Network Appliance Announces Results for Second Quarter Fiscal Year 2005

SUNNYVALE, Calif. -- November 16, 2004 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the second quarter of fiscal year 2005. Revenues for the second fiscal quarter were $375.2 million; an increase of 36% compared to revenues of $275.6 million for the same period a year ago and a 5% increase compared to $358.4 million in the prior quarter.

For the second fiscal quarter, GAAP net income increased 14% to $55.3 million, or $0.15 per share1 compared to GAAP net income of $48.4 million, or $0.13 per share for the same period in the prior year. Pro forma2 net income for the second fiscal quarter increased 74% to $58.4 million, or $0.16 per share, compared to pro forma net income of $33.6 million, or $0.09 per share for the same period a year ago.

Revenues for the first six months of the current fiscal year totaled $733.6 million, compared to revenues of $536.1 million for the first six months of the prior fiscal year, an increase of 37% year over year.

For the first six months of the current fiscal year, GAAP net income increased 35% to $102.2 million, or $0.27 per share, compared with GAAP net income of $75.5 million, or $0.21 per share for the same period in the prior year. Pro forma net income for the first six months of the current fiscal year totaled $108.2 million, or $0.29 per share, compared to pro forma net income of $62.4 million, or $0.17 per share for the first six months of the prior fiscal year.

"NetApp achieved strong growth across all product lines, segments, and geographies," said Dan Warmenhoven, CEO of Network Appliance. "NetApp is gaining momentum in the highest growth segments of the storage market by offering innovative and cost-effective solutions for today's IT challenges. Data ONTAP 7G, our next generation operating system announced yesterday, is an example of unique, breakthrough technology which empowers customers to do more with less. Data ONTAP 7G provides dynamic storage virtualization capabilities unmatched in the industry."

Outlook

  • Network Appliance estimates that revenue for the third quarter will grow sequentially by 7% to 9%. This projection reflects year over year growth rates of 35% to 38%.
  • The company expects third quarter pro forma earnings per share to finish at $0.15 to $0.16 per share. Third quarter GAAP earnings per share are projected to round to $0.15 per share.
  • For the full fiscal year 2005, Network Appliance estimates that revenues will finish 35% to 37% higher than fiscal year 2004.
  • Network Appliance estimates full year pro forma earnings per share to finish at $0.60 to $0.61 per share. GAAP earnings per share are projected for fiscal year 2005 at $0.57 to $0.58 per share.

Quarterly Highlights
Throughout the second quarter of fiscal year 2005, Network Appliance reinforced its leadership position by introducing new security and compliance solutions, expanding partnerships, and continuing to grow iSCSI deployments. Customers deploying NetApp® solutions during the quarter for a variety of database, security, and other data center and mission-critical applications included Alyeska Pipeline, Anadarko, China Netcom, Consol Energy, Constellation Energy, the Federal Trade Commission, FMC Subsea Kongsberg, the General Services Administration, HypoVereinsbank, Jet Propulsion Labs (JPL), Nexan, Nokia, Rakuten, Saudi Aramco, Shamrock Foods, Siemens Business Services, Square Enix, The Times of India, Trader Media, the United States Air Force (USAF), and Voca Limited.

A wide range of enterprise customers have chosen to deploy NetApp for a variety of reasons-reduced complexity, a low total cost of ownership (TCO), and advanced management capabilities made possible through Data ONTAP and a range of additional storage software packages that unleash the value of enterprise data.

On the partners front, NetApp unveiled several new solution enhancements and partner offerings with Computer Associates, Decru, FalconStor, Novell, Smartronix, Symantec, Vignette, and Websense to address a variety of data concerns, including Internet access and security, interoperability, data protection and recovery, storage and server consolidation and other business-critical initiatives facing enterprise customers.

To help companies meet stringent data storage regulations, including regulations mandated by U.S. SEC Rule 17a-4, NetApp introduced a new software product-LockVault. LockVault delivers powerful backup, disaster recovery, and data permanence capabilities for unstructured data, enabling customers to address both backup and compliance challenges with a single comprehensive solution. Companies can now leverage the same infrastructure to meet both their backup and compliance requirements.

In the Internet security arena, NetApp released NetCache® 6.0 software to further enhance and strengthen its market-leading Internet access and security solution. NetCache 6.0 software helps guard against security threats, expands support for industry-leading security partners, minimizes virus and hacking risks, and accelerates and improves management of customers' Web and application information providing security, cost savings, and flexibility.

Another iSCSI milestone was achieved this quarter with Siemens Corporate Research (SCR), a division of Siemens AG, becoming the 750th iSCSI customer deployment in IP SAN (storage area network) configurations. NetApp IP SAN solutions are an excellent choice for companies seeking to consolidate storage and server resources, maximize existing IT investments and headcount, and reduce complexity in the data center.

The company was also honored by the Triangle Business Journal (North Carolina) as "one of the best companies to work for in the Triangle." Network Appliance employees based in Research Triangle Park (RTP), North Carolina, responding to a survey from the publication, gave the company high marks for its positive work environment, exceptional benefits package, strong executive leadership, and effective manager relationships.

Conference Call Information
The NetApp quarterly results conference call will be broadcast live via the Internet at
http://investors.netapp.com/ on Tuesday, November 16, 2004, at 2:00 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) 510-9834 in the United States and (617) 614-3669 outside the United States. The passcode for both numbers is 10326317.

A replay will be available for 72 hours 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 28877055.

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 continue to drive "The evolution of storage.™" 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 market and market share trends that benefit the Company, continued customer acceptance of the Company's products, and all of the statements under the Outlook section. These forward-looking statements involve risks and uncertainties, and actual results could vary. Factors that could impact our ability to achieve our goals include general economic and industry conditions, including expenditure trends for storage-related products; our ability to deliver new product architectures and products that meet market acceptance; our ability to design products that compete effectively from a price and performance perspective; 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 our most recently submitted 10-K and 10-Q.

1Earnings per share represents the diluted number of shares for all periods presented.
2
Pro forma results for all periods presented and the projections in the Outlook section exclude amortization of intangible assets, stock compensation, restructuring charges, net gain/loss on investments, and the related effects on income taxes, as well as an income tax benefit from a nonrecurring foreign tax ruling.

NetApp and NetCache are registered trademarks and Network Appliance, Data ONTAP, LockVault and The evolution of storage 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 Pro Forma 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. In addition, 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:
Voce Communications
Dave Black
Ph: (650) 228-5163
dblack@vocecomm.com

Investor Contacts:

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

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

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