NetApp: Fiscal 3Q12 Financial Results
Income down sharply, HDD supply constraints expected for few quarters
This is a Press Release edited by StorageNewsletter.com on February 16, 2012 at 3:01 pm| (in US$ millions) | 3Q11 | 3Q12 | 9 mo. 11 | 9 mo. 12 |
| Revenues | 1,290 | 1,566 | 3,694 | 4,531 |
| Growth | 21% | 23% | ||
| Net income (loss) | 186.4 | 119.6 | 512.5 | 424.7 |
NetApp, Inc. reported results for the third quarter of fiscal year 2012, which ended January 27, 2012.
Revenues for the third quarter of fiscal year 2012 totaled $1.566 billion compared to revenues of $1.290 billion for the same period one year ago.
For the third quarter of fiscal year 2012, GAAP net income was $120 million, or $0.32 per share, compared to GAAP net income of $186 million, or $0.46 per share, for the same period a year ago. Non-GAAP net income for the third quarter of fiscal year 2012 was $216 million, or $0.58 per share, compared to non-GAAP net income of $226 million, or $0.56 per share, for the same period a year ago.
Revenues for the first nine months of fiscal year 2012 totaled $4.531 billion compared to revenues of $3.694 billion for the first nine months of the prior fiscal year, an increase of 23% year over year. GAAP net income for the first nine months of fiscal year 2012 totaled $425 million, or $1.10 per share, compared to GAAP net income of $513 million, or $1.31 per share for the first nine months of the prior fiscal year. Non-GAAP net income for the first nine months of fiscal year 2012 totaled $674 million, or $1.75 per share, compared to non-GAAP net income of $629 million, or $1.61 per share for the first nine months of the prior fiscal year.
"More and more customers are leveraging storage virtualization to re-architect their data centers in order to gain efficiency, flexibility and cost savings, and NetApp provides the most compelling value proposition in the industry for both private and public cloud deployments," said Tom Georgens, president and CEO. "Our success is evident in our results, as NetApp won a record number of new customers, significantly increased our units shipped – including a record number of high-end systems, and saw solid revenue growth across almost all geographies in our third quarter."
Outlook
- NetApp estimates revenue for the fourth quarter of fiscal year 2012 to be in the range of $1.645 billion to $1.725 billion, which equates to approximately 5% to 10% sequential revenue growth and approximately 15% to 21% year-over-year revenue growth.
- NetApp estimates that fourth quarter fiscal year 2012 GAAP earnings per share will be approximately $0.38 to $0.43 per share. NetApp estimates that fourth quarter fiscal year 2012 non-GAAP earnings per share will be approximately $0.60 to $0.65 per share.
- NetApp estimates that share count for the fourth quarter of fiscal year 2012 will increase to approximately 378 million shares, including an estimated 8 million shares from the Company’s outstanding convertible notes. 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 third quarter of fiscal year 2012 unveiled its Smart Decisions initiative aimed at helping midsize business customers start right, keep it simple, and grow smart, while at the same time enabling its partners to offer the technologies and solutions to grow their own businesses.
Highlights for the quarter include:
Midsize Business Customers Build on NetApp
to Address Growing Business Demands
and Need to Do More with Less
NetApp unveiled the new NetApp FAS2000 entry product line which enables customers to start right and grow with the needs of their business. The enhanced portfolio also allows partners to offer their customers the best technologies and solutions to increase their own business, increase profits, and help their customers succeed. The new FAS2240 delivers a two to three times of performance improvement and greater flexibility, allowing customers to maximize their storage investments, support demanding workloads, and add capabilities as their business needs change. OnCommand System Manager 2.0 software helps customers simplify, control, and automate setup and management of storage. With more than 10,000 midsize business customers already turning to NetApp each year for their storage needs.
Be The Match Leverages NetApp to Turn
its IT Environment into a Catalyst
for Life-Saving Speed and Flexibility
Be The Match, which operates the world’s largest listing of potential marrow donors and donated cord blood units, depends on its IT infrastructure to allow the organization to facilitate thousands of potentially life-saving transplants each year. To help accelerate the flow of data and enhance its ability to match donors with patients, Be The Match recently chose NetApp as its storage foundation. By transforming its IT infrastructure, utilizing NetApp as one of its vendors, the organization expects to reduce the time to transplant by 15%, double its annual donor registrations, and facilitate 50% more transplants around the world.
NetApp Helps Customers Control Data Growth and Gain Greater Insight
- New solution helps customers maximize enterprise Hadoop implementations. The NetApp Open Solution for Hadoop provides customers with improved flexibility and performance along with lower total cost of ownership, enabling customers to gain greater insight into and a competitive advantage from their data. Additionally, NetApp teamed with Cloudera to distribute Cloudera’s Distribution, including Apache Hadoop and Cloudera Enterprise with the NetApp Open Solution for Hadoop, to help speed enterprise deployment and production use of Apache Hadoop.
- NetApp unveils new solutions based on the E-Series platform to address big data requirements. The NetApp High-Performance Computing Solution for Lustre is purpose-built to help customers efficiently scale bandwidth and density, with reliability to solve difficult research, modeling, and simulation problems. The NetApp Seismic Processing Solution provides access to big data generated by seismic processing operations to help exploration teams make optimal decisions.
Awards and Milestones
- NetApp continues to earn recognition as a great place to work. Built on a culture of innovation committed to partner and customer success, NetApp was ranked #6 on FORTUNE magazine’s 100 Best Companies to Work For list for 2012. The honor marks the fourth consecutive year that NetApp was ranked in the top 10 and the sixth consecutive year it was ranked in the top 15. Additionally, NetApp was ranked #6 on the Crain’s New York Business annual Best Places to Work in New York City list for 2011.
- NetApp is One of Six Companies Named Partner of the Year by CDW. It was among only six companies named a winner of CDW’s fifth annual Partner of the Year awards which recognized companies that have consistently provided exemplary support to CDW and its customers, as well as delivered strong growth and financial performance over the previous 12 months. It was honored not only for its outstanding performance, but also the value it delivers which has greatly contributed to both CDW and its customers’ success.
- The company positioned in Leaders quadrant. Gartner, Inc. placed it in the Leaders quadrant for midrange and high-end modular disk arrays. Gartner asserted that vendors in the Leaders quadrant "have the highest scores in their ability to execute and completeness of vision."
Comments
The ≠2 WW storage manufacturer delivers its ninth consecutive quarter of over 20% yearly revenues growth.
Sequentially sales are up only 4%. For the most recent quarter - ended December 31, 2011 - of ≠1 EMC, storage revenues, at $4,072 million (160% more than NetApp), increased faster sequentially, 11%, but slower compared to one year ago, 12%.
NetApp's product revenues reached $1.063 billion, an increase of 5% sequentially and 26% Y/Y. They were 68% of net sales in 3Q12, up from 67% in 2Q12.
Revenues from software entitlements and maintenance were $204 million or 13% of global revenues, growing 3% sequentially and 11% Y/Y.
In 3Q12 service revenues record $299 million, up 2% sequentially and 14% year over year, being 19% of total revenues, but remaining flat from the prior quarter. Revenues from hardware maintenance support contracts constituted approximately 71% of service revenues this quarter, up 2% sequentially and 21% Y/Y. Professional services revenues grew 2% from the prior quarter and declined yearly 2%.
In its last quarter, direct revenues were 21% of total sales, up 9% sequentially and remained constant on Y/Y basis. Indirect pathways represented 79% of total revenues and grew 3% sequentially and 29% year-over-year. Within the indirect pathway, Arrow accounted for 15% of total revenues and Avnet 11%. Sales to OEM customers, including IBM, Fujitsu, and other E-Series OEM customers, was 16% of total sales.
Capacity Trends
For the first time, quarterly shipped capacity exceeded 1EB, a sequential growth of 16% and a yearly one of 78%.
Abstracts of the earnings call transcript:
Nicholas Noviello, CFO:
"Hard disk drive constraints did have a modest dampening impact on revenue in Q3 although within the balance of what we forecasted. We expect constraints and unpredictability of supply for certain types of drives to continue for a few more quarters, so we will maintain a conservative stance with respect to the impact of hard disk drive supply on both our revenue and gross margin forecast for Q4.
"Our total OEM revenues grew 6% sequentially, while our NetApp branded revenues grew just under 4% sequentially from Q2.
"Our balance sheet remains strong with approximately $4.9 billion in cash and investments."
Tom Georgens, president and CEO:
"The federal slowdown also impacted Arrow and Avnet's business. But we were able to offset that with very strong growth in the volume segments with U.S. general territory bookings up over 35% year-over-year and our state local and higher ed bookings up more than 50%. And after 3 quarters, we are now at $509 million in revenue against the $600 million full year target we communicated at the time of the acquisition.
"We saw units of our 6000 series increase 2.5x on a year-over-year basis and over 40% sequentially.
"(...) this quarter, we had a large take-out win at a financial services firm that was a 100% EMC shop.
"We refreshed our 2000 series this quarter and saw a 10% sequential increase in units shipped after 3 consecutive quarters of declines. This quarter's reversal was driven partially by the major account improvement, but mostly by the strength of our volume segments. The 3000 remains our biggest revenue contributor and it saw units increased 3% sequentially and 22% year-over-year.
"We had another outstanding quarter with FlexPod.
"We entered the quarter with a great deal of uncertainty regarding disk drive pricing and availability. We knew that it would take some time to consume the inventory and work in progress, so we did not see the full impact of the production loss until January. That proved to be correct. And while the drive vendors had little forward delivery visibility, most of them shipped us drives in excess of their initial estimates. However, not all drive types were universally available and some spot shortages impacted revenue and will likely do so in the upcoming quarter as well.
"Going forward, we expect the drive situation to continue to inject uncertainty into the revenue and gross margins for the next 9 months as availability, cost and pricing settle out in the market. In addition, we also continue to remediate certain customer situations around our vendor component issues as we did in Q3."
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