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NetApp forecast: cloudy with a chance of flash

NetApp’s earnings report this week was similar EMC’s report last month. Like EMC, NetApp’s revenue a tad below expected while its forecast missed by a larger margin. The problems are the same – IT people are taking a long look at storage systems before they buy and are buying less. Companies are considering more ways to use the cloud and flash, and that is disrupting traditional storage sales.

NetApp executives are looking to win market share in this new world by helping customers move into the cloud with its OnTap storage operating system – which they now commonly refer to as software-defined storage – and gain performance through a myriad of flash products.

NetApp CEO Tom Georgens said during Wednesday’s earnings call that it is inevitable that the cloud will cut into the amount of storage people buy. The key for storage vendors, he said, will be to help customers better manage the data they move into the cloud.

“We’re not going to deny that data has gone to the cloud,” he said. “So I believe that will depress somewhat the growth rate of the industry or some of the historical norms. But our challenge is to recognize that data is going to go to cloud and the needs of customers to manage that data well and protect that data always gets more acute. So our point of view is we have Clustered OnTap and Data OnTap, and manage that data in our hardware and other people’s hardware.”

“Is the cloud mainstream? No, it’s not. And I think the [storage company] that enables customers to make it mainstream is going to be the winner in this race.”

NetApp’s long-time cloud strategy has been to sell storage to cloud providers. Now it is trying to tie on-premise use of OnTap to public clouds, as NetApp Private Storage for Amazon Web Services (AWS).

Instead of trying to match EMC’s software-defined storage strategy of bringing out a new platform (ViPR), NetApp pledges to do the job with OnTap – especially Clustered OnTap. Georgens said the vendor will soon bring out its first clustered-optimized FAS arrays. Presumably, the next step would be to tie clustered capabilities into its offering for cloud providers.

With flash, NetApp faces intense competition from the large storage vendors as well as startups that beat the big guys into the market with all-flash enterprise arrays. NetApp said it has shipped nearly 75 PB of flash storage, including roughly 25 PB on its all-flash EFF series and FAS arrays fully loaded with flash. NetApp has yet to announce the ship date of its FlashRay all-flash system, which will have storage management features such as data reduction that the EFF lacks. NetApp also sells flash as a cache and server-side flash.

“It’s a jungle out there,” Georgens said of the flash market. As for NetApp’s strategy, he said, “We believe that customers will deploy flash at every layer in the stack to solve a wide variety of challenges. This market is clearly not one-size-fits-all.”

NetApp reported revenue of $1.61 billion, up four percent from the previous quarter but down one percent year-over-year. Wall Street analysts expected $1.63 billion. Its income of $158 million beat expectations, but its guidance of $1.6 billion to $1.72 billion for this quarter was below analyst expectations of $1.73 billion.

Reasons for low guidance include cautious IT spending, particularly by the U.S. federal government and uncertainty at IBM, which sells NetApp FAS and E-Series storage through OEM deals. IBM sold its x-86 server business to Lenovo, which could have an impact storage sales, and it has been emphasizing its internally developed storage over OEM systems.

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