Network Appliance Announces Results for Third Quarter Fiscal Year 2007

Sunnyvale, Calif. - February 15, 2007 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the third quarter of fiscal year 2007. Revenues for the third fiscal quarter were $729.3 million, an increase of 36% compared to revenues of $537.0 million for the same period a year ago and an increase of 12% compared to $652.5 million in the prior quarter.

For the third fiscal quarter, GAAP net income was $66.5 million, or $0.17 per share1 compared to GAAP net income of $76.4 million, or $0.20 per share for the same period in the prior year. Non-GAAP2 net income for the third fiscal quarter increased 31% to $111.1 million, or $0.29 per share, compared to non-GAAP net income of $84.7 million, or $0.22 per share for the same period a year ago.

Revenues for the first nine months of the current fiscal year totaled $2.0 billion, compared to revenues of $1.47 billion for the first nine months of the prior year, an increase of 36% year over year.

For the first nine months of the current fiscal year, GAAP net income totaled $208.1 million, or $0.53 per share, compared with GAAP net income of $207.2 million, or $0.54 per share for the same period in the prior year. Non-GAAP net income for the first nine months of the current fiscal year totaled $316.5 million, or $0.81 per share, compared to non-GAAP net income of $226 million, or $0.58 per share for the first nine months of the prior fiscal year.

"Our third quarter performance again demonstrates that customers increasingly understand the NetApp data management value proposition," said Dan Warmenhoven, chief executive officer. "With revenues up 36% over Q3 of last year, and 100 petabytes of storage shipped during the quarter, NetApp is quickly becoming the vendor of choice for enterprise customers' storage and data management needs."

Outlook
  • Network Appliance estimates that sequential growth in revenue for the fourth quarter of fiscal year 2007 will be in the range of 8% to 10%, which translates to 32% to 34% growth year over year.
  • Including the implementation of SFAS123(R) and with current information and assumptions, the company expects fourth quarter GAAP earnings per share to finish between $0.19 and $0.20 per share. Network Appliance expects fourth quarter non-GAAP earnings to round to $0.30 per share.
  • For the full fiscal year 2007, Network Appliance estimates that revenues will finish in the range of 35% to 36% higher than fiscal year 2006.
  • Including the implementation of SFAS123(R) and with current information and assumptions, the company expects GAAP earnings per share for fiscal year 2007 to be about $0.73 per share. Network Appliance estimates full-year non-GAAP earnings per share will finish between $1.11 to $1.12 per share.

Quarterly Highlights
During the third quarter of fiscal year 2007, Network Appliance continued to enhance its data management and data protection portfolios with a key acquisition and several product announcements. It also extended its data center portfolio with several additions including new midrange platforms, broader Fibre Channel (FC) storage area network (SAN) capabilities and significant enhancements in the NetApp® Manageability Software Family. The company also continued to gain momentum in the storage area network (SAN) market while maintaining strong leadership in both the network-attached storage (NAS) and iSCSI markets.

This quarter, NetApp completed the acquisition of Topio, a privately held Santa Clara, California-based company with R&D in Haifa, Israel. The acquisition continues to expand the NetApp data protection portfolio by adding heterogeneous disaster recovery capabilities to existing heterogeneous disk-to-disk backup solutions from NetApp. In addition to delivering a broader range of data protection, data migration, and data cloning capabilities, this acquisition expands the NetApp heterogeneous data protection portfolio by simplifying the replication of data from other storage arrays to NetApp storage systems.

Also during the third quarter, NetApp extended its data center portfolio with the addition of its highest-performing midrange platforms, the FAS3070 and V3070 series; broader FC SAN capabilities; significant enhancements and introductions in the NetApp Manageability Software Family; and new professional services, all aimed at making enterprise data center management easier for customers who demand high-performance SAN solutions and increased application uptime to meet their business needs.

From a market perspective, according to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q3 20063, NetApp gained share in both capacity shipped and revenue for the FC SAN market. NetApp also continued to grow faster than the market in FC SAN in both revenue and capacity, year over year. For capacity shipped, NetApp grew at 210.2%, while the market grew at 46.3%. In terms of revenue, NetApp grew faster than the market for the 11th consecutive quarter at 62.1%, while the market grew at 14.1%. Sequentially, NetApp grew at 16.0%, while the market grew at 6.4%.

NetApp also demonstrated continued leadership in the NAS and iSCSI storage markets in the third quarter, according to IDC. NetApp maintained the number-one market share position in capacity shipped for NAS (42.0%) and in iSCSI for both capacity shipped (32.6%) and revenue (21.5%).

In IDC's calculations of the network storage market (which includes SAN, NAS, and iSCSI), NetApp grew faster than the market, year over year, in both capacity shipped and revenue. For capacity shipped, NetApp grew at 106.8%, while the market grew at 62.6%. In terms of revenue, NetApp grew 18.9%, while the market grew at 17.2%.

Also this quarter, NetApp continued its midrange leadership with the news that it has been positioned by Gartner, Inc., in the "Leaders" quadrant for midrange enterprise disk arrays in its research note, "Magic Quadrant for Midrange Enterprise Disk Array, 2H06 "4 .

On the partner front, NetApp announced general availability of two software products in support of Microsoft® Exchange Server 2007. NetApp SnapManager® 4.0 for Exchange Server and NetApp Single Mailbox Recovery 4.2, a near-instantaneous backup and recovery software solution for Exchange Server 2007, provide customers with enterprise-class backup, recovery, and restoration solutions. With the availability of these products, NetApp is helping Exchange Server 2007 customers achieve near-instantaneous, granular recovery of Exchange Server data without a prohibitive-and expensive-increase in storage capacity needs.

In corporate news, NetApp was named by FORTUNE magazine as one of the "100 Best Companies to Work For" for the fifth consecutive year. This year, NetApp ranked in the top 10 of the list, at number six, 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." Also this quarter, NetApp was named to Forbes magazine's "400 Best Big Companies in America" list for 2007.

This quarter, Dave Hitz, EVP and cofounder of Network Appliance, was inducted into the CRN Industry Hall of Fame for developing a disruptive technology that altered the landscape of the storage industry.

And finally, NetApp was honored as the 2006 Entrepreneurial Company of the Year by the Peninsula Chapter of the Stanford Business School Alumni Association.

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 that simplify data management. Information about Network ApplianceTM solutions and services is available at www.netapp.com.

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 2007 and for all of fiscal 2007; statements regarding our optimism for our 2007 fiscal year generally; statements regarding the anticipated benefits of our products, technologies, and services relative to the offerings of our competitors; statements regarding anticipated benefits from partner offerings; and statements regarding anticipated benefits from our acquisition of Topio. 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; 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.

1 Earnings per share represents the diluted number of shares for all periods presented.
2 Non-GAAP results of operations exclude amortization of intangible assets, stock-based compensation expenses, other acquisition-related cost, in-process research and development, restructuring charges/recoveries, gain/loss on sale of assets and investments, specified nonrecurring discrete events, and the related effects on income taxes.
3 IDC's Worldwide Quarterly Disk Storage Systems Tracker Q3 2006.
4 Gartner, Inc. "Magic Quadrant for Midrange Enterprise Disk Array, 2H06."

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, other acquisition-related cost, 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 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.