Network Appliance Announces Results for Third Quarter Fiscal Year 2005

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SUNNYVALE, Calif. - February 15, 2005 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the third quarter of fiscal year 2005. Revenues for the third fiscal quarter were $412.7 million, an increase of 39% compared to revenues of $297.3 million for the same period a year ago and a 10% increase compared to $375.2 million in the prior quarter.

For the third fiscal quarter, GAAP net income increased 50% to $60.1 million, or $0.16 per share1 compared to GAAP net income of $40.2 million, or $0.11 per share for the same period in the prior year. Pro forma2 net income for the third fiscal quarter increased 57% to $62.8 million, or $0.16 per share, compared to pro forma net income of $40.1 million, or $0.11 per share for the same period a year ago.

Revenues for the first nine months of the current fiscal year totaled $1.1 billion, compared to revenues of $833.3 million for the first nine months of the prior fiscal year, an increase of 38% year over year.

For the first nine months of the current fiscal year, GAAP net income increased 40% to $162.3 million, or $0.43 per share, compared with GAAP net income of $115.6 million, or $0.32 per share for the same period in the prior year. Pro forma net income for the first nine months of the current fiscal year totaled $171.1 million, or $0.45 per share, compared to pro forma net income of $102.4 million, or $0.28 per share for the first nine months of the prior fiscal year.

"This quarter's strong, well-rounded results demonstrate that our investments in sales, services and innovation are paying off, both in product and services revenue growth," said Dan Warmenhoven, CEO of Network Appliance. "Customers' increasing need for data protection, including compliance, disk-to-disk backup, and business continuity solutions, is one of the key drivers of our growth this quarter. In addition, we expect our leadership in emerging technologies such as iSCSI, virtualization, and the storage grid to increasingly contribute to our growth over the long term."

Outlook

  • Network Appliance estimates that revenue for the fourth quarter will grow sequentially by 6% to 9%. This projection reflects year over year growth rates of 30% to 33%.
  • The company expects fourth quarter pro forma earnings per share to finish at $0.16 to $0.17 per share. Fourth quarter GAAP earnings per share are projected at $0.16 per share.
  • For the full fiscal year 2005, Network Appliance estimates that revenues will finish 35% to 36% higher than fiscal year 2004.
  • Network Appliance estimates full year pro forma earnings per share to finish at $0.60 to $0.62 per share. GAAP earnings per share are projected for fiscal year 2005 at $0.57 to $0.59 per share.

Quarterly Highlights
Throughout the third quarter of fiscal year 2005, Network Appliance reinforced its leadership position by introducing the latest version of its powerful enterprise storage software, expanding partnerships, and continuing to demonstrate leadership in the iSCSI market. Customers deploying NetApp® solutions during the quarter for a variety of database, security, and other data center and mission-critical applications included AIRBUS France, The Dow Chemical Company, GlaxoSmithKline, IKON Digital Express, Mayo Clinic, Mentor Graphics Corporation, NASA, Philips Semiconductors, RadioShack Corporation, Synopsys, Inc., and Time Warner Cable.

Network Appliance achieved a critical milestone in expanding and delivering its storage grid vision by shipping the latest version of its powerful enterprise storage software, Data ONTAP™ 7G, during the third quarter. Customers using Data ONTAP 7G and its advanced virtualization capabilities can double their storage utilization, dramatically increase I/O performance for enterprise-class applications, and significantly reduce storage management costs for multi-application environments. The two primary new features of Data ONTAP 7G that offer users compelling benefits are FlexVol™ and FlexClone™ software.

FlexVol creates dynamically virtualized, flexible data containers that eliminate performance and utilization tradeoffs and renders obsolete the notion of storage volumes being statically tied to specific physical or logical disks. In short, FlexVol is the feature of Data ONTAP 7G that provides dynamic virtualization. FlexClone enables the near-instantaneous creation of multiple, independently writable images of FlexVol data sets, with zero storage overhead. Competitive approaches for cloning data take up the same amount of storage space as the full original data set. FlexClone represents a breakthrough innovation for database applications and modeling.

Additionally, the NetApp enterprise gFiler™ storage systems will now provide Fibre Channel data access and fully leverage the new enterprise storage virtualization capabilities in Data ONTAP 7G for multi-vendor storage environments. The NetApp gFiler solution has extended its storage systems support to include the HP® StorageWorks XP Disk Array family and the IBM® TotalStorage DS4000 series (formerly named "FAStT"), complementing existing support for Hitachi Data Systems®, Hitachi Limited®, Sun™ StorEdge® 9900 Disk Array family, and IBM Enterprise Storage Server disk array systems. During the quarter, NetApp also introduced the next addition to its data management software portfolio with SnapValidator™. SnapValidator can now be applied across the full line of NetApp storage systems, across any protocol, supporting the Oracle® Databases, adding to a robust, highly reliable, and available data environment.

In the iSCSI arena, NetApp continued to drive iSCSI adoption. According to IDC, NetApp maintained a strong lead in the iSCSI SAN storage market for the third quarter of calendar year 2004 (3Q04). In its core NAS market, NetApp demonstrated continued leadership in NAS hardware for 3Q04 in both revenue and terabytes shipped. Also according to IDC, the company posted a 36.3% revenue market share, with a 13.8% increase in revenue year over year (vs. the third quarter of calendar 2003).

On the partner front, the company achieved Gold Certified status in the Microsoft Partner Program with a competency in Advanced Infrastructure Solutions recognizing NetApp expertise and total impact in the technology marketplace. NetApp also unveiled several new solution enhancements and partner offerings with Alacritus Software, Atempo, CommVault Systems, Inc., NetEx, QLogic Corporation, Red Hat Inc., Secure Computing Corporation, Sophos, and Syncsort, Inc. to address a variety of data concerns, including Internet access and security, virtual backup, data management, virus protection, data protection and recovery, iSCSI software for Linux environments and other business-critical initiatives facing enterprise customers.

In corporate news, NetApp executives, products and the overall company were honored for a variety of achievements. Chief Executive Officer Dan Warmenhoven was honored with the Ernst & Young Entrepreneur Of The Year® 2004 Award in the technology category for his outstanding vision, leadership, and achievement as CEO of Network Appliance. Cited for its "unrivaled" unified storage architecture and its "unmatched" flexibility, scalability, and continuity in the storage industry, the Network Appliance FAS270c was named "Best NAS Solution of the Year" in InfoWorld's 2005 Technology of the Year honors. NetApp was also honored by FORTUNE magazine as one of the "100 Best Companies to Work For" for the third consecutive year. This year, NetApp ranked at number 24, up from number 48 last year, reflecting the company's specific 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." The elite and prestigious FORTUNE listing is largely determined by employee feedback.

Conference Call Information
The NetApp quarterly results conference call will be broadcast live via the Internet at
http://investors.netapp.com/ on Tuesday, February 15, 2005, 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) 638-5439 in the United States and (617) 614-3945 outside the United States. The passcode for both numbers is 60737727.

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 34738667.

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.

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"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 service and product growth, leadership in emerging technologies, 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 enterprise service offerings, and our ability to design products and services 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 represent 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.

Press Contact:
Network Appliance, Inc.
Jodi Baumann
Ph: (408) 822-3974
jodi@netapp.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