Network Appliance clears analyst expectations

The storage hardware maker tops analyst estimates by a penny, reporting pro forma net income of $39 million, or 11 cents a share, on revenue of $288 million.

Stephen Shankland Former Principal Writer
Stephen Shankland worked at CNET from 1998 to 2024 and wrote about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
Expertise Processors | Semiconductors | Web browsers | Quantum computing | Supercomputers | AI | 3D printing | Drones | Computer science | Physics | Programming | Materials science | USB | UWB | Android | Digital photography | Science Credentials
  • Shankland covered the tech industry for more than 25 years and was a science writer for five years before that. He has deep expertise in microprocessors, digital photography, computer hardware and software, internet standards, web technology, and more.
Stephen Shankland
3 min read
Storage hardware maker Network Appliance topped analyst estimates by a penny Thursday, reporting pro forma net income of $39 million, or 11 cents a share, on revenue of $288 million.

Analysts surveyed by First Call expected the company to report net income of 10 cents a share for the fiscal third quarter, which ended Jan. 26. NetApp, based in Sunnyvale, Calif., builds special-purpose file servers that lead the "network-attached storage" (NAS) market.

Some customers delayed spending because of the overall economic slowdown, Chief Executive Dan Warmenhoven said during a conference call following the announcement, but that factor was limited to the United States and was offset by continued dominance over competitors and the results of a beefed-up sales force.

"The competitive environment has not changed materially, and our (customer) win rates remain high," Warmenhoven said.

The company stood by analyst projections for its upcoming quarter and the next fiscal year. The next two quarters, revenue will grow sequentially at the low end of the company's estimated range of 10 to 15 percent, said Chief Financial Officer Jeffry Allen. Revenue for fiscal 2001, which ends in April, should be about $1.1 billion and should grow by 55 to 60 percent for fiscal 2002, he said.

The $288 million in revenue was a 91 percent increase from the $151 million in the year-ago quarter. The pro forma net income of $39 million was a 95 percent increase from $20 million.

NetApp, like its higher-end competition EMC, sells storage devices and thus has been somewhat insulated from slowing growth in technology spending by large companies. However, the company hasn't been unscathed; its stock has slipped $28.75, or 45 percent, from its price of $64 a share a year ago.

Analysts still say the company is strong. Thomas Weisel Partners' Doug van Dorsten said he expects NetApp to keep its market share of more than 60 percent in the NAS market, despite increasing competition from EMC and just about every server manufacturer.

About 30 percent of NetApp's business is with Internet companies, said Banc of America Securities analyst Shaw Wu, "of which about 3 percent is dot-bomb." Most of the company's customers are large businesses, he said.

"We are clearly encouraged by the enterprise penetration of our new high-end systems," Warmenhoven said in a statement Thursday.

The company shipped more than 600 of its new high-end F840 storage systems, which can cost as much as $1 million.

Warmenhoven said EMC's new IP4700, a direct competitor to NetApp's products, costs 40 percent more than a NetApp machine comparably equipped with 3.6 terabytes of storage capacity.

And NetApp President Tom Mendoza said IP4700 isn?t at the top of the EMC's sales force's agenda. "I don't think it will be any more effective than Celerra was," he said, referring to EMC's higher-end NAS device.

Although products that "cache" data closer to Internet browsers requesting Web site information accounted for only 9 percent of revenue in the most recent quarter, the company said its strategy of selling products both to originate and cache data has won deals with many customers.

"Caching and content delivery is a major factor in a number of deals," Medoza said, including sales at Ernst & young, Prudential, Vodaphone, Deutsche Telekom and TeleMex.

New customers in the most recent quarter include Air New Zeland, Oracle's application service provider business, and energy companies Haliburton, Exxon and Enron, Mendoza said.