Network Appliance Announces Results for Third Quarter Fiscal Year 2006

Sunnyvale, Calif. - February 16, 2006 Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the third quarter of fiscal year 2006. Revenues for the third fiscal quarter were $537.0 million, an increase of 30% compared to revenues of $412.7 million for the same period a year ago and an increase of 11% compared to $483.1 million in the prior quarter.

For the third fiscal quarter, GAAP net income was $76.4 million, or $0.20 per share1 compared to GAAP net income of $60.1 million, or $0.16 per share for the same period in the prior year. Non-GAAP2 net income for the third fiscal quarter increased 35% to $84.7 million, or $0.22 per share, compared to non-GAAP net income of $62.8 million, or $0.16 per share for the same period a year ago.

Revenues for the first nine months of the current fiscal year totaled $1.5 billion, compared to revenues of $1.1 billion for the first nine months of the prior fiscal year, an increase of 28% year over year.

For the first nine months of the current fiscal year, GAAP net income increased 28% to $207.2 million, or $0.54 per share, compared with GAAP net income of $162.3 million, or $0.43 per share for the same period in the prior year. Non-GAAP net income for the first nine months of the current fiscal year increased 32% to $226.0 million, or $0.58 per share, compared to non-GAAP net income of $171.1 million, or $0.45 per share for the first nine months of the prior fiscal year.

"NetApp achieved significant growth in revenue and profitability during the quarter, driven in large part by the compelling value proposition of our new FAS3000 midrange product line," said Dan Warmenhoven, CEO of Network Appliance. "We provide customers with the best storage utilization rates in the industry, allowing them to decrease their total cost of ownership and increase their return on investment. Combining this with the performance and ease-of-use inherent in our full line of systems and data protection solutions, we are seeing increased uptake of NetApp in data centers around the globe."

Outlook
  • Network Appliance estimates that year-over-year growth in revenue for the fourth quarter of fiscal year 2006 will be in the range of 28% to 30%.
  • The company expects fourth quarter GAAP earnings per share to finish between $0.20 and $0.21 per share. Network Appliance expects fourth quarter non-GAAP earnings per share to be in the range of $0.22 to $0.23 per share.
  • For the full fiscal year, Network Appliance estimates that revenues will finish in the range of 28% to 29% higher than fiscal year 2005.
  • The company expects GAAP earnings per share for fiscal year 2006 to be between $0.73 and $0.74 per share. Network Appliance estimates full-year non-GAAP earnings per share to be in the range of $0.80 to $0.81 per share.
Quarterly Highlights
This quarter, NetApp® was listed in the "leader" quadrant for midrange enterprise disk arrays in Gartner's research note, "Magic Quadrant for Midrange Enterprise Disk Array, 2H05. "3 NetApp SAN solutions provide an unmatched combination of high-performance, robustness, and ease-of-use for Windows®, Solaris®, HP/UX, IBM AIX, and Linux® computing platforms.

Also this quarter, according to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q3 2005,4 NetApp demonstrated continued leadership in the iSCSI storage market, with number-one market share in capacity shipped (38.4%) and revenue (35.1%). NetApp maintained leadership in its core NAS market, with a 44.3% capacity share. Of the vendors tracked, NetApp posted the strongest year-over-year increase in FC SAN revenue, with a growth rate of 118%. Also according to IDC, NetApp experienced the fastest growth among the top five vendors in storage software with 49.4% year-over-year growth from Q2 2004 to Q2 2005 versus a market growth rate of 11.8% for the same period. Total NetApp market share in storage software grew from 5% in Q2 2004 to 6.6% in Q2 2005.

Earlier in the quarter, NetApp unveiled its Uncompromised Security Initiative, a visionary program that challenges the status quo of data security and promises to deliver industry-best solutions to the enterprise. NetApp has numerous product lines shipping today that enable it to deliver uncompromised security, including Decru® DataFort(tm) storage security appliances, NetApp disk systems running Data ONTAP® security features, and NetCache® internet access and security appliances, as well as strong partnerships with leading vendors such as Symantec that enhance the security portfolio. The NetApp Uncompromised Security Initiative provides a vision and a roadmap for customers who expect best-in-class data management, coupled with military-grade security.

In other product news, Network Appliance announced the NetCache C1300 system, the first enterprise Web security appliance delivering unmatched value for highly distributed environments and another component in the NetApp Uncompromised Security portfolio.

Furthering the relationship with NetApp, this quarter IBM announced the introduction of the IBM® System Storage™ N5000, a new series of networked storage systems designed to help midrange customers dramatically reduce their total cost of ownership, particularly enterprises operating distributed networks across remote sites. The N5000 series represents the second major technology offering resulting from IBM's relationship with NetApp announced in April 2005.

During the quarter, the FAS3020c was named "Best NAS Solution of the Year" in InfoWorld's 2006 Technology of the Year honors. This marked the second consecutive year that NetApp won Best NAS from InfoWorld. In 2005, the NetApp FAS200 series also received the award.

On the partner front, NetApp unveiled several new solution enhancements and partner offerings with Acopia Networks, Cisco, Microsoft and Network Intelligence to address a variety of data concerns, including backup and recovery, file virtualization, data migration, log management lifecycles, storage management and consolidation.

In corporate news, NetApp was named by FORTUNE magazine as one of the "100 Best Companies to Work For" for the fourth consecutive year. This year, NetApp again ranked in the top half of the list, at number 27, reflecting the company's emphasis on attracting and retaining the best talent in the industry and continuing to demonstrate the values of what NetApp CEO Dan Warmenhoven calls a "model company."

Internationally, NetApp established a regional headquarters in Hong Kong as part of the company's continuing worldwide expansion and growth. The NetApp Hong Kong office will offer regional headquarters' functions to NetApp offices, distribution, channel and systems integrator partners in Asia Pacific, including Australia, Greater China, India, Japan, New Zealand, South Korea and Southeast Asia.

NetApp celebrated 10 years as a publicly traded company on November 21, 2005. Tom Mendoza, president of NetApp, rang the opening bell at NASDAQ in New York, along with Dan Warmenhoven, CEO and David Hitz and James Lau, both founders and executive vice presidents.

Conference Call and Webcast Information
  • The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com on Wednesday, February 15, 2006, at 1:30 p.m. Pacific Time. This press release and any other information related to the call will also be posted to the Web site at that location. The conference call will also be available live in a listen-only format at (800) 591-6930 in the United States and (617) 614-4908 outside the United States. The passcode for both numbers is 29758742.
  • A replay will be available for seven days following completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, with replay code 12867394. The Webcast replay will be posted on our Web site for at least one year.
About Network Appliance
Network Appliance is a world leader in unified storage solutions for today's data-intensive enterprise. Since its inception in 1992, Network Appliance has delivered technology, product, and partner firsts to simplify data management. Information about Network Appliance™ solutions and services is available at www.netapp.com.

"Safe Harbor" Statement under U.S. Private Securities Litigation Reform Act of 1995 This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include all of the statements under the Outlook section relating to our forecasted operating results and metrics for the fourth quarter of fiscal 2006 and for all of fiscal 2006, statements regarding the anticipated benefits of our FAS3000 product line, our Uncompromised Security Initiative, and regarding our OEM relationship with IBM or our partner offerings and solution enhancements. These forward-looking statements involve risks and uncertainties, and actual results could vary. Important factors that could cause actual results to differ materially from those in the forward looking statements include general economic and industry conditions, including expenditure trends for storage-related products; risks associated with the anticipated growth in network storage and content delivery markets; our ability to deliver new product architectures and enterprise service offerings, competition risks, including our ability to design products and services that compete effectively from a price and performance perspective; our reliance on a limited number of suppliers; our ability to accurately forecast demand for our products and successfully manage our relationships with our contract manufacturers; our ability to expand our direct sales operations and reseller distribution channels; our ability to develop, maintain and strengthen our relationships with strategic partners; our ability to successfully acquire and integrate complementary businesses and technologies; foreign currency exchange rate fluctuations; and other important factors as described in Network Appliance, Inc.'s reports and documents filed from time to time with the Securities and Exchange Commission, including the factors described under the sections captioned "risk factors" in our most recently submitted 10-K and 10-Q. We disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or otherwise.

1Earnings per share represent the diluted number of shares for all periods presented.

2 Non-GAAP results of operations exclude amortization of intangible assets, in process research and development, stock compensation, restructuring charges/recoveries, net gain/loss on investments and the related effects on income taxes, as well as certain discrete GAAP provision for income tax matters recognized ratably for non-GAAP purposes.

3Magic Quadrant for Midrange Enterprise Disk Array, 2H054IDC's Worldwide Quarterly Disk Storage Systems Tracker Q3 2005

NetApp, Data ONTAP, Decru and NetCache are registered trademarks and Network Appliance and DataFort are trademarks of Network Appliance Inc. in the United States and other countries. Decru DataFort is a trademark of Decru Inc., a Network Appliance company, in the United States and other countries. IBM is a registered trademark of IBM. All other trademarks belong to their respective owners and should be treated as such.

Network Appliance Usage of Non-GAAP Financials.

The Company refers to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding the Company's operational performance. These non-GAAP financial measures exclude amortization of intangible assets, in process research and development, stock compensation, restructuring charges/recoveries, net gain/loss on investments and the related effects on income taxes, as well as certain discrete GAAP provision for income tax matters recognized ratably for non-GAAP purposes. We have excluded these items because they derive from unusual events that are not attributable to normal on-going operations and thus makes it more difficult for an investor to understand our recurring operational performance. The use of these non-GAAP financial measures has material limitations because they should not be used to evaluate our company without reference to their corresponding GAAP financial measures. As such, we compensate for these material limitations by using these non-GAAP financial measures in conjunction with GAAP financial measures.

These non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results and comparisons to competitors' operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making such as employee compensation planning. In addition, we have historically reported similar non-GAAP financial measures to our investors and believe that the inclusion of comparative numbers provides consistency in our financial reporting at this time.

Investor Contacts:
Inc. Network Appliance
Tara Calhoun
Ph: (408) 822-6909
tara@netapp.com

Inc. Network Appliance
Billie Fagenstrom
Ph: (408) 822-6428
billief@netapp.com

Media Contacts:
Mark Heers
Director Marketing and Alliance
Network Appliance
Tel: +61 2 9979 5623
mheers@netapp.com

Fiona Martin
Max Australia
Ph: (02) 9954 3492
fiona.martin@maxaustralia.com.au