NetApp revenue slips keep showing

NetApp’s latest earnings report shows the vendor is still in a hole with a lot of digging to do before it returns to revenue growth.

NetApp reported another quarter of declining revenue Wednesday and laid out plans to reduce its workforce by 12%. NetApp’s overall revenue of $1.39 billion was down 11% from last year and four percent from the previous quarter. Its product revenue of $750 million was down 19% year-over-year and eight percent from the previous quarter. The vendor did turn a profit of $153 million, but that was down from $177 million a year ago. NetApp revenue was below its previous guidance of $1.4 billion to $1.5 billion. Its guidance of $1.35 billion to $1.5 billion for this quarter was also below expectation as financial analysts expected roughly $1.51 billion.

George Kurian, who took over as NetApp CEO in June 2015, said he has completed a formal review of the company and developed a turnaround strategy. The plan includes concentrating on growth areas of the market, cutting costs, and trying to build value in the company through share repurposes, dividends and long-term investments.

On the plus side, NetApp is making progress selling the clustered DataOntap (CDOT) operating software that requires customers to do a disruptive migration. It also reported a strong uptick in all-flash arrays, not including the SolidFire all-flash systems NetApp acquired for $870 million last December.

“NetApp does not need to completely reinvent itself …” Kurian said, adding the vendor is in a transformation that will require taking “significant steps to streamline the business and further advance our pivot to the growth areas of the market.”

The growth segment of NetApp’s products consists largely of CDOT, its all-flash arrays, E-Series performance arrays and OnCommand Insight management software. NetApp is phasing out its OEM business and the DataOnTap 7-Mode product being replaced by CDOT.

The plan is to return to growth by late 2017.

Kurian said NetApp is looking to reduce costs by $400 million annually, with half of that coming from cutting around 1,500 jobs. He said most of the layoffs will occur this quarter.

Kurian said CDOT is now running on 24% of NetApp’s installed FAS arrays, including nearly 80% of FAS arrays bought last quarter. The number of customers who bought CDOT last quarter increased by about 60% over last year.

NetApp executives said their all-flash revenue increased about 60% last quarter from the previous quarter, to around $150 million.

The focus on growth areas at the same time as NetApp makes cuts might not leave much opportunity to jump into new technologies. For instance, NetApp apparently has no plans to come out with a hyper-converged system. Kurian said NetApp can solve customers’ problems with its current products, such as SolidFire and its FlexPod reference architecture program with Cisco.

“We see what customers really want [from hyper-convergence] is essentially simplified provisioning and operational management, like our relatively simple pay-as-you-go building block architecture,” Kurian said. “And you will see address those customer needs with both the SolidFire scale-out architecture, as well as exciting new innovations in the FlexPod lineup.”