NetApp Reports Mixed Bag of Results

Faced with fierce competition in both the SAN and NAS markets, NetApp is bulking up its sales force after reporting flat profits in its fourth quarter results last night.

The vendor reported earnings of 26 cents per share on net income of $89.8 million, compared to 23 cents and net income of $89.6 million in the fourth quarter of 2007.

On a non-GAAP basis, NetApps earnings were 38 cents per share on net income of $131 million, up from 30 cents and $114 million in the same period last year. Analysts had estimated earnings of 36 cents.

NetApp’s fourth quarter revenues were $938 million, up from $801 million in the same period last year, and only slightly below with analyst estimates of $938.1 million.

For the fiscal year, the vendor reported revenues of $3.3 billion, up from $2.8 billion in the prior year, and in line with analyst estimates.“Despite the slowdown in the U.S. economy and the sluggishness of the economy, the NetApp team finished the year very strongly,” said CEO Dan Warmenhoven, during a conference call last night, but he added that the vendor will increase its sales force in an attempt to wrest market share from rivals such as EMC.

NetApp is looking to add around 500 bodies to its 7,645-strong workforce during the first quarter, many of whom will be in sales, according to the CEO. “Competitors are much larger and have much more sales capacity than we do to start with,” he added.

This could be a shrewd move in an increasingly competitive storage market, and at least one analyst feels that NetApp is likely to face even fiercer competition over the next 12 months.

“We are concerned that one of NetApp’s largest resellers, Fujitsu Siemens Computers, would very likely resell the NAS products from privately held Exanet,” wrote Pacific Growth Equities analyst Kaushik Roy, in a note released this morning. “Although we expect Fujitsu Siemens Computers to continue to resell NetApp, we believe the Exanet products would compete directly with NetApp’s GX."

Other vendors increasing the pressure on NetApp include Dell (with its EqualLogic iSCSI products) in the low-end midrange and HP (with its MSA 2000 built by Dot Hill) in the entry-level market, according to Roy.“But it is EMC’s traction in NS Series which concerns us most in regards to NetApp,” added the analyst. “In our opinion, for the first time in the history of EMC, the company has a good low-end NAS solution – we believe competitive pressures for NetApp will be much more intense in the next 12 months.”

NetApp’s COO Tom Georgens admitted that competition is likely to remain intense during last night’s conference call. “You look at our gross margins, you look at our win rates, I think we feel very, very confident about where we are,” he said. “We just need to get ourselves into more deals so we can transfer our win rate in to more opportunities.”

The vendor also narrowed its first quarter guidance during last night’s conference call to between $845 million and $875 million, from its initial estimate of between $837 million and $883 million. Warmenhoven explained that the mid-point of this range, $860 million, remains unchanged. Analysts have estimated first quarter revenues of $869 million.

NetApp’s Georgens also revealed some details of the vendor’s immediate product roadmap, namely its plans to merge the 7G and GX versions of its OnTap software.

“There is one more release of GX coming soon,” he said. “All subsequent major releases of Data OnTap will be based on the converted 7G and GX platforms, an integration that is already underway with specific emphasis on a yearly transparent upgrade path.”Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.