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NetApp founder Dave Hitz steps away after 26 years

Retiring founder of NetApp Dave Hitz says the vendor is well-positioned for industrywide storage transitions, but recent sales results show challenges remain.

The last remaining NetApp founder has left the company.

Dave Hitz, probably the person most associated with NetApp during its lifetime, retired on Thursday via a blog post from the storage company he helped launch 26 years ago.

"Today I am retiring from NetApp. It sounds so abrupt, written out like that, but it is a gradual transition. I have been cutting back my NetApp time for the last couple of years, and especially the past few months, and I won't suddenly disappear," Hitz wrote.

Hitz founded NetApp with James Lau and Michael Malcolm in 1992. The company developed Network File System-based boxes and helped to pioneer the rise of network-attached storage. Malcolm was forced out in 1994, and Lau retired in 2015, leaving Hitz as the last remaining NetApp founder.

Dave Hitz, founder of NetAppDave Hitz

Hitz said he didn't have precise plans for the future, but he listed several personal passions he plans to pursue as he steps away from day-to-day work at NetApp. He will remain as NetApp founder emeritus, which means "I get to keep my email address and eat at the company cafeteria."

Hitz helped guide NetApp through several key transitions and said the company is in a good place as he departs.

"I wouldn't feel comfortable stepping back if I weren't confident that NetApp is healthy with a promising future," he wrote in his blog post. "Nothing is given, of course, but we have done an amazing turnaround, and we have a shot at greatness."

NetApp sales slumped in January

Under current CEO George Kurian, NetApp rebounded in recent years around its cloud-connected flash strategy. But it may have hit a wall in early 2019.

The news of Hitz's retirement came one day after a disappointing NetApp earnings report. Its revenue came in at $1.56 billion during the quarter that ended Jan. 31. That was $40 million below its projected goal. Revenue increased only 2% year over year, following five straight quarters in which the company saw revenue growth of 7% or better.

Kurian blamed the disappointing sales on a sudden slowdown in purchasing in January, fueled by a deteriorating outlook for the global economy amid trade uncertainties. He said NetApp was on track to meet revenue projections through late December until companies became cautious about spending.

Kurian said NetApp didn't lose deals to competitors, but large companies stopped buying. It remains to be seen if this is an industrywide trend, but Cisco -- reporting earnings on the same day as NetApp -- did not experience a similar sales drop-off in January.

"We did not see any real change in the competitive environment. Our win rates stayed constant, and our pipeline remains healthy," Kurian said.

Still, NetApp's revenue forecast range for this quarter of $1.59 billion to $1.69 billion also came in substantially below what financial analysts expected.

Three-pronged product strategy gets tested

Kurian said NetApp's products strategy is built around three industry transitions -- from disk to flash storage, traditional IT to private clouds and on-premises infrastructure to hybrid clouds.

Nothing is given, of course, but we have done an amazing turnaround, and we have a shot at greatness.
Dave HitzNetApp founder emeritus

The results show NetApp has a long way to go to take advantage of the last two of what Kurian called "key strategic battlegrounds."

NetApp is doing fine in flash, reporting a 19% year-over-year increase in all-flash storage revenue. And there is plenty of room for growth, with only 15% of its installed base running all-flash. Many flash sales come from customers upgrading their disk systems, rather than new customers, but NetApp is also going after competitors' installed base.

"There are a lot of weak large players in disk-based systems that we will take share from: IBM, Hitachi, Fujitsu, Oracle, HP -- there's a lot of them. And even Dell has a challenged midrange portfolio," Kurian said.

NetApp's SolidFire flash platform and NetApp HCI -- built on SolidFire -- are keys to its private cloud strategy. But revenue in this market isn't yet large enough to break out. That suggests NetApp is way behind hyper-converged competitors Dell and Nutanix that generate over $1 billion in annual sales from hyper-converged infrastructure.

Kurian admitted NetApp is a "bit behind" in its plan to sell its services to public cloud providers. While NetApp storage is generally available with AWS, it's still in the pilot phase with Microsoft Azure and Google Cloud. "We expect them to be available imminently," Kurian said.

Hitz liked to talk about NetApp's ability to overcome industry changes and challenges during its lifetime. And it looks like those challenges will persist as the NetApp founder moves on.

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