NetApp wows Wall Street, doubles quarterly profits

Posted on May 26, 2010

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By Dave Simpson

– Once again, NetApp (NSDQ: NTAP) exceeded expectations with its fiscal fourth quarter and fiscal year 2010 earnings report today, setting records in revenue, income from operations and net income per share. In fact, GAAP net profit more than doubled in the fourth quarter to $145.1 million, vs. $68.4 million in Q4 2009.

Highlights
Revenue for NetApp's fourth fiscal quarter was $1.17 billion. That compares to $880 million in the same period last year.

For fiscal year 2010, NetApp racked up revenue of $3.93 billion, an increase of 15% compared to GAAP revenues of $3.41 billion in fiscal 2009. Net income for the year was $400 million, compared to only $65 million in fiscal 2009.

In short, NetApp posted its highest full-year growth rate in more than a decade, according to president and CEO Tom Georgens.

As usual, NetApp officials were not very granular in breaking out revenue for specific product lines, but company officials did boast about a 50% gain in product revenue in Q4 2010 vs. Q4 2009. NetApp breaks out its income into three segments: products (hardware systems), software entitlements and maintenance (SEM), and services.

Product revenue was $759 million in the fourth quarter, representing 65% of total Q4 revenue and sequential growth of 23% over the previous quarter. SEM accounted for $174 million in revenue, or 15% of the total and only a 2% sequential growth over the previous quarter. And services accounted for $239 million, or 20% of the total and only 8% sequential growth quarter-over-quarter.

Looking ahead, NetApp officials predicted revenue in the range of $1.1 billion to $1.14 billion for the current quarter (Q1 2011), although they declined to provide guidance for the full fiscal year.

For full details, see "NetApp Q4 and FY10 Earnings Results and Supplemental Commentary."

Growth drivers
In his prepared statements and during the Q&A period of NetApp's earnings Webcast today, Georgens repeatedly cited virtualization (both server and desktop virtualization) and cloud computing as the primary drivers behind the company's growth. On the cloud computing front, he focused on the company's purported strengths in secure multi-tenancy.

Calling 2010 "the year of unified [block and file] storage," Georgens claimed that "80% of our systems deployed today run multiple protocols." He also obliquely stated that unified storage will be one of NetApp's key advantages over primary rival EMC. NetApp claims to have shipped more than 150,000 unified storage systems.

Georgens also cited data center upgrades, or the "tech refresh," as a key driver behind NetApp's growth.

Analysts have pointed out that the shift from high-end to mid-range storage systems has also provided NetApp with a competitive advantage, but Georgens apparently does not like the distinction. "I bristle at the mid-range vs. high-end [differentiator]," he said. "We had a remarkably strong quarter for our high-end systems."

For detailed share quotes/activity data, press releases, news and blogs on NetApp, visit the InfoStor Financial Index.

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