Why NetApp Is Winning

NetApp recently released financial results, and according to one analyst, “It was a supersonic quarter.” Never mind the financial details – I think the more interesting question is: What’s going on? Why is NetApp Winning? (Those who like details can check here. The quick summary is that our revenue was flat from a year ago, up 9% from the previous quarter. Profitability has also recovered.)

Two interesting trends are combining to boost our growth. (1) Many companies have an aging IT infrastructure and can no longer postpone capital purchases. (2) Server virtualization forces companies to consider new IT architectures, and that plays well to NetApp’s strengths.

When the dot-com crash hit, back in 2000/2001, many companies had recently updated their IT infrastructure as part of Y2K remediation projects. Internet companies and their suppliers had been growing so quickly that most of their equipment was new, and many of them went out of business so the market was flooded with “almost new” gear. It was a tough recovery for IT vendors. This time is different. This downturn began gradually, perhaps in 2007, so people have already been postponing capital purchases for quite some time. Partly this is intuition, based on talking with customers, but one metric we can track is one-year service renewals. In good times, people upgrade their equipment when their initial service contract expires. In bad times, they want to defer capital spending, so they simply extend the service contract by a year. In the past year, we have seen many one-year extensions, and we believe this reflects lots of pent up demand.

So the first key trend is that IT infrastructure is aging, and eventually companies will need to buy.

The second key trend is that server virtualization is forcing people to consider radically different architectures. I’ve had many customers tell me that their initial goal was to install VMware, but they discovered that in order to get the full benefit, they first needed to re-architect their storage infrastructure. NetApp was an early leader in storage for virtualized environments, so in many cases people have switched to our storage even when they were completely satisfied with their previous vendor. It’s not that the old vendor did anything wrong; it’s just that their products didn’t work so well with server virtualization. Virtual servers can be created quickly, so you need storage technologies like thin provisioning and cloning that let you provision storage equally fast. Virtual servers proliferate, so storage efficiency techniques like data deduplication become all the more important. The whole point is to save money, so good automation is critical. NetApp’s strengths perfectly match the requirements of server virtualization.

It’s hard to sure what’s happening. It could simply be that IT spend is picking up, and a rising tide floats all boats. If this is true, then you should expect similarly strong quarters from our competitors. On the other hand, it could be that NetApp’s strength in virtualized environments is allowing us to get much more than our fair share. It’ll take a few more quarters of results to be sure, but this is what we think is going on.

Comments

[Dan Orchard]

Dave, I agree, I work with many storage vendors and its gone storage crazy! I think with the pickup in the economy plus applications being more storage centric in how they are delivered to the business, businesses are replacing old kit and spending that budget thats been sitting their gathering dust!
Also gone are the days of applications like Exchange requiring RAID1 (big benefit to NetApp :)) so this drives down the storage cost for tier one applications.
I think it helps to have a pioneering technology as well as with budgets being re-opened business are more specific at obtaining details on what a vendor can offer.

[Ray Liu]

NetApp is a the most trusted name in storage. Should win big as aging IT infrastructure must be replaced.

Glad to see NetApp is the driving force in virtualization.

[Dan Orchard]

Ray, I do believe that for feature rich software and ease of use NetApp are the leaders but as for trusting a storage vendor, here in the UK/EMEA its hard to trust a vendor when the messaging is the same, virtualize, consolidate blah blah its hard to differentiate who to believe!
Have a look at www.hds.com, www.hp.com, www.netapp.com, www.ibm.com etc etc. This proves that no one has any thought process and that no thinks of a new angle. Dont get me started and expect this post will be removed lol!

[Aubrey]

As a VmWare Arthictect of 5 years, while I am impressed with NetApp's progress in the virtualization storage arena, from a performance perspective, EMC, Compellant provide the most value.

Netapps non-performance related features are "nice to haves" as long as they are free. I look forward to the day where NetAPP storage can support High I/O, highly transactional workloads with the same performance levels as other Enterprise Storage vendords such as HP, EMC and Compellent.

[Paul Evans]

One good reason why Netapp is winning is its technology portfolio:

http://blog.sharevm.com/2009/12/02/netapp-features-for-virtualization-storage-savings/

You have very cool stuff

[Gab Goldenberg]

Your post reminds me of something Norm Brodsky wrote, I think in his book The Knack (but maybe in his Inc column?) with Bo Burlingham. He highlighted that after a while, the savvy businessman/entrepreneur can intuitively know how well his business is doing based on just 1-2 key metrics. Here, you seem to have found your core metrics - one year service renewals and their weight in your sales portfolio relative to new capital expenditures.

On a completely distinct note, would you be open to taking some guest posts about the storage and IT industry? If you could write me a response by email, it would be really appreciated.

Regards,
Gab Goldenberg