Network Appliance Announces Results for First Quarter Fiscal Year 2008

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Sunnyvale, Calif. - August 15, 2007 -- Network Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked storage solutions, today reported results for the first quarter and fiscal year 2008. Revenues for the first fiscal quarter were $689.2 million, an increase of 11% compared to revenues of $621.3 million for the same period a year ago and a decrease of 14% compared to $801.2 million in the prior quarter.

For the first fiscal quarter, GAAP net income was $34.3 million, or $0.09 per share1 compared to GAAP net income of $54.7 million, or $0.14 per share for the same period in the prior year. Non-GAAP2 net income for the first fiscal quarter was $76.0 million, or $0.20 per share, compared to non-GAAP net income of $96.6 million, or $0.25 per share for the same period a year ago.

"We are clearly disappointed with our revenue growth this quarter, yet confident about our underlying business strength and continued health," said Dan Warmenhoven, chief executive officer. "Our bookings growth and cash flow are both very encouraging, and we are optimistic about getting back on track for higher growth in revenue and profits going forward."

Outlook

  • Network Appliance ( "NetApp") expects revenue for the second quarter fiscal year 2008 to be between $752 million and $768 million, with year-over-year growth of 15% to 18% and sequential growth of 9% to 11%.
  • Including the implementation of SFAS123(R) and with current information and assumptions, the company estimates that the second quarter fiscal year 2008 GAAP earnings per share will be approximately $0.16 to $0.18 per share.
  • Network Appliance expects second quarter fiscal year 2008 non-GAAP earnings per share to be approximately $0.24 to $0.26 per share.

Quarterly Highlights
During the first quarter of fiscal year 2008, NetApp® continued to offer customer solutions to reduce power and manage costs and complexity in the data center through several new product announcements, membership in The Green Grid, and solution enhancements with key partners. The company also continued to gain momentum in all of its key storage markets, including software, services, Fibre Channel (FC) storage area network (SAN), network-attached storage (NAS), and iSCSI.

This quarter NetApp set a new industry standard for deduplication technology by offering NetApp advanced single-instance storage (A-SIS) deduplication for NetApp NearStore® and FAS storage systems. This technology helps customers achieve the cost benefits of deduplication across a wide variety of environments, including backup, archival, compliance storage, and primary data sets as diverse as home directories and genomic data. The introduction of NetApp A-SIS deduplication provides customers with the ability to reduce capital expenditures and management costs by dramatically reducing the amount of storage they need to purchase and manage. The reduction in quantity of physical storage translates into savings in power and cooling costs and data center real estate costs.

Strengthening customer data manageability, NetApp also enhanced both SnapDrive®, for server storage management, and Virtual File Manager™ Enterprise Edition (VFM®-EE), for file data management, which customers leverage for increased productivity and flexibility by allowing application administrators to manage their data and react quickly to changing business conditions.

From a market perspective, according to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q1 20073, NetApp gained revenue share in networked storage, growing to a 10.5% share in Q1 2007, up from a 9.3% share at year-end 2006. NetApp also gained capacity share in networked storage, growing to 20.4% from 17.5% in the same period.

In Fibre Channel (FC) SAN, NetApp continues to grow faster than the market in both revenue and capacity, both sequentially and year over year. Sequentially, the FC SAN market revenue dropped 10.4%, while NetApp grew 12.6%. Year over year, the FC SAN market revenue grew 12.6%, while NetApp grew 103.0%. NetApp dramatically outpaced the FC SAN market in terms of capacity, growing at 263.7% year over year, compared to market growth of 57.1% during that period.

In its core NAS market, NetApp grew faster than the market sequentially in terms of both revenue and capacity. Sequentially, the NAS market revenue dropped 8.0%, while NetApp grew 10.7%. NetApp continues to lead the NAS market in terms of capacity, with a 39.3% share in Q1 2007, up from a 32.4% share in Q4 2006.

NetApp demonstrated continued leadership in the iSCSI market in terms of revenue and capacity, with first-place market share for Q1 2007 in capacity shipped (33.3%) and in revenue (24.3%). In Q1 2006, the iSCSI market revenue grew 8.6% sequentially, while NetApp grew 14.9%.

In the storage software market, NetApp grew 10 times faster than the overall storage software market from Q4'06 to Q1'07 and maintained or gained share in each submarket segment in which it provides offerings. According to IDC's Worldwide Quarterly Storage Software Tracker Q1 20074, NetApp also maintained the number two market share position in the storage replication software market, closing the gap on the market leader.

NetApp continued its leadership in storage services with a position in the Leaders quadrant of the Gartner Magic Quadrant for Storage Services, Q2'075 report.

In corporate news, NetApp was honored by the Boston Business Journal as a "Best Place to Work" in the Boston area for 2007. The NetApp New England office ranked number six in the mid-size company category, which included companies with 101 to 500 employees. NetApp was also recognized by Indiatimes Infotech, a leading technology media Website in India, as one of the "Best Tech Companies to Work For" in India for 2007.

In other corporate news, NetApp received a second Job Development Investment Grant (JDIG) from the State of North Carolina to expand its operations in Research Triangle Park.

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, August 15, 2007, at 2:00 p.m. Pacific time. This press release and any other information related to the call will also be posted on the Website at that location.
  • The conference call will also be available live in a listen-only format at (866) 510-0707 in the United States and (617) 597-5376 outside the United States. The pass code for both numbers is 35531174.
  • 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, using replay code 65528258. The Webcast replay will be posted on our Website 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 second quarter of fiscal 2008 and statements regarding the anticipated benefits of our products, technologies, and services relative to the offerings of our competitors. 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 our ability to build non-deferred backlog to levels consistent with our past results and to increase our revenue over the next several quarters; 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 expenses, acquisition-related retention costs, gain on sale of investment, restructuring charges/recoveries, prior acquisition-related costs, and the related effects on income taxes as well as certain discrete GAAP provisions for income tax matters recognized ratably for non-GAAP purposes.
3 IDC's Worldwide Quarterly Disk Storage Systems Tracker, Q1 2007.
4 IDC's Worldwide Quarterly Storage Software Tracker, Q1 2007.
5 Gartner Inc., Magic Quadrant for Storage Services, Q2'07.

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 results of operations exclude amortization of intangible assets, stock-based compensation expenses, acquisition-related retention costs, gain on sale of investment, restructuring charges/recoveries, prior acquisition-related costs, and the related effects on income taxes as well as certain discrete GAAP provisions 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.
Ingemar Lanevi
Ph: (919) 476-5750
ingemar@netapp.com

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