Network Appliance Announces Results for Second Quarter Fiscal Year 2007

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Sunnyvale, Calif. - November 15, 2006 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the second quarter of fiscal year 2007. Revenues for the second fiscal quarter were $652.5 million, an increase of 35% compared to revenues of $483.1 million for the same period a year ago and an increase of 5% compared to $621.3 million in the prior quarter.

For the second fiscal quarter, GAAP net income was $86.9 million, or $0.22 per share1 compared to GAAP net income of $70.7 million, or $0.18 per share for the same period in the prior year. Non-GAAP2 net income for the second fiscal quarter increased 38% to $108.9 million, or $0.28 per share, compared to non-GAAP net income of $79.1 million, or $0.21 per share for the same period a year ago.

Revenues for the first six months of the current fiscal year totaled $1.27 billion, compared to revenues of $931.5 million for the first six months of the prior year, an increase of 37% year over year.

For the first six months of the current fiscal year, GAAP net income increased 8% to $141.6 million, or $0.36 per share, compared with GAAP net income of $130.8 million, or $0.34 per share for the same period in the prior year. Non-GAAP net income for the first six months of the current fiscal year totaled $205.4 million, or $0.53 per share, compared to non-GAAP net income of $141.3 million, or $0.37 per share for the first six months of the prior fiscal year.

"NetApp continues to gain momentum in enterprise data centers because we provide customers with the best value in the storage industry," said Dan Warmenhoven, CEO. "Our performance this quarter highlights our success around the world as we increase our market share and expand our reach."

Outlook

  • Network Appliance estimates that sequential growth in revenue for the third quarter of fiscal year 2007 will be in the range of 7% to 8%, which translates to 30% to 31% growth year over year.
  • Including the implementation of SFAS123(R) and with current information and assumptions, the company expects third quarter GAAP earnings per share to finish between $0.17 and $0.18 per share. Network Appliance expects third quarter non-GAAP earnings per share to be about $0.28 per share.
  • For the full fiscal year 2007, Network Appliance estimates that revenues will finish in the range of 33% to 34% higher than fiscal year 2006.
  • Including the implementation of SFAS123(R) and with current information and assumptions, the company expects GAAP earnings per share for fiscal year 2007 to be in the target range of $0.73 to $0.76 per share. Network Appliance estimates that full-year non-GAAP earnings per share will finish between $1.10 to $1.11 per share.

Quarterly Highlights
During the second quarter of fiscal year 2007, Network Appliance demonstrated growth in several key areas including market share, customer deployments, product lines, and functionality in archive and compliance, VTL, data migration and data retention. The company also continued its leadership position in the iSCSI and network-attached storage markets and showed strong growth in the Fibre Channel SAN market.

In the second quarter, NetApp outlined its comprehensive strategy for a unified approach to both archive and compliance, offering a product and service portfolio to help customers solve their growing and changing data challenges. The NetApp announcement challenged the industry's conventional approach of forcing customers to deploy separate storage silos for their backup, archive, compliance, and primary storage needs and urged customers to save time, money, and manpower with a unified archive and compliance solution. The NetApp approach offers solutions to five standard storage needs to satisfy data management regulations including data classification, data discovery, data migration, data permanence, and data security and privacy.

Evolving corporate governance policies and a heightened emphasis on storage efficiency demand that today's enterprise deploy archival solutions that will easily scale and adapt with changing business needs. E-mail leads the list of applications that are being archived in data centers around the world. This quarter, a study commissioned by NetApp and conducted by VeriTest found that Symantec® Enterprise Vault™ software for e-mail archival environments running on NetApp storage delivers customers up to twice the performance of EMC Centera Gen4 storage. The VeriTest study compared the performance of the NetApp® FAS3050 and NearStore® R200 storage systems to that of EMC Centera Gen4 storage. The results are further proof that NetApp storage provides customers with a fast, flexible, and cost-effective solution for e-mail archival and various compliance needs.

Also on the product front, NetApp introduced three Virtual Tape Library (VTL) solutions designed for demanding data center backup environments. NearStore VTL300, VTL700, and VTL1400 provide customers with the ability to substantially increase backup and recovery service levels by doubling to tripling the amount of backup data that can be stored on disk while also increasing VTL write performance by over 50% compared to the industry-leading performance of existing NetApp VTL systems.

From a market perspective, according to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q2 20063, NetApp led the networked storage market in capacity share, growing to 21%, which is a statistical tie with EMC. NetApp also grew faster than the market in capacity shipped in networked storage, growing at 111% year over year while the market grew at 59%. In terms of revenue, NetApp grew faster than the market from Q2 2005 to Q2 2006 at 21%, while the market grew at 11%.

NetApp demonstrated continued leadership in the iSCSI market in terms of revenue and capacity in both Q2 2006 and the first half of 2006, with first-place market share for Q2 2006 in capacity shipped (44%) and in revenue (28%).

In its core NAS market, NetApp was number one in Q2 2006 for capacity shipped, with 47% market share. Year over year, the NAS market grew 77% in terms of capacity shipped while NetApp grew 85%. Sequentially, the NAS market grew at 11.3% while NetApp grew at 13.5%.

Of all the vendors tracked by IDC in Fibre Channel (FC) SAN, NetApp continues to grow faster than the market in both revenue and capacity, sequentially and year over year. For capacity shipped, NetApp grew at 240% year over year while the market grew at 47%. In terms of revenue, NetApp grew at 66% year over year while the market grew at 8%.

In the SAN market, NetApp announced a new milestone this quarter with 10,000 production deployments of NetApp storage area network (SAN) solutions, including 3,000 FC SANs and 7,000 IP SANs. The NetApp SAN growth is the result of the company's innovative solutions which enable the easiest provisioning and management, affordable business continuity, and nondisruptive backups with instant data recovery in all data center environments-central, departmental, and distributed.

On the partner front, NetApp joined the Microsoft Technology Center (MTC) Alliance Member Program. As part of this program, NetApp storage has been installed in Microsoft Technology Centers worldwide.

Additionally, NetApp announced that more than 5,000 enterprises worldwide use the Oracle® on NetApp solution to help simplify the management of their backup/recovery, archiving, data protection, compliance, and primary storage processes.

In corporate news, Dan Warmenhoven received a CEO Ambassador Award from Boardroom Bound, a nonprofit organization that helps corporations identify and prequalify women and minority director candidates for corporate board service. Warmenhoven was honored for instilling the value of diversity at NetApp and on the company's board. NetApp was also honored for the third year in a row by the Triangle Business Journal as a "Best Place to Work" in Research Triangle Park (RTP) for 2006. NetApp earned first place honors in the large company category, which included companies with 150 employees or more. NetApp employees based in RTP who responded to a survey from the publication gave the company high marks for its team-oriented work environment, exceptional people practices, strong executive leadership, and effective manager relationships.

Webcast and Conference Call Information

  • The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com on Wednesday, November 15, 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 (800) 260-8140 in the United States and (617) 614-3672 outside the United States. The passcode for both numbers is 51700684.
  • 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 38201788. 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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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 third quarter of fiscal 2007 and for all of fiscal 2007; statements regarding our optimism for our 2007 fiscal year generally; statements regarding the anticipated benefits of our products, technologies, and services relative to the offerings of our competitors; and statements regarding anticipated benefits from partner offerings. 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. 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.

1 Earnings per share represents the diluted number of shares for all periods presented.
2
Non-GAAP results of operations exclude amortization of intangible assets, stock-based compensation, in process research and development, restructuring charges/recoveries, gain/loss on sale of assets and investments, specified nonrecurring discrete events, and the related effects on income taxes.
3
IDC's Worldwide Quarterly Disk Storage Systems Tracker Q2 2006.

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 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 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 Dhillon
Ph: (408) 822-6909
tara@netapp.com

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