NetApp and Pure Storage deliver solid results on a strong day for storage suppliers

NetApp and Pure Storage deliver solid results on a strong day for storage suppliers

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Enterprise storage providers NetApp Inc. and Pure Storage Inc. both delivered solid financial results today, sending their stocks higher in after-hours trading.

NetApp reported fiscal fourth-quarter net income of $259 million, with earnings before certain costs such as stock compensation coming to $1.42 per share. Revenue rose 8% from a year ago, to $1.68 billion. The results were good, with Wall Street looking for earnings of just $1.27 per share on the same revenue of $1.68 billion.

For the full fiscal year, NetApp reported a net profit of $937 million, with revenue coming to $6.32 billion. NetApp’s stock rose more than 3% in after-hours trading on the report.

NetApp Chief Executive George Kurian (pictured) said the fourth-quarter results capped off a strong year for the company, during which it made sustained progress on its strategic goals of gaining share in enterprise storage and expanding its public cloud business.

“The strong fundamentals of our business, including our alignment to customer priorities, strong balance sheet, and prudent operational management put NetApp in a position of strength as we scale our public cloud services while continuing to drive growth in our hybrid cloud solutions,” he said.

NetApp made a name for itself as a provider of high-end enterprise storage systems, but in recent times it has been trying to reinvent itself as more of a hybrid cloud data services and data management player. Indeed, these days the bulk of its sales can be attributed to the cloud. The company has been working closely with public cloud infrastructure players such as Amazon Web Services Inc., Google Cloud and Microsoft Azure. In addition, it also sells its NetApp Ontap file storage software as a managed service on the cloud.

The company said its public cloud annualized recurring revenue rose 68% in the quarter, to $505 million. Other bright spots included its all-flash array ARR, which rose 12%, to $3.2 billion. Meanwhile, product revenue rose 6% year-over-year, the fifth straight quarter in which it has grown.

NetApp also reported fourth-quarter billings rose 16% from a year ago, to $2.02 billion. Billings is a key metric that refers to the invoice amount a company has billed to customers and is seen as a gauge of future revenues.

Moor Insights & Strategy analyst Steve McDowell told SiliconANGLE that NetApp’s cloud business continues to be a bright spot and that its team is executing well on its strategy. However, he said he’s a little concerned that the company is letting cloud distract it from its core hardware business.

“NetApp’s all-flash storage business is flat quarter-over-quarter,” he said, adding that rivals such as Dell Technologies Inc. and Pure Storage both delivered strong growth in this area. “The demand is there, but for some reason it’s not growing for NetApp as quickly as it is for its closest competitors.”

McDowell explained that this is a concern because NetApp’s cloud business, although growing fast, still accounts for only 6% of its total revenue.

“It’s critical for NetApp to innovate and grow the traditional storage business,” McDowell added. “But this isn’t a team that lets things like this fester, so I’m optimistic that whatever’s happening in all-flash is a short-term issue.”

NetApp’s forecast for the first quarter of fiscal 2023 was in-line with Wall Street’s guidance. The company said it’s looking for earnings of $1.05 to $1.15 per share on revenue of $1.48 billion to $1.63 billion, versus the consensus estimate of $1.10 per share in earnings on $1.56 billion in revenue

Pure Storage out-executes the storage market

While NetApp raised a few concerns, Pure Storage simply excelled, delivering fiscal first-quarter earnings before certain costs such as stock compensation of 25 cents per share, crushing Wall Street’s forecast of 4 cents per share.

Pure Storage also reported revenue jumped 50% from a year ago, to $620.4 million, well above the consensus estimate of $520 million. Meanwhile, its operating income of $85.4 million easily beat its own projection of $16 million.

Pure Storage CEO Charlie Giancarlo (pictured, right) told Barron’s in an interview that a number of customers had asked for storage systems to be shipped earlier than expected, explaining why it crushed analysts’ targets. Moreover, he said he sees demand trends continuing, pushing the company to lift its full-year guidance.

For the second quarter, Pure Storage is projecting revenue of $635 million, well ahead of Wall Street’s forecast of $606 million. For the full year, Pure Storage raised its revenue guidance from $2.59 billion to $2.66 billion.

The company’s growth was solid across the board. For instance, subscription services revenue rose by 35%, to $219.2 million, while subscription-based ARR rose 29%, to $899.8 million. The company also reported remaining performance obligations rose 26%, to $1.4 billion.

McDowell said Pure is out-executing everyone else in the storage market, scoring double-digit growth everywhere that it matters. “Pure Storage has spent the past few years expanding its portfolio, bringing Portworx into the fold while also aggressively pursuing cloud and as-a-service offerings,” he said. “Every one of its efforts is paying off. It’s seeing growth across the board and there’s no sign of that easing up.”

Giancarlo told Barron’s that the company is facing some supply challenges, but had become very effective in navigating “rough waters” over the past couple of years. He said that in some cases the company had even gone as far as redesigning circuit boards to address component issues.

“Pure Storage also seems to be managing its supply chain better than most of its competitors right now,” McDowell added. “There’s simply not a better storage company out there right now.”

Pure Storage’s stock rose more than 9% in extended trading, adding to a 1% gain earlier in the day.

Photos: SiliconANGLE

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