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After a string of positive quarters in networked storage, NetApp executives said their all-flash and hybrid storage arrays have been a drag on revenue. The legacy storage vendor blames macroeconomic and execution issues.
NetApp plans to sharpen flash marketing and hire hundreds of salespeople to try and regain momentum after widely missing its revenue forecast last quarter.
Revenue from NetApp flash arrays last quarter declined 24% year over year to an annualized run rate of $1.7 billion. Softening demand cut across NetApp's all-flash and hybrid flash products, including its FAS, EFF and SolidFire arrays. The comparison includes a "significant amount" of annual all-flash revenue from last year that did not repeat in 2019.
NetApp Wednesday reported net revenue last quarter of $1.24 billion, down 16 % from the same period a year ago. GAAP net income of $103 million was well off the mark of $283 million a year ago.
It is unclear how much of NetApp's problems are internal, and how much is beyond the vendor's control. Although data creation is exploding, there are potential economic trouble signs ahead for enterprise storage vendors, fueled by geopolitics and macroeconomics. Dell EMC, IBM and Pure Storage have all recently reported lower-than-expected revenue from networked storage, extending even to flash purchases.
Companies hit the pause button
NetApp CFO Ron Pasek blamed his company's quarterly revenue decline on a wobbly global economy and spotty sales efforts. Although NetApp's business in Europe, Asia-Pacific and the U.S. government sector was strong, the vendor struggled to close commercial sales in the Americas.
"What we saw in the quarter was a macro [impact], and we had our own series of execution issues," Pasek said.
After fueling NetApp flash sales a year ago, Pasek said some hyperscale data customers curtailed storage spending amid growing concerns of a U.S.-China tariff war and Brexit-related unrest in continental Europe.
NetApp mostly sidesteps tariffs by using contract manufacturers to build its products in Mexico, which are then imported for sale to the U.S. Indirectly, though, NetApp is feeling the pinch of the Trump administration's contentious China trade policies, Pasek said.
"The tariffs don't affect us directly, but they absolutely affected some of our largest customers," Pasek said.
He said parts of NetApp's business remains strong, noting that gross margins have expanded and the company remains profitable. NetApp also recently awarded dividends to shareholders and completed repurchased $4 billion in shares. It closed the quarter with $3.5 billion on hand in cash and equivalents.
NetApp flash in the public cloud
NetApp CEO George Kurian told Wall Street analysts that NetApp's sales efforts were inconsistent across districts. He said that prompted "necessary leadership changes, better inspection and discipline, expanded account coverage, acquisition and portfolio selling." The company did not disclose whether it plans layoffs or other specific cost-cutting measures. In fact, Kurian said NetApp plans to hire least 200 sales professionals to shore up selling in North America and Latin America. He said the reinforcements will focus on acquiring new customers and upselling to existing NetApp flash users.
Although he provided no specifics on the earnings call this week, Kurian said marketing of NetApp flash products will get a makeover "to emphasize our strong value proposition in mission-critical environments." He said that includes a greater emphasis on cloud storage.
Kurian said a more vigorous effort will be made to sell NetApp Cloud Data Services (CDS) to "non-storage buyers." CDS lets customers license NetApp OnTap storage software on physical SolidFire-based NetApp HCI clusters that run in the public cloud. NetApp has qualified CDS to run in AWS and Microsoft Azure and is testing it in Google Cloud Platform.