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NetApp's Georgens reports improved revenue; shrugs off EMC-Cisco deal

NetApp beats sales expectations, driven by uptick in SAN and unified storage deployments as budgets thaw. Claims VCE coalition won't change relationship with VMware and Cisco.

NetApp's sales results were better than expected last quarter, which CEO Tom Georgens said indicates a thaw in storage spending. He also said he doesn't expect the new Virtual Computing Environment (VCE) coalition between his rival EMC Corp. and Cisco Systems Inc. to hinder NetApp's ability to continue its momentum from last quarter.

NetApp's revenue of $910 million was higher than the $881 million Wall Street analysts expected, and just below NetApp's revenue from last year. NetApp also increased its forecast for this quarter to $935 million to $955 million, up from its previous guidance of $910 million to $930 million.

"With the overall economy appearing to stabilize, we're seeing more and more customers begin to have forward-looking discussion again," Georgens said Wednesday night on NetApp's earnings conference call. "Rather than just figuring out how little they need to buy in order to fulfill a near-term demand, they're now starting to talk about their next-generation virtualized data center architectures. We believe there's pent up need for tech refreshes across the industry."

NetApp's results also showed some interesting buying trends:

  • Block-storage (SAN) systems made up 19% of NetApp revenue, its highest percentage ever. NAS-only systems made up 48% of product revenue, and 38% of revenue came from unified storage – a mix of SAN and NAS. NetApp didn't say how much of its SAN revenue came from Fibre Channel (FC) compared to iSCSI.

  • Georgens also said despite an overall growth in SAN connectivity, the VMware and NAS combination is becoming a popular choice. "Almost 40% of NetApp machines in virtualized environment are now running the NFS protocol, a departure from earlier days when virtualization deployments were largely [around 90%] SAN," he said.

  • There were more large deals last quarter, including a $13 million sale to a U.S. telecom company, a $5 million SAN deal with a Web 2.0 company in the U.S. and a $3 million deal with a bank in Italy that's expanding across Europe. Overall, Georgens said, there's a movement toward customers buying fewer but larger systems.

    I want to basically be in a position that outside of EMC stronghold accounts we do more business with Cisco than EMC does.
    Tom Georgens
  • NetApp's V-Series storage virtualization gateway is becoming popular in front of EMC storage. Georgens said there's a "large number" of V-Series with EMC midrange Clariion and more than two dozen implementations in front of EMC Symmetrix enterprise systems.

    Georgens shrugs off EMC-Cisco VCE coalition

    Georgens also said he didn't expect the VCE coalition between VMware, Cisco and EMC to change NetApp's relationships with partners VMware and Cisco. Along with announcing new Vblocks bundles for cloud storage, including EMC storage, Cisco servers and VMware software, EMC and Cisco launched their joint venture called Acadia this month.

    Georgens said VMware will try to remain neutral to keep partners such as IBM and Hewlett-Packard (HP) Co. from moving toward Microsoft Corp.'s Hyper-V and has "put in writing" that it intends to maintain its technology relationship with NetApp. He said Cisco is looking to take advantage of the large installed bases of VMware and EMC, and EMC "brings the least" to the partnership.

    "At the end of the day, this relationship doesn't produce anything for the customer, and I think once Cisco moves away from EMC's stronghold accounts, they're going to find that their transforming is hindered by EMC," Georgens said. "In fact, EMC is the antithesis of transformation."

    Georgens said he expects to continue to work closely with Cisco to try and win customers who aren't already committed to EMC. "I want to basically be in a position that outside of EMC stronghold accounts we do more business with Cisco than EMC does," he said. "There are customers who have chosen not to buy EMC, and I don't think the VCE is going to change their minds."

    Kaushik Roy, an analyst at Wedbush Morgan Securities, maintains that virtualization is helping drive renewed storage spending, and storage market leaders such as EMC and NetApp are best positioned to benefit.

    "Storage spending is on the rise," Roy wrote in a note to clients today. "Enterprise storage is one of the first beneficiaries of an improvement in IT spending."

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