NetApp: Fiscal 3Q14 Financial Results

(in US$ million)	3Q13	3Q14	9 mo. 13	9 mo. 14
Revenues	1,630	1,610	4,616	4,676
*Growth*		-1%		1%
Net income (loss)	158.1	192.1	331.5	440.5

NetApp, Inc. reported financial results for the third quarter of fiscal year 2014, ended January 24, 2014.

Third Quarter Financial Results
Net revenues for the third quarter of fiscal year 2014 were $1.610 billion. GAAP net income for the third quarter of fiscal year 2014 was $192 million, or $0.55 per share,1 compared to GAAP net income of $158 million, or $0.43 per share, for the comparable period of the prior year. Non-GAAP net income for the third quarter of fiscal year 2014 was $261 million, or $0.75 per share,2 compared to non-GAAP net income of $243 million, or $0.67 per share, for the comparable period of the prior year.

Cash, Cash Equivalents, and Investments
NetApp ended the third quarter of 2014 with $5.069 billion of total cash, cash equivalents, and investments and during the quarter generated approximately $332 million in cash from operations. The company returned $557 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 April 22, 2014 to shareholders of record as of the close of business on April 10, 2014.

“We are pleased with our strong operational execution again this quarter,” said Tom Georgens, president and CEO. “With our strategy of delivering best-of-breed cloud-integrated and flash-accelerated solutions and our unique ability to manage data seamlessly across on- and off-premise environments, we are well positioned to create ongoing opportunity in the evolving IT landscape.”

Q4 Fiscal Year 2014 Outlook

The company is providing the following financial guidance for the fourth quarter of fiscal year 2014:
Total 1% and
GAAP earnings per share is expected to be in the range of $0.57 to $0.62 per share
Non-GAAP earnings per share is expected to be in the range of $0.77 to $0.82 per share

Business Highlights
In its third quarter of fiscal year 2014, NetApp continued to execute roadmap with a focus on delivering cloud-integrated and flash-accelerated storage and data-management solutions that address customers’ shared and dedicated infrastructure requirements.

Highlights include:

Continued Adoption of Clustered Data ONTAP. The attach rate of clustered ONTAP increased across every product line, with the FAS3000 family showing the largest increase. Clustered node shipments in the quarter increased by almost 300% year over year.
Introduces New All-Flash Array. The EF550 delivers high performance and consistent low latency for business-critical applications that require responsiveness and enterprise reliability.
Unveils Performance-Optimized Enterprise Storage Systems. The E2700 offers simple and flexible management for small remote/branch offices requiring optimal price/performance. The updated E5500 delivers enhanced performance, density, and modular flexibility for a range of data-intensive workloads.
Simplifies and Accelerates Deployment of OpenStack Cloud Services. Announced new contributions to OpenStack that include solutions for OpenStack Havana, incubation of a service for OpenStack Icehouse, and expanded support for partners and customers, including options that provide lower cost, faster innovation, flexibility, and no vendor lock-in.
Analyst Firm Ranks NetApp #1 in Storage System Capacity Shipped for Public Cloud Infrastructure. Recently, IDC ranked NetApp as having the #1 storage solution shipped for 2012 for public cloud infrastructure from the perspective of external system capacity. The ranking was conducted as part of IDC’s biannual Storage User Demand Study, which analyzes current and future deployments of enterprise storage systems for particular data uses.
Recognized as a Best Ccompany to Work for in America. The recognition marks the 12th consecutive year that the company was named to this list of 100 elite companies by FORTUNE magazine.

Comments

NetApp stagnates. For last fiscal year ended April 26, 2013, revenue increased only 2% at 6.332 million from the former year. For the nine months ended January 24, 2014 it's a mere 1% at $4.676 million.

The company is more optimistic for next quarter with expected revenue to be in the range of $1.620 billion to $1.720 billion or a sequential increase between 1% and 7%.

The company is losing some market share against main competitor EMC that records 11% growth in storage revenue from 4Q13 to 4Q14 ended December 2013, and 4% from 1012 to 2013.

Globally these figures prove that the biggest storage firms, excepted Hitachi/HDS, are growing at a much lower rate compared to the preceding years. Remember that NetApp grew as much as 22% in sales from FY11 to FY12.

The real winners are today much smaller and more innovative storage firms with at least 25 of them growing at a rate superior of 50% between 202 and 2013.

Tom Georgens, CEO:
"We have shipped almost 75PB of flash storage since the inception of our flash program, roughly one-third of which is in the form of all-flash arrays.
"We're also seeing continued growth in the total branded E-Series product line. E-Series, inclusive of both E and EF products, almost doubled from Q3 a year ago and grew 34% sequentially. FAS2000 units were flat sequentially, while FAS3000 systems grew 8% and FAS6000 grew 16% from last quarter.
"We will soon be introducing our first generation of cluster-optimized FAS platforms, enabling customers to deploy a wider range of performance, availability and capacity options or seamlessly manage the clustered ONTAP. Our strategy and execution in converged architectures continues to drive positive results, with the FlexPod customer base growing more than 75% from Q3 last year."

Nick Noviello, CFO:
"Branded revenue of $1.5 billion grew 4% sequentially and 2% year-over-year. Branded revenue was below our expectations for the quarter, driven solely by a shortfall in US federal business. OEM revenue dollars were flat from Q2, as expected, and down 23% year-over-year. Indirect revenues through the channels and OEMs accounted for 83% of Q3 revenue. Arrow and Avnet contributed 20% and 15% of net revenue respectively.
"From a geographic perspective, total Americas revenue was down 5% year-over-year. Americas commercial revenue was down 3% and US public sector revenue was down 13%, driven by downward pressure in federal IT spending. EMEA and AsiaPac revenue each grew 3% on a year-over-year basis."