Analysis: NetApp Announces Q3 FY2024 Results

NetApp, Inc. has announced financial results for the third quarter of FY2024. Revenue is up 5.2% year-on-year, while all-flash revenue was up 21%. However, the ARR for Public Cloud remains flat at $608 million. What can we discern about recent product changes and what is needed for future growth?

Background

NetApp reported financial data for Q3 FY2024 that shows a total revenue increase of 5.2% compared to Q3 in FY2023. By category, the Hybrid Cloud segment grew by 5.8%, while Public Cloud saw a modest 0.7% increase. All-flash revenue sales grew 21% from $2.8 billion in Q3 FY2023 to $3.4 billion in the current quarter.

Focus

As we highlighted in the previous quarterly analysis, NetApp performed a strategic review of the business and discarded non-core product offerings. The company introduced a broader portfolio of all-flash solutions, with the C-Series “capacity” focused platform in February 2023, a relaunch of the All-SAN Array in May 2023 and a capacity ASA in November 2023.

These product changes offer customers greater choice with dedicated SAN solutions and the capability to move more workloads to flash from disk (or hybrid) at competitive prices. NetApp joined Pure Storage by offering QLC-based solutions that aren’t widely available across the industry. QLC media enables storage vendors to provide products that are much more price-competitive. The trade-off comes from additional engineering work to support the QLC flash characteristics (and, of course, increased levels of I/O latency).

Cloud

Although the on-premises solutions have realised a revenue boost, NetApp has not been able to deliver similar improvements with annual recurring revenue in the public cloud. Data for the latest quarter shows barely any progress, which has been the case for over 12 months (see figure 3).

For storage, at least, the public cloud has become much more competitive. Native solutions are much faster, while there are additional block and file-based solutions available (we will publish a report on this market soon).

As we have highlighted many times, the Spot portfolio has no presence and appears to lack substantial development. We still believe this part of NetApp’s business should be sold or at least refocused with some investment.

The Architect’s View®

In times of crisis, NetApp has done what it does best – focus on the core products and solutions based around ONTAP. In this instance, the bet appears to have paid off. There was clearly latent demand for cost-optimised flash solutions, which NetApp has met.

Back in 2014, we suggested NetApp was at an inflection point with ONTAP following several quarters of declining revenue. Since then, the company has attempted to address the HCI market, acquired and deprecated SolidFire, embraced the public cloud and acquired an entire optimisation business division.

In one respect, you can’t blame the company for trying to find new revenue streams. The adoption of ONTAP in the public cloud is a success that generates income but has reached the point where we need to ask – what next?

The obvious answer is to push forwards with a focus on AI, which every other similar business in the industry is doing. This is a good short-term strategy, but what about the long-term view?

It feels like NetApp is at yet another inflection point and needs to decide what it stands for as a company. At this point, we’re not entirely sure what that entails. NetApp Insight in September 2024 will be an interesting insight (pun intended) into what the company is thinking for the future.

Background

Focus

Cloud

The Architect’s View®

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