Network Appliance Announces Results for Fourth Quarter and Fiscal Year 2006

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Sunnyvale, Calif. - May 24, 2006 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the fourth quarter and fiscal year 2006. Revenues for the fourth fiscal quarter were $598.0 million, an increase of 32% compared to revenues of $451.8 million for the same period a year ago and an increase of 11% compared to $ 537.0 million in the prior quarter.

For the fourth fiscal quarter, GAAP net income was $59.2 million, or $0.15 per share1 which includes a non-recurring income tax expense of $22.5 million, associated with the Repatriation of Foreign Profits under the Jobs Creation Act of 2004. This compares to GAAP net income of $63.4 million, or $0.16 per share for the same period in the prior year. Non-GAAP2 net income for the fourth fiscal quarter increased 34% to $89.3 million, or $0.23 per share, compared to non-GAAP net income of $66.6 million, or $0.17 per share for the same period a year ago.

Revenues for fiscal year 2006 totaled $2.07 billion, an increase of 29% compared to revenues of $1.6 billion for fiscal year 2005.
For fiscal year 2006, GAAP net income increased 18% to $266.5 million, or $0.69 per share, compared to GAAP net income of $225.8 million, or $0.59 per share for fiscal year 2005. Non-GAAP net income for fiscal year 2006 increased 33% to $315.3 million, or $0.81 per share, compared to non-GAAP net income of $237.7 million, or $0.62 per share for fiscal year 2005.

"Our fourth quarter performance tops a year of accelerating quarterly growth. This year we broadened our portfolio of enterprise data management solutions, and our results demonstrate how our value proposition resonates with customers," said Dan Warmenhoven, CEO of Network Appliance. "By helping customers reduce the cost and complexity of their storage and data management environment, Network Appliance has established itself as the innovative alternative in the storage market. We look forward to fiscal year 2007 with optimism, as we further increase our market opportunity with a new ultra high-end product and launch our next-generation operating system."

Outlook

  • Network Appliance estimates that growth in revenue for the first quarter of fiscal year 2007 will be in the range of 2% to 4%, which translates to 36% to 39% growth year-over-year.
  • Including the implementation of SFAS123(R) and with current information and assumptions, the company expects first quarter GAAP earnings per share to finish between $0.13 and $0.16 per share. Network Appliance expects first quarter non-GAAP earnings per share to be in the range of $0.23 to $0.24 per share.
  • For the full fiscal year 2007, Network Appliance estimates that revenues will finish in the range of 28% to 30% higher than fiscal year 2006.
  • The company expects GAAP earnings per share for fiscal year 2007 to be in the target range of $0.62 and $0.72 per share. Network Appliance estimates full-year non-GAAP earnings per share to be in the range of $0.99 to $1.04 per share.

Quarterly Highlights
During the fourth quarter of fiscal year 2006, Network Appliance further expanded its breadth of disk-to-disk backup and security solutions, enhanced its Fibre Channel data management offerings, and continued its leadership position in the iSCSI and network-attached storage (NAS) markets.

Earlier in the quarter, NetApp introduced an array of products, technologies, and services that highlight the broad range of NetApp® disk-to-disk backup and security solutions which simplify data backup procedures, improve recoverability, and lower backup infrastructure expenses. The new products included a significant expansion of the NetApp disk-to-disk backup family, including two offerings in the new NearStore® Virtual Tape Library (VTL) family, new Decru DataFort™ E-Series functionality for unified NAS-iSCSI protocol support, and enhanced capabilities for NetApp customers to protect their remote office/branch office (ROBO) data as well as that in their data centers. Complementary new services announced this quarter included a VTL Design and Implementation Service, a Disaster Recovery Design and Implementation Service, and a Backup and Recovery Design and Implementation Service.

NetApp SnapManager® for Microsoft® Exchange software achieved Microsoft Simple SAN designation for Microsoft Windows® Server Backup/Quick Restore. Achieving the Microsoft Simple SAN Component designation demonstrates to the market that NetApp and Microsoft are providing solutions for quick recovery of Exchange Server 2003 SP2.

This quarter, the company introduced its SnapSearch and Recovery software, the industry's first solution for search and recovery of online backup data. The new software enables customers to quickly and efficiently recover specific files from backup and archive data in minutes.

In other product news, NetApp announced its storage solutions will now support 4Gb Fibre Channel (FC). 4Gb FC combined with NetApp unified storage systems and leading-edge data management software gives customers a compelling and powerful solution for managing large and ever-growing amounts of data. NetApp 4Gb FC will allow customers to increase the performance and availability of critical data and applications, while simplifying complex data management environments, improving productivity in application administration, and lowering storage costs.

This quarter, NetApp announced that according to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q4 20053 (as of December 2005), it maintained its position as the market leader in iSCSI in both revenue and capacity for the prior 11 quarters and continued its leadership in capacity market share in NAS. NetApp demonstrated continued leadership in the iSCSI storage market, with number-one market share in capacity shipped (34.6%) and revenue (32.0%) for the full year 2005. In FC SAN, NetApp nearly doubled its year-end 2005 revenue market share to 1.6%, up from 0.9% in 2004, doubled its unit share to 2.2% from 1.1%, and grew capacity shipped by 230%. Finally, NetApp maintained leadership in its core NAS market, with a 42.6% capacity market share, and grew capacity shipped by 56% from year end 2004.

Also this quarter, NetApp extended its position in the NAS and unified storage market according to Gartner's report "Market Share: NAS/Unified Storage, Worldwide, 2000-2005"4. The total NAS and unified storage market grew 16.1% in 2005 and NetApp grew more quickly than the market, posting annual revenue growth of 22.4%. According to Gartner, the company increased its market share from 52.4% in 2004 to 55.2% in 2005. NetApp leads in both the high-end and midrange parts of the market, with 88.9% market share and 70.5% market share by revenue respectively.

On the partner front, NetApp unveiled several new solution enhancements and partner offerings with BakBone, Bocada, LogLogic, Microsoft, Syncsort and Topio to address a variety of data concerns, including data protection, compliance, data management, backup and recovery, and data replication.

In corporate news, NetApp debuted at number 929 on the FORTUNE 1000 list, the magazine's annual ranking of America's largest corporations determined by revenue. This quarter NetApp also announced the 2005 NetApp Innovation Award winners. The NetApp Innovation Awards recognize customers and partners who have implemented NetApp solutions in an innovative way to positively impact their business.

Internationally, NetApp inaugurated its new development center facility, the only one outside of the United States, at Golf Links Software Parks, Bangalore. The facility currently has the capacity to seat up to 750 people and will be a strategic center for research and product development, creating technologies that enable the largest enterprises to store, move, and manage data more effectively. A large number of Fortune 500 enterprises are global customers of NetApp, and in India the enterprise customer base is over 250 strong.

Webcast Information and Conference Call Information

  • The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com on Wednesday, May 24, 2006, 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) 383-8009 in the United States and (617) 597-5432 outside the United States. The passcode for both numbers is 49211508.
  • A replay will be available for 72 hours following the 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 63342796. The Webcast replay will be posted on our Web site for at least one year.

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 relating to our forecasted operating results and metrics for the first quarter of fiscal 2007 and for all of fiscal 2007, statements regarding our optimism for its 2007 fiscal year generally, statements regarding the anticipated benefits of our new products, technologies and services, including VTL, Decru DataFort E-Series, ROBO, Exchange Server, 4Gb products and SnapSearch and Recovery software, and statements regarding anticipated benefits from partner offerings and our Bangalore development center . 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.'s 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.

1Earnings per share represent the diluted number of shares for all periods presented.
2
Non-GAAP results of operations exclude amortization of intangible assets, in process research and development, stock compensation, restructuring charges/recoveries, net gain/loss on investments and the related effects on income taxes, as well as nonrecurring American Jobs Creation Act income tax expense and certain discrete GAAP provision for income tax matters recognized ratably for non-GAAP purposes.
3
IDC's Worldwide Quarterly Disk Storage Systems Tracker Q4 2005
4
Market Share: NAS/Unified Storage, Worldwide, 2000-2005

NetApp, NearStore and SnapManager, are registered trademarks and Network Appliance is a trademark of Network Appliance Inc. in the United States and other countries. Decru DataFort is a trademark of Decru Inc., a NetApp company. All other trademarks belong to their respective owners and should be treated as such.

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, 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 because they derive from unusual events that are not attributable to normal on going operations and thus makes it more difficult for an investor to understand our recurring operational performance. 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.

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