NetApp recorded more than doubled profits for its second fiscal 2010 quarter, out-performing its largest competitors and beating its own plans and Wall Street’s expectations alike.
Revenues were $910m, essentially flat being down just $1.6m on the year-ago quarter, and up nine per cent sequentially, but net income of $96m was 123 per cent up on the equivalent fiscal 2009 quarter's $43m.
NetApp CEO and president Tom Georgens talked of "record gross margins, record revenue from our SAN products, and overall revenue that exceeded our expectations”.
What's happened is that NetApp has managed to cut the cost of its products. In the current quarter the cost of product was recorded as $199m, which compares impressively to the year-ago quarter's $260m.
Chief financial officer Steve Gomo said in the earnings call transcript: "Product revenue was up 10 per cent sequentially and down 8 per cent year-over-year to $525m." However, "consolidated gross margin was a record 67.5 per cent of revenue this quarter".
It's down to lower material costs and a better product mix. The economic environment is getting better, with Gomo saying: "The economy continues to show increased stabilisation and the predictability of our close rates continues to improve. More importantly, our business is experiencing strong demand for our storage efficiency value proposition." That refers to utilisation guarantees for users of NetApp storage.
In the light of this Georgens said NetApp is "forecasting record revenues for our next fiscal quarter" of $935m to $955m. He added customers "are now starting to talk about their next generation virtualised data center architectures", although that is not translating into spending yet.
However, he sees a rosy outlook. "We believe there is pent up need for tech refreshes across the industry and we are not only capitalising on those in our own installed base but we’re also intercepting many of our competitor systems as they come up for renewal," he said.
"This upgrade cycle is just beginning and represents one of our largest near-term opportunities to gain share."
Regarding NetApp's third-party array virtualising controller, the V-Series, he said: "We now have more than two dozen V-Series units sitting in front EMC DMX machines." There's no big bucks in this, but NetApp can still thumb its nose at EMC.
Georgens commented on the VMware-Cisco-EMC relationship: "I think what Cisco is going to find is, once they move away from EMC’s stronghold accounts, they are going to find that their transforming is hindered by EMC... the goal that I have given our team is that I want to form the same relationship with Cisco that we have with VMware.
"I want to basically be in a position that, outside of EMC stronghold accounts, we do more business with Cisco than EMC does."
He also talked of the new relationship with Fujitsu. "I think we would say this [is] bigger than the IBM relationship, which is a fact, and so they are [an] important partner for us... we [will] jointly [build] a storage portfolio that unifies a number of their technologies, their storage management and some of [the] core technologies that we have and basically build a single product portfolio for Fujitsu that [is] based on a combination [of] their technologies and our technologies."
That hints at Fujitsu selling NetApp storage products. ®