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NetApp: Fiscal 4Q15 Financial Results

About all figures down, next quarter to be worst, 500 workers laid off

(in $ million) 4Q14 4Q15 FY14 FY15
Revenue 1,649 1,540 6,325 6,023
Growth   -7%   -5%
Net income (loss) 197.0 134.9 637.5 559.9

NetApp, Inc. reported financial results for the fourth quarter and fiscal year 2015, ended April 24, 2015.

  • Highlights:
  • Clustered Data ONTAP node shipments increased 163%; All flash FAS units grew 260% for fiscal year 2015.
  • Cash from operations for fiscal year 2015 was $1.27 billion.
  • Increased first quarter fiscal year 2016 cash dividend by 9% to $0.18 per share.

Fourth Quarter Financial Results
Net revenues for the fourth quarter of fiscal year 2015 were $1.54 billion. GAAP net income for the fourth quarter of fiscal year 2015 was $135 million, or $0.43 per share, compared to GAAP net income of $197 million, or $0.59 per share, for the comparable period of the prior year. Non-GAAP net income for the fourth quarter of fiscal year 2015 was $202 million, or $0.65 per share, 2 compared to non-GAAP net income of $284 million, or $0.84 per share, for the comparable period of the prior year.

Fiscal Year 2015 Financial Results
Net revenues for fiscal year 2015 were $6.12 billion. GAAP net income for fiscal year 2015 was $560 million, or $1.75 per share, compared to GAAP net income of $638 million, or $1.83 per share, for the comparable period of the prior year. Non-GAAP net income for fiscal year 2015 was $865 million, or $2.70 per share, 2 compared to non-GAAP net income of $968 million, or $2.78 per share, for the comparable period of the prior year.

Cash, Cash Equivalents and Investments
NetApp ended fiscal year 2015 with $5.33 billion of total cash, cash equivalents and investments and generated $1.27 billion in cash from operations. During fiscal year 2015, the company returned $1.37 billion to shareholders through share repurchases and a cash dividend.

The company increased the first quarter fiscal year 2016 dividend by 9% to $0.18 per share. The dividend will be paid on July 23, 2015, to shareholders of record as of the close of business on July 10, 2015.

We are not satisfied with our fourth quarter results and are taking concrete action to transition NetApp for the next phase of growth,” said Tom Georgens, chairman and CEO. “Clustered ONTAP is the foundation of a Data Fabric, our vision for the future of data management, which enables enterprises to realize the value of the cloud as a seamless extension of their on-premises environment. This vision is resonating well with customers and underpins our confidence.

Q1 Fiscal Year 2016 Outlook

  • Net revenues are expected to be in the range of $1.275 billion to $1.375 billion
  • GAAP loss per share is expected to be in the range of $0.11 to $0.06 per share
  • Non-GAAP earnings per share is expected to be in the range of $0.20 to $0.25 per share

Business Highlights

Strengthens Partnerships:

  • NetApp Provides a Secure Path to Transfer Data from On-premises to Amazon Web Services Cloud Solutions. As an Amazon Machine Image, three new models of NetApp SteelStore cloud-native backup solution provide an efficient and secure approach to backing up cloud-based workloads. NetApp supports Amazon S3 as a storage tier to NetApp StorageGRID  Webscale.

Expands Product Portfolio:

  • New All-Flash and Hybrid Storage Arrays Accelerate Performance for Enterprise SAN Applications. The new EF560 all-flash array offers consistent latency, bandwidth and IO/s critical to enterprise database and analytics applications. The hybrid E5600 storage array delivers increased performance and reliability for more capacity-intensive SAN applications including data warehousing, email and backup.

Expands Hybrid Cloud Solutions in Support of Data Fabric Vision:

  • OnCommand Insight 7.1. The new software includes enhanced features for brokering and monitoring hybrid storage deployments as well as innovations that reduce storage operating expenses and capital expenditures while improving capacity planning.
  • OnCommand Cloud Manager Software and Cloud ONTAPSoftware Subscription. Customers can simplify deployment of cloud ONTAP and OnCommand cloud Manager by using software subscriptions that manage NetApp’s customer data replication to the cloud with a single application.
  • StorageGRID Appliance and StorageGRID Webscale Software for Scalable, Durable Object Storage. StorageGRID 5560 appliance and StorageGRID Webscale software 10.1 add support for storage efficiency through hierarchical globally distributed erasure coding for long-term archives.

Recognition and Awards:

  • All-Flash Arrays Achieve Industry-Standard Benchmarks. NEF560 achieved the leading SPC-1 price-performance benchmark for all-flash arrays with an average response time of less than one millisecond. The all flash FAS8080 placed #5 in the SPC-1 ‘Top Ten’ list by performance.
  • 2015 Best Companies to Work For. For the 13th year in a row, NetApp is one of the Fortune 100 Best Companies to Work for.

Comments

That is the worst fiscal year for NetApp since at least 2007. For the first time since FY07, annual revenue is down Y/Y, at -5%, after flat sales one year ago. (see table below)

For the most recent quarter, the figures are not better: revenue down 1% sequentially and 7% yearly.

Consequently, the storage firm has decided on a reduction of its global workforce by approximately 4% or 500 employees in next fiscal year. This could change its ranking among  the Fortune 100 Best Companies to Work for where it has started this year for the 13th year in a row.

What is the problem? Today end users do not want to be locked into a proprietary OS like ONTAP. Furthermore, the company has encountered two more difficulties: 1/ the variation in exchange rates between currencies, especially the dollar and the euro, like most US companies; 2/ the transition from legacy ONTAP to clustered ONTAP, a disruption underestimated by NetApp, especially in the USA, one of the reason being that, to benefit of the new technology, customers have to update existing storage management processes and migrate their data.

The near future is far from bright for the storage giant. Next quarter, revenue is expected to be in the range of $1.275 billion to $1.375 billion or a sequential decline of approximately 14% and an 11% decrease year over year, despite a 14-week quarter in 1FQ16 - an event that occurs every six years. But Nick Noviello said: "We expect to return to a growth trajectory and to our business model." For next fiscal year, the company expects expect global sales to be "no better than flat."

Note also that the 4FQ15 OEM revenue of $102 million was down 18% sequentially and 7% year over year, at $473 million for FY15 and down 19% from last year. Indirect revenue through the channels and OEMs continue to decline drastically.

Some good news in this ocean of bad news:

  • - Unit shipments of branded E-Series, inclusive of the all-flash EF family grew quarterly by 45% from a year ago and more than doubled in FY15.
  • - The number of clustered ONTAP customers grew 135% in FY15 from the prior year. The bulk of this growth came from new to NetApp customers, which were up roughly 250% in FY15. The number of repeat clustered ONTAP customers was also robust, growing more than 140% in the year. Additionally, shipments of clustered nodes grew 138% from the fourth quarter a year ago and were up 163% for the full year.
  • - In converged infrastructure, FlexPod had another good year with unit shipments up almost 20% this year. More than 70% of FlexPod systems are shipped with clustered ONTAP.
  • - Shipments of all-flash FAS grew significantly, at more than 350%, from 4Q a year ago, and 260% for the full year. In the fourth quarter, 72% of all-flash FAS arrays were shipped as clustered configurations.

To read the earnings call transcript

Revenue for FY ended in April
(in $ million)

FY Revenue Y/Y growth
2007 2,804 NA
2008 3,303 18%
2010 3,406 3%
2010 3,931 15%
2011 5,123 30%
2012 6,233 22%
2013 6,332 2%
2014 6,325 -0%
2015 6,023 -5%

 

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