially outpace” the growth rate of competing vendor’s flash arrays, after NetApp initially was late to enter the all-flash market. NetApp ranks second in all-flash revenue to market leader Dell EMC.

“The industry is in the early innings of the move from disk-based storage to flash as customers modernize existing datacenters and build next- generation datacenters to lower the total cost of ownership while gaining greater speed and responsiveness from key business applications,” Kurian said.

Kurian said NetApp has secured committed NAND flash supplies to meet requirement for its fiscal year.

NetApp product revenues increase 10%, hyper-converged gear on the horizon
Consolidated gross margins of 63.8% and increased revenues helped boost NetApp earnings per share (EPS) to 62 cents, five cents higher than anticipated. Wall Street analysts estimated pegged NetApp’s revenue at $132 billion and its EPS at 55 cents.

NetApp product revenue was $723 million, which was up 10% and marks the third consecutive quarterly increase. Revenue from maintenance and services contracts fell 5% to $602 million, which NetApp blamed on changes to service pricing, several years of declining product revenue and on “renewal execution issues” in 2017, perhaps related to a disruptive software upgrade to its Clustered OnTap operating system.

Kurian took the helm at NetApp in 2015 and charted a strategy to expand its footprint in all-flash, converged infrastructure and hybrid cloud services. At the time, development of NetApp’s all-flash FlashRay scale-out product had dragged for years, appearing only as a single node in limited availability. NetApp scrapped FlashRay when it acquired SolidFire in 2015.

Since abandoning plans to build an EVO: RAIL system in partnership with VMware, NetApp also has been conspicuously absent from the hyper-converged market. Kurian said that will change later this year.

“We have already transitioned our business away from the declining segments to the data-driven, high-growth segments of all-flash arrays, converged infrastructure, and hybrid cloud,” he said. “We will further expand our opportunity with the general availability of our hyper-converged solutions,” based on SolidFire technology.

NetApp seems to have weathered being late in the all-flash and hyper-converged sectors. It closed the quarter with $250 million in operating cash flow, a 10% increase from the previous year, and free cash flow in the quarter of $214 million, or roughly 16% of net revenues. It is sitting on $5.3 billion in cash and liquid investments, and that’s after buying back $150 million in shares and paying out $54 million in cash dividends.

It also is using the money for strategic acquisitions. Kurian said Greenqcloud’s Qstack technology will “augment” development of NetApp Data Fabric for delivering hybrid cloud services.

Kurian used the NetApp earnings call to highlight a recently announced Microsoft partnership. Engineers from the two vendors are integrating NetApp’s Data Fabric to support automated storage tiering and backup technologies in Microsoft Azure, Azure Stack and Office 365. Joint product announcements with Microsoft are planned for the NetApp Insight user conference in October.

Estimates of NetApp earnings per share for the second quarter range from 64 cents to 72 cents. Net revenue is expected to range between $1.31 billion and $1.46 billion.