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Federal government shutdown takes bite out of NetApp business, too

As expected, NetApp took a big financial hit from the U.S. federal government shutdown in October.  That hit caused the vendor to miss its revenue target for the quarter and the continued uncertainty prompted a lower forecast than expected for this quarter.

NetApp’s $1.55 billion in revenue for last quarter – which ended Oct. 31 – was below the $1.6 billion Wall Street expectation. Its forecast for this quarter of between $1.575 billion and $1.675 billion fell short of the $1.69 billion consensus expectation.

EMC also missed its expectations last quarter, blaming it largely on the government shutdown. NetApp relies even more on government sales than EMC, and usually cashes in when the government fiscal year ends in September and agencies spend the remainder of their budgets. NetApp CEO Tom Georgens said federal government revenue fell $85 million short of NetApp’s expectation last quarter, leading to the $50 million revenue miss.

“Usually there’s a lot of [government] money sloshing around at the end of the fiscal year, and it generates a very, very frothy September,” Georgens said on NetApp’s earnings call.

“You put that $85 million back … and this would have been a blowout quarter across every metric.”

That $85 million isn’t likely to be put back soon, though. The resolution to the shutdown left the door open to another one in February, leading to the soft forecast. “Really nothing’s been resolved, right?” Georgens said. “We just pushed the continuing resolution out to January and the debt ceiling to February. It’s likely that the sequester spending levels will remain intact no matter what happens, and this could just be kicked down the road another 90 days.”

Georgens said one thing that did not hurt NetApp last quarter is the emergence of all-flash arrays on the market. He said NetApp’s strategy of selling hybrid flash arrays with its Data OnTap-based systems and an all-flash EF540 high performance platform is working. The vendor is also expected to launch its FlashRay all-flash platform in 2014, too.

NetApp’s main rival EMC launched its first all-flash array today.

“I think the success and the raw performance of the EF540 should lay to rest the canard that there’s something magical about flash drives that work around prior disk technology somehow is irrelevant,” he said. “The fact that the EF540 can bring high performance and mature HA [high availability] to that environment is a key differentiator. And that pretty much knocks out a lot of the startup companies and the immature products from the other mature vendors out of that category.”

He said a Data Ontap-based all-flash array would be less successful, but not because of the controller technology.

“Ontap is really built around a broad feature set around data management, which are not suited to necessarily an all-flash array,” Georgens said. “The all-flash array is about delivering performance ay low latency to applications and that’s really the optimized design point for the EF540.”

Georgens said around 60% of NetApp storage is sold with some type of flash, including 6 PB of flash as a cache shipped last quarter.

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