More musings on NetApp's earnings

May 27, 2010 – The investment community was still atwitter today after NetApp’s earnings report yesterday which, among other eye-openers, included fourth quarter revenue of $1.17 billion, fiscal year revenue of $3.93 billion, and profits of 50 cents a share, excluding items (or “adjusted income”), which was well ahead of analysts’ predictions of 44 cents per share (see “NetApp wows Wall Street, doubles quarterly profits”).

NetApp (NSDQ: NTAP) shares were trading at $38.06 at one point today, up 17.36% and representing a three-year high, despite many financial analysts putting a “hold” recommendation on the stock yesterday.

Disclosure: I do not, and never did (unfortunately), own NetApp stock. That’s partially due to journalistic ethics, and partially because I’m stupid.

Another interesting tidbit that I failed to mention in our news coverage was that 71% of NetApp’s revenue came from indirect (channel) sales, and that Avnet/Arrow accounted for 27% of total revenue.

In a report on NetApp’s earnings, Canaccord/Genuity analyst Paul Mansky noted that “NetApp is firing on all cylinders and has been for three to four quarters.” However, in the “investment risk” portion of his report, Mansky reiterated his opinion that:

“Longer term, it is unclear how NetApp plans to maintain its current level of relevance as the market consolidates to vendor-centric vertical stacks. The company’s sole OEM partnership, IBM, has not evolved as planned. Absent a greater breadth of solutions, partners and services, NetApp could be relegated to a niche vendor in the data center of tomorrow.”

Which turns the old “Who will acquire NetApp?” question into perhaps a more relevant query: “Who will NetApp acquire?”

NetApp is about 18 years old, and to paraphrase one of the financial analysts: NetApp is 18, but still growing like it’s an adolescent.

Realizing NetApp’s age led me to a strange, but true, observation. I only have a couple professional memories from a period almost 20 years ago, but one is my first meeting with NetApp (Network Appliance at the time) execs when they introduced their first product. We had written some articles about Auspex, and the Network Appliance propeller heads wanted to show us their better mousetrap.

The fact that this meeting was one of only a couple that I can remember from my professional life 20 years ago can be attributed to either (a) my professional life was rather uneventful at the time, (b) my brain cells have eroded in accordance with my age and beverage preferences, or (c) I was extremely astute and prescient and recognized immediately that this “appliance” thing they had would truly shake up the storage industry. Place all bets on (a) or (b).

My thought at the time: What respectable IT person would buy something that the vendor called an “appliance?” Moreover, who would buy from a vendor that actually incorporated that word in its company name? At the time, an appliance conjured up an image of a toaster, or a Cuisinart. (Remember: This was back when a SAN was called a VAXcluster.)

The rest, as they say, is storage history.