NetApp Announces Results for Second Quarter Fiscal Year 2011

Company Reports Record Q2 FY’11 Revenues of $1.207 Billion, Up 33% Year over Year

Sunnyvale, Calif. - November 17, 2010 - NetApp (NASDAQ: NTAP) today reported results for the second quarter of fiscal year 2011, which ended October 29, 2010. Revenues for the second fiscal quarter of 2011 totaled $1.207 billion compared to revenues of $910 million for the same period a year ago, an increase of 33% year over year.

For the second quarter of fiscal year 2011, GAAP net income was $165 million or $0.42 per share[1] compared to GAAP net income of $96 million, or $0.27 per share for the same period a year ago. Non-GAAP net income for the second quarter of fiscal year 2011 was $203 million, or $0.52 per share[2], compared to non-GAAP net income of $130 million, or $0.37 per share for the same period a year ago.

Revenues for the first six months of fiscal year 2011 totaled $2.345 billion compared to revenues of $1.748 billion for the first six months of the prior fiscal year, an increase of 34% year over year.

GAAP net income for the first six months of fiscal year 2011 totaled $306 million, or $0.80 per share, compared to GAAP net income of $147 million, or $0.43 per share for the first six months of the prior fiscal year. Non-GAAP net income for the first six months of fiscal year 2011 totaled $385 million, or $1.01 per share, compared to non-GAAP net income of $206 million, or $0.60 per share for the first six months of the prior fiscal year.

"NetApp produced 49% year over year growth in product revenue and our highest non-GAAP operating margin in over a decade, while simultaneously investing aggressively in our future," said Tom Georgens, president and CEO of NetApp. "Last week, the NetApp team delivered the most comprehensive product launch in our history. By offering customers a more flexible and efficient alternative to traditional storage, NetApp further strengthened our leadership position as the platform of choice for the next generation of IT infrastructure."

Outlook

  • NetApp estimates revenue for the third quarter of fiscal year 2011 to be in the range of $1.240 billion to $1.290 billion, which equates to approximately 3% to 7% sequential revenue growth and approximately 23% to 28% year over year revenue growth.
  • NetApp estimates that third quarter fiscal year 2011 GAAP earnings per share will be approximately $0.39 to $0.41 per share. NetApp estimates that the third quarter fiscal year 2011 non-GAAP earnings per share will be approximately $0.48 to $0.50 per share.
  • NetApp estimates share count for the third quarter of fiscal year 2011 will increase to approximately 408 million shares, including an estimated 16.9 million shares from the Company's outstanding convertible notes[3] and 9.9 million shares from outstanding warrants. Share count does not include the Company's outstanding note hedges that are expected to offset 80% of the dilution from the convertible notes at maturity or conversion, which would equate to an offset of approximately 13.5 million shares if the conversion or maturity occurred in the third quarter.

Business Highlights
In the second quarter of fiscal year 2011, NetApp introduced new solutions and expanded support and integration with key partners such as VMware to help customers accelerate their move to a more integrated, efficient, and flexible shared IT infrastructure. In addition, NetApp achieved several milestones and was honored as a best place to work and one of the most trusted and strategic IT vendors in the industry. Key business highlights included the following:

NetApp and Partners Deliver Flexible and Efficient IT

  • NetApp and VMware® improve IT efficiency. NetApp made several announcements with VMware to enable customers to achieve greater efficiency in their virtual environments. NetApp integrated its unified storage technologies with VMware® View™ to help customers enhance storage efficiency and virtual desktop scalability, as well as improve performance levels. NetApp also announced support for VMware vCloud™ Director software to improve IT flexibility and efficiency and help enterprise customers and service providers to easily and cost-effectively evolve to a cloud service model. In addition, NetApp and VMware unveiled a new solution for midsize enterprises to consolidate and virtualize their Windows® environments to deliver enterprise-class IT as a service.
  • Fujitsu and NetApp help customers gain greater IT value and efficiency. Fujitsu and NetApp extended their strong, long-standing global partnership to offer a shared portfolio of products to meet the integrated storage needs of their customers. Fujitsu will expand its resale of NetApp® unified storage systems to more markets worldwide. In addition, NetApp will resell the Fujitsu ETERNUS CS800 S2 Data Protection Appliance in 22 countries across EMEA.
  • NetApp strengthens integration with Symantec to boost customers' IT efficiency. NetApp integrated its unified storage systems with the Symantec™ Thin Reclamation API to help SAN customers automatically reclaim storage space and improve overall storage efficiency. Customers can improve planning and reduce their overall IT footprint and management costs.
  • NetApp helps EMC and HP customers achieve greater efficiency. NetApp introduced its Zero Investment Promise (ZIP) for Database Promotion to assist EMC and HP customers in achieving greater storage efficiencies in their database environments. The promotion enables EMC and HP customers to reduce storage requirements, improve utilization, and decrease operating costs by engaging in a 90-day, risk-free, zero-investment trial of NetApp V-Series for their database storage infrastructures.

Milestones and Awards

  • NetApp customers deploy thousands of systems with Data ONTAP® 8. To help transition to a shared IT infrastructure, customers accelerated their adoption of NetApp Data ONTAP 8 by deploying thousands of systems to build flexible, scalable, and efficient shared storage environments that are designed to address today's business challenges and the future requirements of their businesses.
  • NetApp ranked #1 hardware vendor and #2 overall IT vendor. NetApp was ranked as the #1 hardware vendor and #2 (tied with Cisco) overall IT vendor in the 2010 CIO Insight Vendor Value Ratings survey.
  • NetApp positioned in Leaders quadrant. Gartner, Inc. positioned NetApp in the Leaders quadrant for Storage Resource Management and SAN Management Software[4]. Gartner asserted that vendors in the Leaders quadrant "have the highest combined measures of Ability to Execute and Completeness of Vision."
  • NetApp ranked #1 best place to work. NetApp was ranked #1 on the Triangle Business Journal's annual "Best Places to Work" in Research Triangle Park (RTP) list for 2010. NetApp received this honor for the Giant Businesses category, which includes companies of 1,000 employees or more; it marks the sixth time that NetApp has made this distinguished list and the second time it has been ranked #1.

Webcast and Conference Call Information
The NetApp second quarter fiscal year 2011 results conference call will be broadcast live on the Internet at investors.netapp.com on Wednesday, November 17, 2010, at 2:00 p.m. Pacific Time. This press release and any other information related to the call will also be posted on the Web site at that location. An audio replay Webcast will also be available after 4:00 p.m. Pacific Time on our Web site.

NetApp uses a hybrid format for disclosing key financial information associated with our quarterly results. Concurrent with the press release, NetApp will post and distribute a separate document with financial commentary and statistics. These prepared remarks will be available prior to the conference call in order to provide the investment community with additional time to analyze our results. This commentary will not be read during the earnings call.

About NetApp
NetApp creates innovative storage and data management solutions that deliver outstanding cost efficiency and accelerate business breakthroughs. Discover our passion for helping companies around the world go further, faster at www.netapp.com.

Press Contact: Investor Contact:
Ryan Lowry
NetApp
(408) 822-7544
ryanl@netapp.com
Shauna O'Boyle
NetApp
(408) 822-7655
oboyle@netapp.com

NetApp, the NetApp logo, Go further, faster, and Data ONTAP are trademarks in the United States and other countries. All other trademarks are the property of their respective owners.

"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, share count, and metrics for the third quarter of fiscal year 2011, expectations regarding current and new partnerships and strategic alliances, and the benefits that we expect our customers to realize from using our products and from our strategic alliances and partnerships. 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, but are not limited to, customer demand for our products and services including our recently announced new product introductions; our ability to increase revenue and manage our operating costs; increased competition risks associated with the anticipated growth in networked storage market; general economic and market conditions; our ability to deliver new product architectures and enterprise service offerings; 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 other important factors as described in NetApp reports and documents filed from time to time with the Securities and Exchange Commission (SEC), 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.

NetApp 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 ongoing operational performance. Non-GAAP net income excludes the amortization of intangible assets, stock-based compensation expenses, acquisition related income and expenses, restructuring and other charges, asset impairments, non-cash interest expense associated with our convertible debt, net losses or gains on investments, and our GAAP tax provision, but includes a non-GAAP tax provision based upon our projected annual non-GAAP effective tax rate for the first three quarters of the fiscal year and an actual non-GAAP tax provision for the fourth quarter of the fiscal year. 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 are used to: (1) measure company performance against historical results, (2) facilitate comparisons to our competitors' operating results, and (3) allow greater transparency with respect to information used by management in financial and operational decision making. In addition, these non-GAAP financial measures are used to measure company performance for the purposes of determining employee incentive plan compensation. 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.

[1] GAAP earnings per share is calculated using the diluted number of shares for all periods presented.
[2] Non-GAAP net income excludes the amortization of intangible assets, stock-based compensation expenses, acquisition related income and expenses, restructuring and other charges, asset impairments, non-cash interest expense associated with our convertible debt, net losses or gains on investments, and our GAAP tax provision, but includes a non-GAAP tax provision based upon our projected annual non-GAAP effective tax rate for the first three quarters of the fiscal year and an actual non-GAAP tax provision for the fourth quarter of the fiscal year. Non-GAAP earnings per share is calculated using the diluted number of shares for all periods presented.
[3] 80% hedged on maturity or conversion of the convertible notes.
[4] Gartner, Inc. Magic Quadrant for Storage Resource Management and SAN Management Software, Valdis Filks, Robert E. Passmore, September 21, 2010.