NetApp Nets Plenty

Network Appliance Inc. (Nasdaq: NTAP) danced through a quarter filled with danger for its competitors, announcing 73 percent net income growth over last year.

NetApp reported revenue of $358.4 million and net income of $49.9 million or earnings per share of $0.13 for its first fiscal quarter. The revenue was up 38 percent from last year and 6 percent over the previous quarter. NetApp beat Thomson First Call estimates of $353 million in revenue and $0.12 EPS.

NetApp joins a handful of competitors such as Dell Inc. (Nasdaq: DELL) and EMC Corp. (NYSE: EMC) and IBM Corp. (NYSE: IBM) that reported a strong quarter while many of their rivals stumbled -- most notably Hewlett-Packard Co. (NYSE: HPQ). (See EMC Bucks June Swoon, Dell Revenue Rises 20 Percent, IBM Posts 2Q Results, and HP Storage Slammed.)

NetApp is off to a great start in fiscal 2005,” CFO Steve Gomo gloated in a conference call with analysts after announcing results.

CEO Dan Warmenhoven said NetApp is growing so fast because it is no longer a pure NAS play, with SAN systems generating more than 17 percent of its revenue last quarter. He said it’s not a pure Fibre Channel company either, as nearly one-quarter of the SAN bookings included some iSCSI. He said NetApp has more than 700 IP SAN customer deployments worldwide.“We’re seeing an interesting phenomenon occurring in our growing SAN business,” he said. “More and more customers are using both IP SAN and Fibre Channel SAN together in the systems they purchased. We’re in an enviable position with our SAN business growing and taking market share and our NAS business growing and taking market share. A few years ago, we were purely a NAS company.”

The company said product revenues rose across the board, but its NearStore backup system and FAS270 midrange systems were especially strong. Revenue from ATA NearStore systems accounted for more than 14 percent of total sales, up more than 25 percent from last year. FAS270 revenue also increased 25 percent.

NetApp revenues also got a boost from multi-million dollar deals with the U.S. Army's National Ground Intelligence Center and Qualcomm Inc. (Nasdaq: QCOM) for a chip development project.

Warmenhoven said he expects sequential revenue growth of 4 to 6 percent for the current quarter, with EPS of $0.13 to $0.14 this quarter. “We expect to see storage demand stay steady.”

Warmenhoven said his company saw no slowdown in June that many of the storage companies that stumbled reported. "It was a typical Q1 for us. We got off to a slow start in May, then accelerated through June and July. There was no slowdown at any point."One place where NetApp fell short was hiring. Warmenhoven said the goal was to hire 200 each quarter this year and it only hired 165 last quarter. To make up, he expects to hire more than 200 this quarter. NetApp's headcount stands at 3,099.

— Dave Raffo, Senior Editor, Byte and Switch