NetApp’s Channel Doubles Entry-Level Sales in Quarter

Most leading IT vendors are reporting good to great financial results this
quarter, but in storage, NetApp (NASDAQ:NTAP)
is really raising the bar, turning in a stellar performance, spearheaded by its
channel.

CFO Steve Gomo said NetApp "significantly outpaced both the market and the competition" and is forecasting Q4 sequential growth at about 6 percent to 9 percent and 22 percent to 25 percent year-over-year organic growth in revenue.

"I think that in terms of the overall storage market as a whole, we just put up 15 percent numbers. HP reported down. IBM was up a little. EMC was down and those are improved numbers for all of them. Hitachi is down. So I wouldn’t claim that this market is by any means robust."

President and CEO Tom Georgans credited a lot of the company’s success to its channel.

"We simplified our order process, repositioned our low end products, created solution bundles targeted at this space and we made it even easier for our channel partners to do business with us. As a result, we saw remarkable growth in our channel business."

For its third fiscal quarter NetApp reported a 35 percent explosion in GAAP revenue, aided and abetted by the channel which accounted for more than 70 percent of its business. Product revenue was $619 million, accounting for 61 percent of total revenue, and up 17 percent year over year. Software was up 9 percent to $171 million, while services also grew 17 percent to $222 million.

While direct sales accounted for 30 percent of revenue, and rose 4 percent sequentially, and 15 percent year over year, the channel did the bulk of the heavy lifting, growing its 70 percent share 15 percent sequentially, and 16 percent year over year. Both Arrow and Avnet had strong quarters, accounting for 16 percent and 12 percent, respectively.

On the OEM side, IBM grew its NetApp business 9 percent year over year, accounting for just under 6 percent of total revenue.

For configured system product revenue, unified systems (just over 42 percent) with both a SAN and a NAS protocol, finally exceeded those of NAS-only (42 percent) NAS sales, while SAN systems stayed relatively flat at 15 percent. According to the company’s system-reported data, in virtualized server environments it is now consistently seeing about 42 percent of NetApp machines are running NAS and 58 percent are running SAN. It is also now beginning to see HyperV environments in the customer base.

Low-end systems, up 83 percent sequentially and 48 percent year over year, helped drive total system shipments up dramatically, 54 percent sequentially, and 34 percent year over year. High-end units also turned in a strong performance, up 29 percent sequentially and 16 percent year over year. Shipments of the V-Series line were up 68 percent year over year, with the fastest growing segments selling into EMC and HP midrange environments.

Total petabytes shipped grew 25 percent sequentially and 42 percent year over year to 326 petabytes. The mix of drive capacity also changed, with Fibre Channel dropping to 27 percent of total capacity shipped, ATA declining modestly to 64 percent of capacity shipped, and SAS tripling to 9 percent of capacity shipped this quarter.

Looking ahead to its next quarter, the company expects revenues to rise to $1.07 to $1.1 B, and the potential upside for the channel remains high, says Georgans.

"I guess there’s one side of me that says that we have not completely tapped that market. Certainly we haven’t seen a leveling off. If anything, it seems that either the investments we made, the channel progress we took, perhaps some of the alienation created by some of our competitors has opened up the door."