NetApp has released financial results for the first quarter of FY2024. Revenue is down, billings are down, and ARR for the public cloud is stagnant. Things look very different to this time last year when all the signs looked positive. What’s changed?
Background
Figure 1 shows quarterly revenue data for the period 1Q FY2019 through to the latest 1Q FY2024 period. Year-on-year revenue is down 10.1%, while billings are down 16.7% (not shown in the graph but reported in the earnings slides). Figure 2 shows the same data for revenue split by quarters. The current period represents the third quarter of year-on-year revenue decline.
In Figure 3, we’ve shown the annual recurring revenue (ARR) from the public cloud using NetApp data reported in the earnings slides. After initial rapid growth, ARR has stabilised and settled at around $600 million, or approximately $150 million in revenue per quarter. Growth is 6% compared to the same period last year but down marginally (0.2%) on the previous quarter.
Annual data up to the end of FY2023 can be found in our post that covered the end of the financial year (published 2 June 2023).
Product
As highlighted in the briefing call after the data was released, NetApp announced the new C-Series back in February and relaunched the ASA in May 2023. We don’t think either of these products has made any impact on all-flash revenue, which was down 7% year-on-year.
Cloud
The more significant question to ask on publication of these results is what has happened with the strategy to embrace the public cloud? ARR has flatlined, which could indicate market saturation or a reluctance by customers to increase spending in a tight market. Remember that NetApp doesn’t own most of these customers, so can’t directly influence their future spending.
When we looked at the Q1 data for FY2023, one concern was how the public cloud business would be expanded following the departure of Anthony Lye. We still don’t see any strategy emerging in this area. It’s notable that the Spot business wasn’t mentioned once on the earnings call.
The Architect’s View®
Insight, the annual NetApp user conference is only two months away. In common with all vendors, NetApp likes to keep product news in hand to announce at the event. It’s possible that we will see new products and services or even a revamped approach to the BlueXP strategy emerge at the show. We expect that this means genuine innovation and not just another vendor jumping on the generative AI bandwagon.
We’re hoping by the time we reach the next quarter, there will be some news on technology worth reporting. At the moment, it seems that the company is in a holding pattern, waiting out a potential market recovery, with an unclear strategy across all business units.
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