NetApp has released financial results for the second quarter of FY2024. Revenue is down 6%, while billings are down 9%, both year-on-year. Probably most disappointing is the decline in ARR from the public cloud, which appears to have permanently peaked. Does this data show a temporary blip or long-term decline for on-premises infrastructure, and what’s happened to NetApp’s Cloud strategy?
Background
Figure 1 shows quarterly revenue data from Q1 FY2019 to the current period, Q2 FY2024. Revenue for the latest quarter is down 6.1%, while billings are down 9%. The most interesting figure is perhaps that for public cloud ARR, which has increased 1% year-on-year but is down sequentially. As shown in Figure 3, the revenue from the public cloud is flat, with the latest quarter showing a slight decline.
Flash
Although not shown on the graphs, all-flash array ARR is up slightly by 1% year-on-year. This isn’t a massive increase, considering the level of inflation we’ve seen over recent years. However, new products such as the C-Series arrays should improve future numbers. Sequentially (quarter to quarter), all-flash revenue was up 14%.
As highlighted in the prepared remarks from CEO George Kurian, NetApp is reviewing its non-core businesses (by that, we mean everything except storage products). The company will exit the SaaS backup and virtual desktop markets (although the VDI products were discontinued some time ago) while “refocusing” some services. This appears to mean a strategic review of the Spot portfolio, which we’ve previously highlighted as a weakness.
Core Values
Looking back at the announcements from Insight in October 2023, we remarked that NetApp was going back to basics or essentially focusing on core values with the launch of new storage products. With the statement that the company has performed a strategic internal product review, we wonder what the future will be for the collection of products acquired during the period Anthony Lye ran the Cloud business unit.
In our blog post from February 2023, we discussed the “split-brain” nature of the NetApp portfolio, which clearly must be causing some concern with senior management. Looking at the three remaining Spot portfolio categories, we have FinOps, Containers, and Infrastructure. These categories have some internal overlap but essentially offer cloud resource optimisation and scaling, security monitoring and compliance, and container management.
None of these products or solutions have direct applicability to on-premises or public cloud storage. So, what will the future of these solutions be?
The Architect’s View®
We believe that NetApp will eventually reach the decision that these solutions aren’t strategically relevant to the company. Most of the Spot solutions are not data-focused and don’t form part of a core “mission statement” to manage customer data across hybrid infrastructure. As a result, we think the Spot portfolio will be sold off or floated as a separate company.
- Insight 2023: NetApp previews BlueXP Disaster Recovery
- Insight 2023: NetApp goes back to basics with the launch of ASA C-Series
- NetApp takes Cloud Volumes Cloud-Native in GCP
- NetApp Announces Q1 FY2024 Results
This process of offloading may take some time – if it can be achieved at all. In the meantime, the transition of NetApp into a cloud company (or at least one that heavily embraces the public cloud) will continue to wane.
The storage portfolio (or at least the ONTAP part) remains strong. NetApp has doubled down on its core offerings. However, while this may result in some short-term gains (taking share from competitors), we don’t believe the long-term outlook for on-premises infrastructure is a growth story. Perhaps another review of the Spot portfolio might be in order if the company really wants to be a cloud player during the next decade.
X-Ray: NetApp, Inc.
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