NetApp: Fiscal 2Q14 Financial Results

(in US$ million)	2Q13	2Q14	6 mo. 13	6 mo. 14
Revenues	1,541	1,550	2,986	3,066
*Growth*		1%		3%
Net income (loss)	109.6	166.8	173.4	248.4

NetApp, Inc. reported financial results for the second quarter of fiscal year 2014, ended October 25, 2013.

Second Quarter Financial Results
Total revenues for the second quarter of fiscal year 2014 were $1.550 billion, an increase of 1% from the comparable period of the prior year.

GAAP net income for the second quarter of fiscal year 2014 was $167 million, or $0.48 per share,1 compared to GAAP net income of $110 million, or $0.30 per share, for the comparable period of the prior year.

Non-GAAP net income for the second quarter of fiscal year 2014 was $232 million, or $0.66 per share,2 compared to non-GAAP net income of $189 million, or $0.51 per share, for the comparable period of the prior year.

Cash, Cash Equivalents and Investments
NetApp ended the second quarter of 2014 with $5.273 billion of total cash, cash equivalents and investments and during the quarter generated approximately $363 million in cash from operations. The company returned $202 million to shareholders during the quarter through share repurchases and a cash dividend. The next dividend in the amount of $0.15 per share will be paid on January 22, 2014 to shareholders of record as of the close of business on January 9, 2014.

“NetApp is at the forefront of a changing IT landscape, creating opportunity from perceived threats,” said Tom Georgens, president and CEO. “Though we face an ongoing uncertain macro environment, our solid branded revenue growth and share gains are evidence of the value customers place on our innovative, best-of-breed solutions.”

The company is providing the following financial guidance for the third quarter of fiscal year 2014:

Total revenue in the range of $1.575 billion to $1.675 billion
GAAP earnings per share in the range of $0.50 to $0.55 per share
Non-GAAP earnings per share in the range of $0.68 to $0.73 per share

Business Highlights

Outlines Strategy to Enable Hybrid cloud Architectures. Strategy is to use branded storage OS Data ONTAP as a universal data platform to provide cloud management across any blend of private and public cloud resources.
NetApp and Verizon Team on software-defined storage solutions for new Verizon Cloud. The two companies will collaborate to rearchitect traditional cloud-based storage models to deliver Data ONTAP as a virtual storage appliance for Verizon cloud clients. The software will deliver on the promise of software-defined storage, providing additional deployment and management flexibility for clients implementing Verizon cloud Compute and Verizon cloud Storage.
NetApp and VMware Help Customers Move to Software-Defined Data Centers. New integrations with VMware vCloud Suite and Data ONTAP enable migration of data for hundreds of VMs at a time, and streamlines provisioning, analysis, data protection, and DR for virtualized environments, simplifying and accelerating the deployment of software-defined storage in software-defined data center environments.
Deepens Integration with Oracle’s Cloud-Enabling Software. The integration can deliver enhanced features for Database 12c and Enterprise Manager 12c, allowing customers to centrally manage and maintain control of their data across private, public, and hybrid clouds.
Helps Orange Business Services Deliver cloud Solutions. Orange Business Services developed its flexible computing solution with Data ONTAP. As a result, it is able to provide enterprise customers with data availability, helping to establish itself as a global IT infrastructure provider with more than 600 flexible computing customers worldwide.
Earns #3 Ranking as Best Place to Work in the World. NetApp placed in the top five on the World’s Best Multinational Workplaces list for the third consecutive year due to its employee-driven culture. It believes that its culture is a sustainable differentiator and is committed to being a model company that empowers outcomes for its partners, customers, and investors.

Comments

There is a real problem for the biggest storage subsystem companies in the third quarter of 2013. EMC and NetApp grew only 1% in sales Y/Y, and all the other ones saw their revenue declining, Dell by 7%, HDS by 9%, HP by 10% and IBM by 34% (see below). Their market seems to stabilize in term of revenue, not in capacity shipped, and the competition is harder with smaller and more innovative firms. On their side, HDD vendors are suffering as the demand is flat, -7% for Seagate and -22% for WD. Only winners are companies in flash technology like SanDisk (+28%) and Micron (+45%) Revenue of Biggest Storage Companies in $Million (for fiscal quarter ending between July and September 2013)

Ranking

Vendors

3CQ12

3CQ13

Y/Y growth

EMC*

3,726

3,773

4,754

3,728

-22%

Seagate

3,732

3,489

-7%

Micron

1,963

2,843

45%

SanDisk

1,273

1,635

28%

NetApp

1,541

1,550

HDS

1,207

1,051

-9%

HP*

924

833

-10%

IBM*

970**

640**

-34%**

LSI

624

607

-3%

Symantec*

632

602

-5%

Dell*

464

432

-7%

earnings call transcript

Nick Noviello, CFO:

"Despite the conservatism we built into our Q2 guidance to account for uncertainty in U.S. federal business related to sequestration and looming budget deadlines, we did not predict the degree to which sequestration, combined with the government shutdown, would impact our ability to close business in our pipeline. In addition, though we expected OEM business to be down in Q2, ordering patterns from our largest partners were off plan, reflecting their exposure to market dynamics.

"As we move into the second half of the year, we continue to expect macro uncertainty, which may intensify due to U.S. government challenges.

"Net revenue for the quarter of $1.55 billion was up 2% sequentially and up 1% from Q2 of last year. Branded revenue was 90% of our overall revenue and, at $1.4 billion, was up 5% year-over-year and 4% sequentially. OEM revenue continued to decline in Q2 and was down 28% from Q2 last year and 9% from last quarter. Indirect revenues through the channels and OEMs accounted for 83% of Q2 revenue. Arrow and Avnet contributed 23% and 16% of net revenue, respectively.

"From a geographic perspective, our Americas Commercial and EMEA revenues were up 3% and 2%, respectively, versus Q2 last year. U.S. Public Sector revenue was down 8% versus last year, the largest year-over-year decline in the business we've seen in a Q2 since we began tracking it in fiscal year 2007. Finally, AsiaPac revenue was flat on a year-over-year basis and down 2% sequentially, continued evidence of macroeconomic pressure in that geography as well."

Tom Georgens, president and CEO:

"The momentum of clustered Data ONTAP remains strong. In Q2, we shipped more than 1,900 clustered nodes, an increase of almost 300% from Q2 a year ago and almost 60% from last quarter. 37% of high-end systems and 24% of mid-range systems were deployed in cluster configurations.

"Since the inception of our flash program, we have shipped over 60PB of flash, almost 1/3 of which is in the form of all-flash arrays. The attach rate of our Flash Cache and Flash Pool solutions remains consistently high at approximately 60% from mid-range and high-end systems. In Q2, we shipped 6PB of flash as a cache, accelerating just over 0.5EB of storage.

"Our all-flash array, the EF540, is also seeing robust customer traction with more than 200 units shipped in Q2. Soon, we will introduce the next generation of the EF product line with improved capacity, bandwidth and performance.

"Unit shipments of branded E-series more than doubled year-over-year. Compared to Q2 a year ago, the FAS2000S and 6000s were down slightly and the FAS3000 units grew 15%.

"The FlexPod customer base has more than doubled from Q2 a year ago to almost 3,300. It is available in 84 countries, delivered by greater than 90 channel partners with 50 validated architectures. Clustered ONTAP deployments also represented 45% of our FlexPod business in Q2."