Network Appliance Announces Results For Second Quarter Fiscal Year 2008

SUNNYVALE, Calif. - November 14, 2007 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the second quarter of fiscal year 2008. Revenues for the second fiscal quarter were $792.2 million, an increase of 21% compared to revenues of $652.5 million for the same period a year ago and an increase of 15% compared to $689.2 million in the prior quarter.

For the second fiscal quarter, GAAP net income was $83.8 million, or $0.23 per share1 compared to GAAP net income of $86.9 million, or $0.22 per share for the same period in the prior year. Non-GAAP2 net income for the second fiscal quarter was $116.4 million, or $0.32 per share, compared to non-GAAP net income of $108.9 million, or $0.28 per share for the same period a year ago.

Revenues for the first six months of the current fiscal year totaled $1.48 billion, compared to revenues of $1.27 billion for the first six months of the prior year, an increase of 16% year over year.

GAAP net income for the first six months of the current fiscal year totaled $118.1 million, or $0.32 per share, compared to GAAP net income of $141.6 million, or $0.36 per share for the first six months of the prior fiscal year. Non-GAAP net income for the first six months of the current fiscal year totaled $192.4 million, or $0.52 per share, compared to non-GAAP net income of $205.4 million, or $0.53 per share for the first six months of the prior fiscal year.

"The NetApp team delivered an outstanding quarter, with a combination of high revenue growth and good expense management," said Dan Warmenhoven, chief executive officer. "The revenue growth was driven by strength in U. S. Federal and much of Europe and Asia, and largely offset the continued sluggishness in U.S. enterprise spending. Our innovative solutions provide customers with higher utilization, simpler operations, and reduced costs, and those advantages enable us to continue to gain share in a more constrained spending environment."

Outlook
  • Network Appliance ( "NetApp") expects revenue for the third quarter of fiscal year 2008 to be between $872 million and $883 million, with year-over-year growth of approximately 20% to 21% and sequential growth of approximately 10% to 12%.
  • Including the effect of SFAS123(R) and with current information and assumptions, the company estimates that the third quarter fiscal year 2008 GAAP earnings per share will be approximately $0.23 to $0.24 per share.
  • Network Appliance expects third quarter fiscal year 2008 non-GAAP earnings per share to be approximately $0.33 to $0.34 per share.
Quarterly Highlights
During the second quarter of fiscal year 2008, NetApp brought the market a new storage system for Midsize Enterprise customers with the unveiling of the NetApp® FAS2000 series. The new solutions with deployment and auditing services are designed to help simplify data management and maximize IT investments for customers and offer them the ability to accomplish more with fewer resources. The architectural advantage of all NetApp storage systems, and the new FAS2000 series in particular, allows customers to readily consolidate direct-attached storage (DAS) into a single networked solution and scale on demand.

NetApp also introduced the new StoreVault™ S300, an all-in-one storage solution for small and medium-sized businesses (SMB), with features and capabilities at a cost that had previously been unavailable to customers in this market segment. The StoreVault S500 was named a winner of the "Editors' Best Awards" in the storage category by Penton Media's Windows® IT Pro and was honored as a "Best Solution" at the Government Technology Conference (GTC) East 2007.

NetApp strengthened its relationship with VMware, underscoring the fact that the value of server virtualization is dramatically increased with the addition of networked storage on the back end. To make disaster recovery more affordable, flexible, and simpler to manage for customers, NetApp integrated its data protection portfolio of solutions with VMware® Site Recovery Manager.

Also during the quarter, leveraging its experience delivering simplified storage solutions for production grid environments, NetApp joined with Oracle on the development of the Direct NFS Client, a significant innovation included in Oracle® Database 11g™ that helps provide customers with improved performance, simplified management, increased flexibility, and better application availability.

For channel partners, NetApp opened more service opportunities to NetApp VIP Program partners with a new Installation Accreditation initiative, giving partners the opportunity to sell NetApp installation services independently or utilizing NetApp best practices. The company also received a 2007 Rising Star award, presented by the Global Technology Distribution Council (GTDC), which recognizes the IT industry's fastest-growing manufacturers doing business with GTDC member distributors. In addition, channel partners and readers of CMP Technology's VARBusiness recognized NetApp for outstanding product innovation as evidenced by the Annual Report Card (ARC) award program.

From a market perspective, NetApp gained share in both the storage software and hardware markets in the first half of 2007, as reported in IDC's Worldwide Quarterly Storage Software Tracker Q2 20073 and Worldwide Quarterly Disk Storage Systems Tracker Q2 20074. NetApp grew twice as fast as the overall storage software market from Q1'07 to Q2'07, and posted share gains across each submarket segment in which it provides offerings. This marks the eighth consecutive quarter in which the company outpaced the overall storage software market. IDC also found that in that time period NetApp grew fastest among the top five storage replication software vendors and that it currently holds the number two position. In addition, NetApp continues to lead the iSCSI market in terms of revenue and capacity, and gained both revenue and capacity share in the FC SAN market. NetApp also continues to lead in its core market of NAS in terms of capacity.

In industry news, NetApp joined the newly created Storage Networking Industry Association (SNIA) Green Storage Initiative, dedicated to advancing energy efficiency and conservation in storage technologies in an effort to minimize the environmental impact of data storage operations.

In corporate news, NetApp broke ground on an engineering lab facility located at the NetApp technology center in Research Triangle Park (RTP) to expand its engineering and development efforts in the region. Also, for the fourth year in a row, NetApp earned top workplace honors from the Triangle Business Journal, ranking as one of the top 15 "Best Places to Work" in RTP. The company was also honored as a "Top Corporate Philanthropist in Silicon Valley" by the Silicon Valley/San Jose Business Journal.

As part of the company's continuing worldwide expansion and growth, NetApp announced a strengthened commitment to the Asia Pacific (APAC) region with the inauguration of a new Technical Support Center (TSC) in Dalian, China, and by opening new manufacturing and logistics centers in Shanghai and Singapore, respectively, furthering the ability of NetApp to serve more customers and partners in the region.

Webcast and Conference Call Information
  • The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com on Wednesday, November 14, 2007, at 2:00 p.m. Pacific time. This press release and any other information related to the call will also be posted on the Website at that location.
  • The conference call will also be available live in a listen-only format at (866) 356-4281 in the United States and (617) 597-5395 outside the United States. The pass code for both numbers is 15908718.
  • A replay will be available for 72 hours following the completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, using replay code 48003480. The Webcast replay will be posted on our Web site for at least one year.
About Network Appliance
Network Appliance is a leading provider of innovative data management solutions that simplify the complexities of storing, managing, protecting, and retaining enterprise data. Market leaders around the world choose NetApp to help them reduce cost, minimize risk, and adapt to change. For solutions that deliver unmatched simplicity and value, visit us on the Web at www-au.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 third quarter of fiscal 2008, statements regarding our growth opportunity, and statements regarding the anticipated benefits of our products, technologies, and services relative to the offerings of our competitors. 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 our ability to build non-deferred backlog to levels consistent with our past results and to increase our revenue over the next several quarters; 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; risks with new product introductions; 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 and product offerings with strategic partners; risks associated with international operations; 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. 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 represents the diluted number of shares for all periods presented.
2Non-GAAP results of operations exclude amortization of intangible assets, stock-based compensation expenses, acquisition-related retention costs, gain on sale of investment, restructuring charges/recoveries, prior acquisition-related costs, and the related effects on income taxes as well as certain discrete GAAP provisions for income tax matters recognized ratably for non-GAAP purposes.
3IDC Worldwide Quarterly Storage Software Tracker Q2 2007.
4IDC Worldwide Quarterly Disk Storage Systems Tracker Q2 2007.

NetApp is a registered trademark and Network Appliance and StoreVault are trademarks of Network Appliance, Inc. in the U.S. and other countries. All other brands or products are trademarks or registered trademarks of their respective holders 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 results of operations exclude amortization of intangible assets, stock-based compensation expenses, acquisition-related retention costs, gain on sale of investment, restructuring charges/recoveries, prior acquisition-related costs, and the related effects on income taxes as well as certain discrete GAAP provisions for income tax matters recognized ratably for non-GAAP purposes. We have excluded these items in order to enhance investors' understanding of our ongoing operations. 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.

Press Contact:
Network Appliance, Inc.
NetApp PR Hotline
Ph: (408) 822-3287
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Investor Contacts:
Network Appliance, Inc.
Tara Dhillon
Ph: (408) 822-6909
tara@netapp.com

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