NetApp Continues Storage’s Strong Showing

Add NetApp to the list of enterprise technology companies who say the current macroeconomic climate isn’t holding them back — a list that suggests the slowdown isn’t hitting the storage space as much as other IT sectors.

During its earnings report yesterday, NetApp (NASDAQ: NTAP) said it continues to see increasing revenue in the quarter ahead, despite widespread reports of reduced IT expenditures by customers. The company’s revenue grew to $869 million, a 26 percent increase compared to the same period a year ago, and gave guidance of $910 million to $940 million in revenues for next quarter.

Earnings are also up for the company. The storage player reported $37.7 million in net income for the first quarter of its 2009 fiscal year, equivalent to 11 cents a share — a 10 percent jump from the $34.3 million, or 9 cents a share, it saw during the same quarter a year earlier.

NetApp also said it expected to earn 16 cents to 19 cents per share in the coming quarter.

Yet the performance and the forecast weren’t rosy enough to please the Street. While it beat analysts’ expectations of $864.1 million in revenue, its forecast for the second quarter clearly disappointed investors. Analysts had estimated next-quarter revenue of $918 million and earnings of 30 cents per share, according to Reuters Estimates.

As a result, shares of NetApp were trading down 3 percent on Thursday’s open, at $24.73.

Yet Chairman and CEO Dan Warmenhoven wasn’t bashful about how he viewed the company’s efforts during the question and answer session on Wednesday’s earnings call.

“I’m very pleased as the numbers are consistent with our expectations,” he said.

NetApp’s healthy earnings are in line with other storage leaders’ financials this year, and illustrates that storage budgets aren’t necessarily under fire in spite of the macroeconomics conditions thought to be hurting other sectors of the economy and other portions of the IT industry.

EMC, for instance, posted second-quarter results last month that beat Wall Street estimates handily, in the company’s 20th consecutive quarter of double-digit sales growth.

This week, Brocade (NASDAQ: BRCD) similarly saw strong quarterly results, in large part due to strength in its storage lineup.

NetApp’s Warmenhoven said that while enterprises are facing budget constraints, a pressing need for storage efficiency is spurring growth for storage vendors.

He pointed to NetApp’s deduplication technology business as an example of a solution seeing strong growth despite smaller IT budgets. NetApp reported 13,000 new customer installations and 3,000 license agreements during July alone, it said.

“I believe our ‘dedupe’ has the largest footprint in the industry,” Warmenhoven said, adding “the macroeconomic climate is having no significant impact on storage spend as most enterprises are investing to improve efficiencies.”

[cob:Special_Report]In July, NetApp announced that its deduplication technology can now be used on competitors’ arrays including EMC (NYSE: EMC), Hitachi Data Systems, HP (NYSE: HPQ) and IBM (NYSE: IBM) to better utilize storage capacity.

During the call, Warmenhoven also attributed revenue growth to several product initiatives, noting both high-and low-end product lines are performing well. Entry-level storage unit sales were up 74 percent in the first quarter, and the high-end achieved what the CEO called a “robust” 36 percent growth in the first quarter.

NetApp launched the FAS3100 and V3100 storage system series, Storage Acceleration Appliance, and Performance Acceleration Module in the first quarter. It also expanded its storage and data management solutions for virtualized IT environments, it said.

In February, it debuted the StoreVault S550 for the mid-market, a competitive shot at Dell and HP in the network-attached-storage space.

“We acquired 460 new mid-sized customers this quarter,” Warmenhoven said. “We’ve seen the competition and made it a focus to go after that.”

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