Network Appliance Announces Results for Fourth Quarter and Fiscal Year 2005

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Sunnyvale, Calif. - May 24, 2005 - Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the fourth quarter and fiscal year 2005. Revenues for the fourth fiscal quarter were $451.8 million, an increase of 34% compared to revenues of $337.0 million for the same period a year ago and a 9.5% increase compared to $412.7 million in the prior quarter.

For the fourth fiscal quarter, GAAP net income increased 74% to $63.4 million, or $0.16 per share1 compared to GAAP net income of $36.4 million, or $0.10 per share for the same period in the prior year. Pro forma2 net income for the fourth fiscal quarter increased 53% to $66.6 million, or $0.17 per share, compared to pro forma net income of $43.5 million, or $0.12 per share for the same period a year ago.

Revenues for fiscal year 2005 totaled $1.6 billion, an increase of 37% compared to revenues of $1.17 billion for fiscal year 2004.
For fiscal year 2005, GAAP net income increased 48% to $225.8 million, or $0.59 per share, compared to GAAP net income of $152.1 million, or $0.42 per share for fiscal year 2004. Pro forma net income for fiscal year 2005 increased 63% to $237.7 million, or $0.62 per share, compared to pro forma net income of $146.0 million, or $0.40 per share for fiscal year 2004.

"Fiscal 2005 was an outstanding year for Network Appliance. We achieved strong gains in revenue, captured additional market share, expanded gross margins, and broadened our offering of the most innovative products targeted at the areas of fastest growth in storage," said Dan Warmenhoven, CEO of Network Appliance. "Our continued investments in our business, combined with expanded partnerships with strategic vendors such as IBM, Microsoft, SAP, and VERITAS, lay the foundation for providing even greater value to our customers."

Outlook

  • Network Appliance estimates that revenue for the first quarter of fiscal year 2006 will grow sequentially by 3% to 6%. This projection reflects year-over-year growth rates of 30% to 33%.
  • The company expects first quarter pro forma earnings per share to finish at $0.17 to $0.18 per share. First quarter GAAP earnings per share are projected to finish at $0.16 to $0.17 per share.
  • For the full fiscal year, Network Appliance estimates that revenues will finish 32% to 35% higher than fiscal year 2005.
  • Network Appliance estimates full-year pro forma earnings per share to finish at $0.76 to $0.80 per share. GAAP earnings per share are projected for fiscal year 2006 at $0.73 to $0.77 per share.

Quarterly Highlights
During the fourth quarter of fiscal year 2005, Network Appliance reinforced its leadership position through a strategic original equipment manufacturing (OEM) relationship with IBM, increased growth in storage software and SAN, and continued leadership in the iSCSI and network-attached storage (NAS) markets.

This quarter, NetApp and IBM entered into an OEM agreement that will enable IBM to sell IBM-branded solutions based on Network Appliance™ unified and open network attached storage NAS and iSCSI/IP SAN solutions, including NearStore® and NetApp V-Series systems, as well as associated software offerings. For more information, please see our April 6, 2005 press release posted on the NetApp Web site.

Also this quarter, NetApp acquired Alacritus, a privately held company based in Pleasanton, California. The acquisition will extend the company's ability to provide a robust data protection solution to NetApp customers and help accelerate customer transitions to disk-based backup. Alacritus is best known for its Virtual Tape Library (VTL) software product, which makes disks emulate tape to provide high performance for large-scale backup environments without disrupting established tape backup workflow and processes.

On the product front, NetApp announced the latest addition to its data management and virtualization portfolio, the NetApp V-Series family which unifies SAN, IP SAN, and NAS under a common architecture. V-Series systems enable customers to extend the complete suite of groundbreaking dynamic virtualization capabilities delivered in NetApp Data ONTAP™ 7G software to third-party storage products from HDS, HP, IBM, and Sun. The unique virtualization capabilities of V-Series systems translate directly into customer cost savings and a more intelligent, fluid approach to storage asset utilization that accommodates shifting business demands. V-Series systems facilitate a single, powerful, flexible management paradigm that replaces the cumbersome management procedures of conventional arrays.

VERITAS Software Corporation and NetApp announced the availability of new integrated disk-based data protection and data management solutions for multi-vendor environments. The two companies integrated the latest version of VERITAS NetBackup™ software with NetApp NearStore storage systems and SnapVault software to help customers significantly reduce their backup and restore times with disk-based protection, while still retaining data on tape for long-term archival and disaster recovery - all through a common management console. NetBackup 6.0 integration with NetApp storage provides cost savings when using NearStore single-instance storage capabilities to eliminate redundant heterogeneous backup data. Customers can now store hundreds of backups online with minimal storage.

NetApp and VERITAS have also collaborated to integrate VERITAS Enterprise Vault™ 6.0 software with NetApp NearStore and SnapLock™ products. These integrated products offer powerful solutions to help mutual customers cope with growing compliance and regulatory requirements by delivering solutions that allow them to transparently archive data and quickly retrieve specific information as needed.

NetApp demonstrated the strongest growth in storage software according to Gartner's report "Market Share: Storage Management Software, Worldwide, 2004." 3 The total market for new license revenue in 2003 to 2004 grew at a rate of 12.3%, with Network Appliance beating the market with a growth rate of 73.5% for the same period. NetApp showed the strongest market share growth among the top 10 vendors of storage software and has moved into the top five vendors for marketshare in 2004. For the second year in a row, this was the fastest growth rate among the top 10 vendors in the space and for the first year places NetApp in the top five with a total overall market share of 5.2%.

NetApp maintained its leadership position in both the NAS and iSCSI storage markets for calendar year 2004 (CY2004). According to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q4 2004,4 NetApp demonstrated continued leadership in its core NAS market, with a 36.9% revenue share and maintained its strong lead in the iSCSI storage market, with a 43% revenue share for CY2004. In addition, NetApp remained the leader in the IP storage market (NAS and iSCSI), posting a 37.3% market share in CY2004. Also according to IDC, the company grew revenue in the open systems networked storage market, with 29.7% year-over-year (fourth quarter 2003 to fourth quarter 2004) growth, versus overall market growth of 11.6%. NetApp grew revenue in the open SAN market at 98.9%, versus the market growth of 9.2%, year-over-year (fourth quarter 2003 to fourth quarter 2004).

On the partner front, NetApp announced support of Microsoft® Windows® iSCSI Initiator 2.0. Support of the initiator demonstrates the rapid integration of NetApp storage solutions with the latest Microsoft Windows storage technologies. NetApp is among the first to support Microsoft's latest version of its iSCSI initiator, which underscores a continued vision by both companies to embrace the iSCSI protocol for the benefit of enterprise customers. NetApp also unveiled several new solution enhancements and partner offerings with Asigra, Filenet, Maranti, Microsoft, Mobius, and Sun Microsystems to address a variety of data concerns, including simplifying SQL Server integration, content management, compliance, data backup and recovery, data management, security, and other business-critical initiatives facing enterprise customers.

Conference Call Information

  • The NetApp fourth quarter and fiscal year end results conference call will be broadcast live via the Internet at http://investors.netapp.com/ on Tuesday, May 24, 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 (866) 800-8652 in the United States and (617) 614-2705 outside the United States. The passcode for both numbers is 90731703.
  • 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 79132069.

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 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 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.

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.

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, in process research and development, stock compensation, restructuring charges (recoveries), net gain on investments and the related effects on income taxes, as well as an income tax benefit from a nonrecurring foreign tax ruling.
3
Gartner Dataquest, "Market Share: Storage Management Software, Worldwide, 2004," Carolyn DiCenzo, April 19, 2005.
4
IDC, Worldwide Quarterly Disk Storage Systems Tracker Q4 2004, March 2004

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
.