Are storage vendors starting to feel the pinch of macroeconomic pressures? If the most recent NetApp storage sales are a barometer, the answer seems to be a worrisome “yes.”
In advance of its full earnings call on Aug. 14, NetApp has made downward revisions to fiscal year and quarterly guidance, noting a “meaningful deceleration” in overall IT hardware spending. NetApp executives say enterprises hit the pause button amid fears of a worsening global economic outlook. The vendor claims some large customers pushed out hardware refreshing or cut back substantially on IT spending.
For the quarter, NetApp storage revenue is expected between $1.22 billion and $1.23 billion, down about 17% year over year. Excluding revenue from annual software licenses, the drop is 12%.
NetApp initially forecast quarterly revenue between $1.32 billion and $1.47 billion. NetApp also warned its fiscal year revenues could be 10% lower than its original projection of $5.9 billion.
NetApp: We failed to execute
Pricing pressure was dismissed as the sole cause of the decline, which caught NetApp storage officials off guard. “We saw a softening of IT hardware spending in the back half of the quarter. However, the slowdown was not across the board,” said George Kurian, NetApp president and CEO.
Large enterprises are “decidedly more cautious” about spending than they were earlier this year, Kurian said. NetApp also experienced “execution issues” as it struggled to acquire new customers and close deals for its cloud data services, which the vendor touts as the key to its turnaround in recent years.
The downward revision comes on the heels of a near miss last quarter, when NetApp storage revenue came in at the low end of its guidance. NetApp probably isn’t the only storage vendor facing headwinds, which include U.S. tariffs on China and geopolitical turmoil in continental Europe.
Rather than getting priced out of the market, NetApp needs to “compete in more transactions.”
“We do think we lost share in the Americas. And that is the result of inconsistent execution and the inability to broaden our customer base,” Kurian said.
Dell EMC remains the storage industry revenue leader — and NetApp’s chief rival. Despite the setbacks last quarter, Kurian described Dell EMC’s storage portfolio as “weak” and said NetApp storage has “plenty of opportunities” to seize market share.
Dell EMC has effectively grown its VxRail hyper-converged infrastructure business, Kurian said. NetApp HCI is a competing product to VxRail.
“We have beaten VxRail in a bunch of transactions, but we haven’t competed in as many transactions as we need to,” Kurian said. “[NetApp needs] better coverage of the market with people who know how to sell our private cloud.”