NetApp's revenues of $869 million last quarter represented a 7.4 percent decline from the previous quarter, and financial analysts grilled NetApp executives on its earnings call about a decrease in profit margins due largely to expansion of its sales force and a shift in the company's product mix to a heavier base of low-end products.
Midrange systems still make up most of NetApp's product revenue, although entry-level systems were up 74 percent and high-end systems up 36 percent year over year.
NetApp may have a tough road to hoe at the high end. Some tier-1 shops have disagree with NetApp's positioning of its products for the enterprise, especially when it comes to management features in its Fibre Channel SANs and redundancy within its arrays.
Brian Babineau, an analyst with Enterprise Strategy Group, said that increased competition is making it tougher for NetApp to penetrate large shops. "Their high-end execution could be better," he said. "EMC has a new Symmetrix – that right there could cause some issues." NetApp's new FAS3100 midrange system also faces stiff competition from EMC's even newer CX4.
However, other storage analysts were encouraged by shifts in the way NetApp is doing business, regardless of market segment. Gartner analyst Dave Russell said that a significant increase in NetApp's software attach rates shows "they're having more success getting across their overall message."
However, NetApp customers are still waiting for deduplication for the NearStore VTL, as well as the promised convergence of the company's clustered OnTap GX and non-clustered OnTap 7G operating systems.
Russell said that on the deduplication front, VTLs have begun to fade, since "the vast majority of Data Domain boxes use a NAS interface." But Gartner research shows that since the start of 2008, NetApp's free data deduplication license, which allows its customers to turn on dedupe for free in their primary storage systems, has overtaken Data Domain's deduplication products in number of systems shipped, number of customers and number of usable petabytes shipped.
"The starting gun has only really gone off for dedupe in the last several weeks, with the big three-letter companies getting into the game over the last quarter," he said.
Still, like most analysts on the call, Russell conceded that "there's still a lot of work to be done" for NetApp, whether that work is in promised product rollouts or increased penetration of emerging markets in Asia. "The second half of the calendar year will be incredibly telling. Some things don't happen in just a few months," he said. "But six months is enough time to see if [something] is working or not'?"
Warmenhoven said he expects a strong second half. "We're on track to gain share, and I have not changed my mind as to the best business model for the company going forward," he said.
NetApp's CEO also said he sees no signs of a spending slowdown for storage. "We do not see any significant changes in the general spending patterns of our customers or prospects," he said. "While there is broad concern about the global economic environment, most enterprises continue to invest in infrastructure to improve operating efficiencies." He identified server virtualization, improved storage utilization and more Ethernet-attached storage as areas of strong demand.
NetApp's OEM deal with IBM accounted for nearly 6 percent of NetApp revenue this quarter, which Georgens said was the best quarter for the IBM/NetApp partnership yet.