NetApp, Inc. has announced financial results for the first quarter of financial year 2025, ending July 2024.  The data shows revenue up 7.6% compared to Q1 FY2024, with net income up 58%.  All-flash array revenue is up 21%, year-on-year.  However, public cloud revenue continues to look flat, up 3.2% compared to the previous year.  These results show two stories and areas of focus for the coming year.

Background

NetApp, Inc. reported financial data for Q1 FY2025 on 28^th August 2024.  The data shows revenue up 7.6% year-on-year to $1.54 billion for the quarter, which represents approximately 43.4% in product sales, 41% in support and 10.3% from Public Cloud.  As Figure 3 shows, NetApp’s revenue is cyclical, with a lower figure expected in Q1 that increases over Q2-Q4. 

We present the latest financial data across seven graphs, labelled Figures 1 to 7.  We have added a new graph showing quarterly public cloud revenue, as it appears NetApp has stopped providing Public Cloud ARR data.  There is also no breakdown in Product Hardware vs Product Software in this quarter’s figures, which will be more apparent in the annual graphs when FY2025 is included. We have also added a new graph showing gross margin.

Two Tracks

This data shows two parallel stories.  Firstly, the product hardware business is growing nicely.  All-flash revenue (which let’s be honest is most hardware) has grown 21% year-on-year, following the introduction of new products that expand the choices for customers.  These are C-Series, improved AFF A-Series and relaunched ASA.  NetApp believes these products can address the existing hybrid storage market and replace disk-based systems. Links to details on all these products are included later on in this post. 

The second story is the evolving integration of storage for the public cloud.  NetApp has natively integrated solutions for the three major Western cloud vendors (AWS, Azure, and Google Cloud), the only vendor with this capability.  Alongside this business is a set of features for public cloud deployment and optimisation, such as Spot and Instaclustr. 

Until the current reporting period, NetApp showed Public Cloud ARR (Annualised Recurring Revenue), which we’ve reported as flatlining over recent quarters.  This data is no longer available in the latest financial report, so instead, we’ve shown the revenue figures, which track a similar progress path (Figure 7).  There was a 3.2% increase year-on-year in public cloud revenue.  However, over the last seven quarters, there has been little growth.

Next Steps

NetApp has successfully grown its hardware business, which still remains a substantial part of its revenue.  A focus on the “NetApp Platform” has introduced “value-add” features that are increasingly becoming table stakes for modern storage, including cyber-resilience, flexible consumption models and fleet management.  We expect sustainability to also be an increasingly important aspect in the discussion of modern storage systems (see our Primary Storage Systems report below).  We rate NetApp’s products business highly compared to its peers.

Then there is the Public Cloud and services businesses, which don’t seem to be gaining significant growth.  In general terms, we see the problem as a lack of strategic direction for a set of assets acquired by NetApp over recent years.  Putting the “Public Cloud ONTAP” capability aside for a moment, the remaining assets offer a mix of operational features for workload deployment and optimisation capabilities. 

In July 2024, NetApp introduced a new feature called the Workload Factory, which enables customers to configure and launch common applications within the public cloud, integrating with NetApp storage (in the first instance, AWS and Amazon FSx for NetApp ONTAP).  The solution is effectively a beachhead for driving FSx for ONTAP adoption.  There will be public cloud users for which this approach makes sense, although we’re not sure how many existing customers will choose to transfer from their existing tools.

However, Workload Factory demonstrates an intention to take assets and IP from the collection of tools under Spot and bring them directly into BlueXP, the portal for managing NetApp products and solutions, first introduced in November 2022.

The Architect’s View®

The ONTAP hardware platform business has a clear strategy to widen the available market (TAM) with new products that target the replacement of hybrid and legacy storage products.

The remainder of the business is in a state of flux as we see a transition to what is being termed both the “NetApp Platform” and “Intelligent Data Infrastructure”.  Essentially, this is an ecosystem of products, features and solutions that encompass the core hardware storage platform and its implementations in the public cloud.  This approach is a classic strategy of building out solutions and platforms on top of the core offerings. 

NetApp Insight will be here in less than a month.  We hope to see more news on the transformation towards one holistic platform (which now appears to be BlueXP), where the Spot solutions become further integrated as core features.  The big questions will be to understand precisely how well the portfolio of NetApp products continues to transform to deliver customers a truly intelligent data infrastructure across public and private clouds.  Look out for our updates in late September 2024 on what the Insight announcements reveal.

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• NetApp Relaunches the All-SAN Array
• NetApp Announces C-Series Capacity-Focused ONTAP All-Flash System
• Research Note: NetApp introduces new AFF A-Series hardware targeted at Artificial Intelligence

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