NetApp: Fiscal 2Q12 Financial Results
"Thailand flooding can potentially be the biggest swing factor on both our top and bottom line in the second half."
This is a Press Release edited by StorageNewsletter.com on November 17, 2011 at 2:59 pm| (in US$ millions) | 2Q11 | 2Q12 | 6 mo. 11 | 6 mo. 12 |
| Revenues | 1,251 | 1,507 | 2,405 | 2,965 |
| Growth | 20% | 23% | ||
| Net income (loss) | 175.4 | 165.6 | 326.1 | 305.1 |
NetApp, Inc. reported results for the second quarter of fiscal year 2012, which ended October 28, 2011.
Revenues for the second quarter of fiscal year 2012 totaled $1.507 billion compared to revenues of $1.251 billion for the same period one year ago.
For the second quarter of fiscal year 2012, GAAP net income was $165.6 million, or $0.44 per share, compared to GAAP net income of $175.4 million, or $0.45 per share, for the same period a year ago. Non-GAAP net income for the second quarter of fiscal year 2012 was $235.5 million, or $0.63 per share(2), compared to non-GAAP net income of $212.2 million, or $0.54 per share, for the same period a year ago.
Revenues for the first six months of fiscal year 2012 totaled $2.965 billion compared to revenues of $2.405 billion for the first six months of the prior fiscal year, an increase of 23% year over year. GAAP net income for the first six months of fiscal year 2012 totaled $305.1 million, or $0.78 per share, compared to GAAP net income of $326.1 million, or $0.85 per share for the first six months of the prior fiscal year. Non-GAAP net income for the first six months of fiscal year 2012 totaled $457.8 million, or $1.17 per share, compared to non-GAAP net income of $403.1 million, or $1.05 per share for the first six months of the prior fiscal year.
"NetApp produced record non-GAAP earnings per share in the second quarter. In aggregate, we saw strong revenue growth across most areas of our business, offset by some unexpected weakness in a handful of our largest accounts," said Tom Georgens, president and CEO. "NetApp achieved the highest number of net new customer wins in more than two and a half years this quarter, and in our Smart Decisions are Built on NetApp campaign we just launched the new FAS2000 series platform built on our Data ONTAP 8.1 operating system-all of which will drive market share gains going forward."
Outlook
- NetApp estimates revenue for the third quarter of fiscal year 2012 to be in the range of $1.520 billion to $1.610 billion, which equates to approximately 1% to 7% sequential revenue growth and approximately 18 % to 25% year-over-year revenue growth.
- NetApp estimates that third quarter fiscal year 2012 GAAP earnings per share will be approximately $0.36 to $0.40 per share. NetApp estimates that third quarter fiscal year 2012 non-GAAP earnings per share will be approximately $0.56 to $0.60 per share.
- NetApp estimates that share count for the third quarter of fiscal year 2012 will increase to approximately 380 million shares, including an estimated 9 million shares from the company’s outstanding convertible notes and 0.5 million shares from outstanding warrants. Share count does not include the company’s outstanding note hedges which are expected to offset 80% of the dilution from the convertible notes at maturity or conversion.
Business Highlights
During the second quarter of fiscal year 2012, NetApp once again was recognized for its unique corporate culture and demonstrated its commitment to delivering the solutions and technologies that help customers and partners accelerate their business. NetApp further cemented its position as a great place to work by ranking #3 on the inaugural World’s Best Multinational Workplaces list due to its culture of innovation focused on helping customers and partners thrive. Additionally, NetApp continued to provide the storage foundation for customers across all industries who want to achieve the flexibility and efficiency required in today’s challenging business and IT landscape.
NetApp also expanded its existing solution portfolio to help customers transition to the cloud and address growing big-bandwidth requirements. Highlights for the quarter included the following:
Milestones and Awards
- NetApp named one of the best workplaces in the world. Thanks to its culture of innovation focused on customer and partner success, NetApp was named the #3 best workplace in the world by the Great Place to Work Institute, Inc. NetApp joins an elite group of 25 multinational companies on the inaugural list that have been recognized by their employees for their company culture and workplace environment.
- NetApp continues to rank as one of the best places to work in the United States. In addition to its global recognition, NetApp was once again named a best place to work, ranking #1 in Research Triangle Park in the giant companies category and one of 50 best places to work in the Washington, DC, area. The honors are a testament to NetApp’s model company approach, strong culture, and talented employees.
Enterprise, Government, and Education Customers Build
on NetApp Foundation
to Increase IT Efficiency and Flexibility
- Thomson Reuters leverages NetApp to transform how the legal industry gets information. Thomson Reuters built on a NetApp shared storage infrastructure to create WestlawNext, an innovative and intuitive research tool that has set a new standard for online professional search. The NetApp foundation enables WestlawNext to search up to 50 times more data than before, return results 64% faster than other online search platforms, and meet or exceed a 99.9% uptime target that is critical for the legal community. Furthermore, improved storage performance helped Thomson Reuters save nearly $65 million in additional data center costs.
- U.S. Department of Energy selects NetApp as storage foundation for one of the world’s most powerful supercomputers. The Sequoia supercomputer, which will be deployed in 2012 at Lawrence Livermore National Laboratory (LLNL), will leverage NetApp as its storage foundation. Sequoia is expected to be twice as fast as today’s most powerful system and will manage massive compute workloads in which real-time analytics, scalable performance, and secure storage are mission critical.
- California universities manage skyrocketing data growth and dramatically reduce costs with NetApp. The University of San Diego (USD) recently turned to NetApp to help it effectively manage growing storage requirements as a result of an increase in high-bandwidth education applications and everyday administrative tasks. Building on a NetApp platform enabled USD to improve operational efficiencies and gain the flexibility necessary to meet its evolving IT needs.
- Art Center College of Design in Pasadena consolidated its storage resources onto a single, unified NetApp platform, allowing the school to more effectively manage its overall IT environment and save more than $135,000 in additional storage costs.
NetApp Helps Customers Transition to the Cloud
and Manage Big-Bandwidth Requirements
- NetApp partners with VMware to help make cloud a reality. NetApp collaborated with VMware to deliver VMware cloud infrastructure and management on NetApp. The joint solution enables organizations to evolve to a secure cloud computing model at their own pace, gaining greater flexibility and efficiency without needing to rip and replace their existing infrastructure. With this new solution customers are able to invest resources back into the business to drive innovation and manage for the future.
- NetApp media and entertainment solution delivers extreme performance and scalability. The NetApp media content management solution, which expands on NetApp’s existing big-bandwidth portfolio, is optimal for bandwidth-intensive environments and offers leaders in the media and entertainment industries high performance and always-available data access to maximize their collaborative efforts and workflow processes.
Comments
Abstracts of the earnings call transcript:
Tara Dhillon, senior director, investor relations:
"Factors that could cause actual results to differ include, among others, general macroeconomic and market conditions, particularly the continuing fiscal challenges in the U.S. and Europe; the effects of the flooding in Thailand; customer demand for our products and services, including our recently announced new product introductions; and other equally important factors."
Steven J. Gomo, CFO:
"Of the 46 accounts in the program, just 9 of the U.S. accounts produced the entire shortfall from the midpoint of our revenue guidance.
"Our total OEM revenues were strong this quarter at $230 million, growing 8% sequentially from Q1. NetApp-branded revenues grew 3% sequentially, impacted primarily by softness in those 9 major accounts I just mentioned.
"Software entitlements and maintenance revenue and services revenue showed a sequential decline this quarter. In the case of SEM, the revenue decline was a function of a minor perturbation in our deferred revenue schedule. For the services revenue, the sequential decline was due to a Q2 drop in professional services revenue, which tends to be lumpy.
"There are several reasons for this, including a large proactive pre-buy of flash memory and a large disk drive pre-buy as the flooding in Thailand was unfolding. We believe we will have sufficient drive inventory through the end of December, but it's difficult for anyone to predict the business impact beyond that."
Tom Georgens, president and CEO:
"The strength in the other areas of our business is evident when looking at it from a geographical perspective. Our U.S. commercial business grew 24% year-over-year, our Asia-Pacific business grew 55% year-over-year and our EMEA business grew 12% year-over-year in a challenging environment.
"Our E-Series OEM business remains well ahead of plan with 11% sequential growth. We even saw some rebound in spending from the financial services sector. We also saw some budget flush in the U.S. public sector, which while up only 9% year-over-year, it was over a month on a compare and it grew 56% sequentially.
"Outside of those 9 major accounts, our enterprise business was generally strong. Our number of transactions over $1 billion was the second highest ever, increasing 17% sequentially and over 30% year-over-year, while the total net new customer account acquisition is at a 2.5-year high. The volume segments of the business around mid-sized enterprise and state, local and higher education were very robust and were the highest growth areas of the portfolio.
"FlexPod had another strong quarter, and our relationship with Cisco continues to deepen as a result. We now have over 400 FlexPod customers and a robust pipeline for future FlexPod business. On the product side, the newer 3000 and 6000 platforms both had solid quarters. Units shipped of the 3000 were up 34% year-over-year. And FAS6000 units more than doubled over last year's Q2 levels. The 2000 was down year-over-year and down slightly on a sequential basis.
"Our largest distribution partners, Arrow and Avnet, grew to 31% of total revenue and grew 18% year-over-year. CDW, our largest reseller in fiscal year '12, grew over 75% year-over-year.
"Our total E-Series product family continues to make a big impact as well. Our 14% sequential growth was driven by an especially strong demand from Teradata and Dell, but our other 2 major OEMs, IBM and Oracle, were up sequentially as well.
"Looking ahead, the impact of the Thailand flooding can potentially be the biggest swing factor on both our top and bottom line in the second half. The large buyer drives we did, as this was all unfolding, should sustain us through a good part of Q3 but probably not all of it. Although enterprise class drives are considered to be the least impacted, we still anticipate some amount of supply and pricing complexity. We have all heard the predictions of the industry analyst and the drive vendors themselves. Some of the information is conflicting and most of it is changing daily in regards to scope and ultimate impact."
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