Earnings call transcript Q3 2023

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Operator

Good day, and welcome to the NetApp Third Quarter Fiscal Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kris Newton, Vice President of Investor Relations. Please go ahead.

Kris Newton

everyone. Hi us. joining for Thanks me today Mike Kurian, CFO, CEO, are our George and With

Berry.

This will live replay webcast call being is and website netapp.com. on at be our for available

with make During we growth as revenue, on XXXX; expectations data-driven our all marketing quarter strengthen and and forward-looking our our turbulent Cloud the respect Public fourth our such future impact to for profitability, fiscal to statements opportunities while Cloud future our the of segments; our efforts today’s on segments cloud with prospects, and and cloud our and our will Cloud optimizing and drive our and returns; sustained our environment, resulting which call guidance expectations of operating deliver sales outlook Hybrid financial services ability future rebalance projections a their year in our Hybrid our ability in sharpen trends alignment of both costs; digital and regarding to transformations; customers, uncertainty. our shareholder growth Cloud focus strategic and secular of and cloud the number usage the innovation, position, and our in growth Public involve and risk execution and growth macroeconomic regarding

rapid environment, chain and industry, our security and well exchange and pandemic, manage and recovery our partner, COVID-XX relationships evolved strategy forward-looking We on material on in and services, market terms and manufacturer disruptions; conditions other may our and market supplier and pace focus of any market spending; the generate breaches, a disclaim keep in obligation our which cloud Actual impact reasons, greater to and IT including margins gain supply gross macroeconomic rising as such customer, spending contract statements results introduce variety technological capital products changes the and our and optimization profit projections. and of flow. we favorable conditions, uneven cloud and and as maintain resulting including our update differ to execute acceptance the of operate, manage ability materially for including for with volatility; as rates inflation, cybersecurity the markets the continuing trends and interest cash the foreign the

Please Management’s refer website, to our specifically file documents to with SEC, XX-Q the Form Form also and recent XX-K we most time on in from the and our including the available time

of Risk and sections. Discussion Analysis Results Financial and Condition Factors Operations and of

unless indicated. call to During the non-GAAP otherwise presented GAAP on website. Reconciliations our non-GAAP be estimates of are all will posted financial measures

I’ll now turn the George. call over to

George Kurian

Thanks, Kris. afternoon, Good us joining everyone. for today. Thanks

EPS In despite and in of elements our the guidance. well exceeded a margin and on operational continued weakening cloud management the at Disciplined low revenue spending yielded control our operating executed under in coming IT environment QX, optimization. of face cost expectations, the we that end

help them We customers, on our support cloud We our to customers to adjusted optimize and cost the delivering to their introduced continue work dynamic to are structure, portfolio cost arrays responding a our of capacity-flash sensitive commitments with and spending. environment.

in near-term accelerate our execution our long-term position. results today’s and I to our plans the QX discuss will our the sharpen results On and environment to of call, enhance current context

pushing see increased selling longer to We deal and higher in cycles, continued which sizes, out. budget smaller requiring level deals approvals, scrutiny, resulted some

have hybrid and described, capacity spending. arrays flash stretch sectors. provider and in to cloud Americas the cloud We looking and higher-cost as performance sweating Customers optimizing assets, shifting service this spend tech most large flash to flash are budget are dollars, enterprise our from feeling arrays their acutely and, partners

of hiring hiring early environment freeze slowdown with in program action ‘XX increased and At scrutiny took control costs, to of a fiscal a of start a a of and signs QX, implemented year we softening QX. saw spending, Decisions always the fostering We refocus in in the take pride the impact I swift QX, committed our values difficult. mission NetApp by in X%. culture action this great the and team, workforce employees approximately to guided Company. are of our to using that difficult reduction and am

Our hybrid QLC-based cost to the benefiting and high-performance well, arrays sensitivity enterprise, U.S. continue among price to lower flash perform and coupled macro. large from all-flash especially in The with environment, arrays from this challenging spending all-flash lower customers’ to a consumers all-flash shift of year tech our product and In provider billion. XX% run customers array annualized from business to an rate who service QX $X.X ago headwinds all-flash of revenue and our flash, large QX, are created array revenues. decreased solutions,

of as HPC a ARR like shortfall optimization the storage last did factors same meet expectations, cloud down our quarter. Cloud $XXX a result of and were not Spending in and million workloads experienced by EDA, chip Public the QX. winding again we project-based in design, of driven headwinds

the number over We rapidly year are cloud the public customers optimizing. have of of have grown large a optimizations who customers. now Their base other cost a sizable customers, and past with mask of growth

churn low. new continue We consistently add and has customers remained to

stabilized, CloudOps grow benefiting to the the to nicely, Spot performed plan. Overall, from portfolio cost optimization and Cloud Insights has trend. continues

to Our but industry retention revenue decreased dollar-based is still net within rate XXX% norms. healthy

the well of to transformations. remain trends we digital that confident take cloud growth data-driven of positioned secular are and We advantage

success environment Building in aligned control. to results while our demonstrated near-term have solid elements that controlling are when and position on within strengthening the our for are execution top our sharpening We spending accelerate the rebounds. to foundation, customers’ priorities we

three of elements tightly focus: business control. remain our We the we continue of the to First, have will within areas prudent will stewards manage and

we storage support our business. the Second, of in across Company reinvigorating are efforts

to focused approach Third, building more Public a our Cloud we are business.

and focus, managing area prudent stewards of within control. of the business the the with remaining Starting first elements our

ahead so expenses focus of We will our grow maintain revenue. on cost controls do not that

results potential in visible revenue. focus decisions are SolidFire. to We’ve products guidance We our reduce will Store on as our like this maintain biggest EPS of and smaller to operating margin, ability flow, difficult free products by this in the revenue cash scrutiny with despite as Astra our made our focusing the The achieve investments spending represent and hiring, well program maintaining investment on that Data lower opportunity. and

On second to storage business. our reinvigorating area, focus the

As we our we embrace moved in lost some momentum Cloud Hybrid cloud, to rapidly business.

strengthen this decisive addressing are and areas We of go-to-market action performance more position activities by taking market better our to and address delivering the our realigning value, to customer better opportunity. growth,

workloads systems. capacity-oriented sensitive already arrays at QLC-based that rectified will the We most products for the cost time, price C-Series situation These points. we Initial AFF lower response as a were from customers slow addresses margin all-flash desire AFF through deals QX, of to gross of customers. drive the a The help wide positive, the systems. hybrid the all-flash of very customer flash revenue start manage fully we the all-flash rotate portfolio embrace are to with targets. introduction of that of margin supporting customers sustainability environment C-Series, lower-cost, industry-leading comprehensive, and AFA At and and product for quoting been while, will same their support pursuit range has

risk diverse In In predictability decrease managing addition a experience that introduced we’ve control and BlueXP, to to the investment expanding our helps their innovations product bring of environments. unified plane complexity, the we of process. released QX, improve a resource waste, and to portfolio, customer number

help of environments. Advance, we carbon their already Early of footprint our win we’re a guarantees, customers and revenue. NetApp helping data which understand is commitment, a introduced across new BlueXP portfolio previewing and customers As part QX, in to drive sustainability center in programs a us best-in-class dashboard new

that aligning address including significant plans compensation product growth We to sales efforts storage actions these drive us market are revenue opportunity, reinvigorated We array better share enable rebalancing in all-flash believe our to the and sales of regain will our and the portfolio. marketing to market. drive storage

of to building cloud. approach focused a third focus, more our Finally, area

opportunity gross are represents we pedal that accretive profile for Public reinvigorating no our intention off the our taking we of huge foot have a us with a business. is While It storage margin in to Cloud. business, the growth

our traditional preference Additionally, and advantage Cloud create NetApp. Services competitors, differentiated, multiyear for with Public customer our highly over are a

and the actions that implications. have We CloudOps and term. ARR our deliver focus have taken stable, over long believe to We CloudOps will the our sharpened growth have could future in continue that revenue steady portfolio services

Our progress storage need data has made cloud with and to do more customer utilization our but driving services, CloudOps our in we services. of good success team

Additionally, not we our go-to-market that to been here. have using we effect recognize resources their best

team for reinvigorated portfolio, the refocusing identifying on most we effectively storage solutions. addition and to In to our consumption sales our the buying sales resources all our ways are to align centers models

partners. and driven impacted largely forecast storage our current hyperscaler factors, the predominately by environment have Our cloud coupled business ARR. cost-optimization to our with These ability consumption-based cloud is

in to growth I this be a and applications, as impact the in a we from want as like the can subset underscore However, The my well to and like confidence grow intelligence, smoothing VMware, as of market we mitigated, migration the cloud, predictability. which massive artificial SAP grow. improving its enterprise of customers opportunity. will cloud-native applications, create business,

can multibillion-dollar that believe Cloud strongly We a ARR business for be Public us. services

due longer performance. slowdown that in recent initially the we planned and achieving to will However, spending target our take industry-wide cloud than

from to three have count expectations. $X to our challenging outlook, year, we our have share and billion environment. returned a control first this lowered we quarters closing, reduced In Despite in revenue EPS the our X%. have seen In preserved tangible and cash we flow efforts free success of manage by fiscal within elements the over shareholders

near-term results our accelerate and long-term. position for enhance are our We execution sharpening to the

steps We more value. these we begin drive in model that, we a deliver opportunity growth, are attack so ahead, new, and focused taking operating shareholder are now, the as FYXX, to

working give Before discipline up their turning Mike, and have really response are the I appreciate to navigate how NetApp and their they want first-hand rapid to efforts. the better the to over us for set to I seen results. hard my environment call thanks for to I challenging team operational

Mike Berry

you, for thank everyone, Thank Good afternoon, joining George. and us. you

financial would details, go it key think highlighted. I valuable discussion George we today’s that the the themes through Before reiterate for to be

of and our macro to despite in revenue continued and enterprise spending and on two, continue one, our high-end to Number major headwinds. pronounced operational EPS QX, all and U.S. in revenue, margin weakening cloud temporary technology IT management most across yielded optimization three materially ARR above demand heavily the weigh provider hyperscalers the service customers to was while all-flash impacted growth. our the environment Number The and large significant major disciplined environment headwinds backdrop be guidance. op

FX we to we Number Although QX, as focused demand the on slightly environment, headwind navigate generation. during year-over-year and a U.S. our weakened continues operating cash a fluid through on margins to laser financial flow this be free results remain dollar three, basis. material driving

we program a implemented we a reduction to control increased And end, this X%. took swift spending freeze. force of in in costs through hiring scrutiny approximately QX, start and at Towards action QX the of

QLC of portfolio cloud optimize adjusting own arrays their result cost to our to and a capacity-flash help continued of management, disciplined our we to EPS number also as we guide our four, addition introduced a we structure, to customers, with cost spending. work In datacenter to our And reiterating full-year $X.XX $X.XX. cost are support C-Series, sensitive of customers

for also cash XXX% committed of confident our remain $X.X to a free billion, returning and in in payment ‘XX fiscal perspective, through dividends From allocation target of flow free investors to cash share QX. We cash than we and tax restructuring repurchases. are one-time adjusting capital flow the more

details. the to Now

respectively. reminder, Revenue year-over-year. the growth been would at overall continues billings Even down were billion, otherwise cloud headwind Adjusting billings XX% non-GAAP numbers QX and XXX a be profile X% As I’ll X% for from year-over-year, with year-over-year. $X.XX down have positively billion, down NetApp. the the our noted. to referring of X% unless portfolio revenue in impact challenging FX, to revenue basis-point QX, came $X.XX and

billion million year-over-year, cautious X% recurring down $X.XX XX% of revenue installed of Product base. year-over-year. of highlighting health a $XXX Cloud revenue Hybrid approach as of to spending. was revenue support Total decreased the our year-over-year, decidedly $XXX capital X% took million segment customers QX increased

revenue and Cloud ARR Public Public XX% recognized $XXX year-over-year X% QX million, the up XX% million, exited in was $XXX year-over-year. at sequentially. up Cloud quarter

given the three their spend hyperscaler organizations our uncertainty. are continue customers exercising major by macroeconomic highlighted caution, as optimize to partners, As cloud

the AI, learning, and drive consumption. machine remains of migration secular are enterprise the cloud computing, SAP, of in like high-performance will recovery the the growth apps trends long-term While storage unclear, VMware of timing confident we along IoT & with

XXth in of constituting consecutive Recurring an We Public year-over-year. deferred for the total QX million was year-over-year revenue the XX% $XXX best X% up support billion revenue. year-over-year, $X.X increase with QX growth. XX% which Cloud and growth, revenue revenue, of of ended is revenue deferred of leading indicator recurring quarter marks

QX. Cloud margin Hybrid including guidance. was headwind XX% was X-point from Total line gross Within product was margin in FX. gross in in also Total our Hybrid XX% gross with year-over-year segment, a XX.X%, QX, margin our Cloud

noted, and their provider CapEx to customers large spend they service envelops. As continued enterprise and have U.S. tech right-size reduce spending our as

forward the pause These higher-cost and total to in and technology all-flash the customers product pricing economy, revenue, supply had CapEx while quarter. adopters their the chain margins. all-flash of NAND had leaning on the notably component our QX, and has in we mix impact spending most the are work biggest in systems through and a consumers improved during premiums And inventory material

We to and fiscal expect product be improving supply ‘XX. to chain the NAND tailwind pricing margin QX and in a

and Our XX% for accretive XX% Public percentage to XX%, gross with is by be ninth continues driven margin scales gross goal quarter. an growing business Public confident the revenue gross the as support software average Cloud in increasing the margin solutions. margin Public remain corporate Cloud of profitable, our recurring cloud Cloud our business XX%. of very consecutive of of We was long-term to to and

in in high-end came above our highlighted the of operating $X.XX FX FX EPS and headwind. controls, guidance of X-points revenue margin of including came low-end of headwinds. guidance, year-over-year discipline the While $X.XX and included of with XX%, operational at QX of cost

flow flow QX, up supply million QX, challenges was $XXX to from operations X cash by nearly inventory in million from Cash in was take us in to increased million. $XX turns sequentially. as free the Inventory and XX enabling quarter, down eased $XXX chain

returned dividends. to investments, short-term paid in representing X% shareholders, XXX $X.X $XXX billion $XXX year-over-year. total, of million cash sequentially. flow. out QX, of XX% repurchased During million free million and QX we million up and cash we In count Share closed million $XXX was in stock down $XXX in with cash We

Now to guidance.

to we roughly backdrop, which George of cautious fiscal be the in points a As expect now ’XX FX discussed, to headwind. to spending. with seen flat customers approach We have continued taking percentage includes macro X revenue decidedly X year-over-year, softening

gross fiscal product on and weigh and In XX% ‘XX, to costs component XX%, between we expect to headwinds range as elevated margin continue FX margins.

our will is structural in factor the back timing margin to uncertain, margins particularly displace spinning the fullness you disk systems the product lower of in While new when in confident we our hybrid will mid-XXs C-Series time, which that largely product normalize our remain mix. portfolio,

quarter, FX margin uncertain now both, which margin during which guidance. we are committed we free currency to between expect raising our are X and we disciplined ‘XX of to XX% of $X.XX EPS includes Given of range approximately protecting reiterating headwind. our EPS our fiscal flow cost controls, cash XX%, this operating includes macro Last environment. $X.XX, op We $X.XX guide to and Today, impacts. points full-year

we $X.X to investors returning excluding expect capital cash and dividends free ’XX flow, one-time to continue also generate repurchases. flow We through fiscal From perspective, to XXX% allocation to share in more billion a items. committed of than remain cash free

Now on to guidance. QX

which, at we In and hyperscaler range year-over-year, a X% We major macro $X.XXX decrease spend to currency. optimize expect billion or cloud net to the in continue billion their this an X% between decrease our to partners. constant at environment, three midpoint, QX $X.XXX revenues customers expect implies

clear, As we be on a go key a we instead to in of will revenue flat To to ARR to ARR guidance result, plan QX. we ‘XX, segment approximately disclose as note, through cloud the cloud ARR. we fiscal as revenue anchor cloud year. and we be expect our head as Please dollars, into continue metric sequentially

approximately We to expect margin consolidated XX%. gross be

decreasing engineering into in we are material efficiencies. product NAND we component head reduction and a costs, As premiums, QX, forecasting

also through These business hybrid ‘XX our heading to buildouts on capacity QLC systems new position product customers margins As disk as and all-flash model, mix rise reengage into nicely begin to us from leverage spinning all-flash such, in that we drive QX. shift particularly solutions. trends customers fiscal will are confident to away

global all-flash storage structurally systems While cross linked economy and in to data exact large and provider timing the and cycle. of ONTAP the largest is their enterprise our are the tech data U.S. consumers growth are and unclear, service customers

to operating we XX% XX%. between approximately anticipate margin our to and QX, XX%. We tax-rate be In expect range

earnings share. for to forecasting are $X.XX $X.XX share We range and per between per QX

Assumed of and approximately net million income QX a interest million. of guidance is count in XXX our $X.X share

In entire it economic an thank their to team want closing, to Kris continued now environment. in I to the for back commitment such for NetApp I’ll the call hand uncertain Kris? open Q&A.

Kris Newton

Thanks Mike. the Q&A. let’s begin Operator,

Operator

[Operator Daryanani Instructions] ahead. go will question And Please Evercore. the first Amit come from with

Amit Daryanani

I the expecting were right much guess delta was range question. and the my quarter I had of for delta if $XXX we that one about I cloud million how million to Thanks from taking first ARR now, $XXX maybe think the or last the of that you a way more And parse versus forward? issues resumption you company-specific? 'XX something see do may, Is you in due to the macro that as be happening drop, might growth is if then to there out? go

George Kurian

that broad the and of across the of a shared range themes hyperscalers customers. across think saw I all broad we were

high-performance our new to additions the -- saw in we in being from was see lower, did but predictable we there is cloud offerings. no the And of cloud in cost, business, storage to acquired performance good from Even levels impact continue numbers of storage more of customers. meaning optimization, churn quarter terms cost, our to pattern lower changes what had capacity no of there we see We customer lower levels. movement though higher to types the

noted spending from with As also who saw we last projects us. in up reductions we customers quarter, wrapped some

consumption. and behavior address well. a we about more approach feel cases with is use of us moving additions. good customer number route-to-market can about the cloud broaden focused feel should benefit to with I And continue the for as the engagement that our good just say value we forward cloud this part that fact We customers. about feel So, will of We good normal and we propositions

Amit Daryanani

Got XX it quarter? that's of it. bit are up revenue I is leverage. sounds you into spend dynamics flat, then pricing broadly gross XX And but coming seconds the I saying, gross think, could I on little think like the despite pricing a And maybe margins down. have April and sequentially, essentially you’re points margin basis fact NAND commodity

I a the margins maybe April be bit could thought more would up quarter. have So, gross in

takes you line, maybe super about be puts you. just the talk So that'd margin and gross the helpful. Thank can on

Mike Berry

Sure. Amit, it's Mike.

of bit well. both, a I'll Cloud as margins Hybrid do So, little in just cloud

what Cloud, we big to business, U.S. that large in is Hybrid spending saw of on the drivers the in So our strategic saw the back one we largest go if all-flash. was you two are really enterprise. with purveyors They lower

So, we saw mix all-flash come dollar and down.

talked In we've per capacity, about seeing terabytes less both, hybrid. system. buying lower within and That happened flash i.e., folks addition,

So, those in brought margins down QX. two our together added

that really on yet. NAND we didn't expect I'm time we inventory We to see lot start in to a QX last a to in a finally, is the the This realize roll on will NAND And premiums lower the will call the finally we hopefully the the or say through P&L, premiums. because work as cost P&L. going benefits benefit through this of see lower fully

we feel So, good XX%. April margin least the quarter about the in at gross projection being

the need it's anything that cloud to revenue. then higher we scale on feel hey, getting about to we scale. We than but really mid-XXs do business, margins, good drive And more as dependent

hopefully, helps. So that

Operator

Vogt go next UBS. question from Please The ahead. come with will David

David Vogt

mentioned that back go momentum that some your Hybrid in to you comment lost want just I George, Maybe, you to Cloud.

cash maybe have Thanks. Obviously, color an on a love on Can And but that. to little more you of key would that? specifically, you and more business mean some drill to the just then on by bit a driver important follow-up. that engine, comment. flow I get a down elaborate what it's wanted did Just

George Kurian

elements of that. think three are I there

would liked the bit our a cost we in to capacity we think We have feel I really We've early the been C-Series. have later little introduce lower corrected arrays. that. about interest more good value-oriented first, than flash

parts parts the stable, market, lower like of segment. the large moved enterprise that of The the steady growth more to the the market we second was cyclical from commercial have and enterprise resources

organization And to, and a the as field alignment done drive certain we compensation that third perspective, that while to our flash the sharply to as we're focus parts and portfolio we'll cloud much do our focus business. organization haven't our is of need to continue heading We to parts other on field from going aligning forward. of goal

David Vogt

expect follow-up is, time, start how Got the these you. lead does or then the we cycle Should let's recovery sort to of from, typically, these in, strategy, tangible driven let's is does the the for markets of some it fiscal to take shorter so sales that it. cycle longer particular by say, a second or say, And a maybe just benefits? the or bit -- half work 'XX traction little initiatives? or what a in to Thank maybe see

George Kurian

all, are of available excited be first They products. think, C-Series this about quarter. I we will the

of think those year. will material portfolios impact fiscal next the of in the be I product half first

segment large of The enterprise a will caution place continue to us. for be

need and we I back are think in year. second they that our -- behavior. that next will been buying buying the fiscal they is My with sense working than more is part are have aggressively understand customers hope that of -- my we their to

that bit our should next next more enterprise portfolio is So, lower-end fiscal product is of half hope. is of that cautious large and a the Commercial around accurate And enterprise of second first we quarter. in some -- But about. benefits the fiscal from hope expectation the in segment, the see your this year we're more market half parts the year.

Operator

come will Please question Fox go Steven with Fox Advisors. Next from ahead.

Steven Fox

right back ready aggressive comments the the guess, back a enterprise. have up I and large to be maybe large are pivot on for just a prepared when of those that cycle? you following think enterprises sort had for how to follow-up. And you around in about come manner? a prepared to then, resources need Just the the you Like looking more them do we do I so order last in for service what versus commercial

George Kurian

customers. decades. We We've are engaged closely these known them for with very

prospects. pattern the business improvements is in fundamental the their think I

discussions as they So, the purchasing. on as they with us that, start see soon

Steven Fox

of your XXX% NAND can before much us to of Okay. NAND about be go sales prices much now Thanks. the quarter? talk current the where terms there And from just like And more how other you and are benefiting this component in in for just low-cost then, how That's NAND low, sense benefits would with at a you costs of helpful. are? -- give

Mike Berry

this Steve, So our on quarter. about the -- move a it's big We premiums. through the NAND, we step expect We've We're 'XX. be are quarter a high-cost the quarter, quarter. low that not is material into product as cost I got P&L a the every would will realize drivers number, as this It side. we fiscal down look going significant a to million in two about NAND There materially contributor improvement 'XX. that has know, a optimism going finally next we in back do One in come to margins on that. year. margin It's since significant all be just last as is into three inventory. say, in take at as our we quarters. talked $XX to going able the

about next then hopefully, year. that And FX helped. margins benefit going also the And will you talked then goodness, into mix, product also

together at would fiscal I in all those product you add when of So, 'XX. four margins look

Operator

with ahead. Mohan Bank come will question Wamsi from America. Please go next of The

Wamsi Mohan

the any is like because from the It a product seems you now I like filling a It both large AFFC? by you just market? have color with gap follow-up. share and And impacted share in of there weaker low correct? loss that decline AFF be So are the of end sounds And would helpful. all-flash. that just coming were demand Is

George Kurian

our tech like markets countries Germany behavior. in to and that segments segments share and exposure slowed those us in market service the their large exposed when think our and I provider large purchasing down

next that lineup participating the best And think a come capacity number of the we've in quarters. having and of to of to flash, from us the are got progress both precluded purchasing -- wait couple smaller over flash. And return customers to and few I to see continued performance purchasing I QLC past terms some our enterprise some for RFPs we think products commercial about quarters in of the excited the in activities, also large having enterprise progress in back.

Wamsi Mohan

know of 'XX? with you're in introduction you on thoughts into macro QX, early despite somewhat can margin side would help fiscal X% there, new products. the super QX of to guiding the And the down from your -- this confidence given Thank that this but down momentum anything us exiting sort and year the improvement with constant on worsening commented Any X% helpful. currency in you. I new you revenue be

George Kurian

Yes.

I think, first good of have bad. all, be and in you of the times seen business us disciplined stewards

should all-flash year component as as away. go as both maintain Product all-flash upside see You should managed mix fiscal and expect shifts us we growth. expenses 'XX well to in costs come continue premiums tightly Mike margins, to operating into towards down as said, until roll have significant as we

to respective be us should returning more flash -- that our the our of resources growth, progress we our will focused terms think to we much track you share. market continue flash of to are businesses. In the aligning market, to expect In listen, I on

said, the I while large and as takes that, enterprise both time think should see enterprise I growth segments to some commercial come more back.

And public and respectively, services, go-to-market more us accelerate against for not I also a our to help opportunities. as headwind execute flash going are customer to think aligned will to does that, terms for do cloud partners then, a provider listen, acquisition. we mean I in continue time And new will think consumption each of a That period cloud, said. not model cloud better for that continue of be have of those

fiscal guide year you we when more We'll tell 'XX.

Operator

ahead. Mehdi The next question SIG. with from will Hosseini Please go come

Mehdi Hosseini

And seasonal QX April helps It but a should into bump trend in quarter with little fiscal the I like being revenue, have 'XX? fiscal a expect rather I year seems a sequential follow-up. fourth year

George Kurian

Listen, point, guidance. appropriately are we being at our this conservative in

at I this be that. We're QX QX think appropriately at being environment this point, in both point. year are tough market. Mike about customer that we do see 'XX guide We'll macro we the see we the fiscal what I spending. I to impact when and guide. QX not want prudent and of in But our on guiding And a prudent

Mehdi Hosseini

And should it. I dialed the into April quarter? July able then you reduce the OpEx the is into be of would assume that Mike, or for to Got the quarter, full headcount impact reduction

Mike Berry

Mehdi, Thanks, the question. Yes. for

of XX% a So, call restructuring, notifications get to we'll of other things. the XX% portion and it, because

Most incentive So number previous down QX XXX, our about of our comp. that is which OpEx XXX. baked of into implied of and about is some restructuring that from is

thing margins. we the -- great summary hey, just talked to get other to We Keep then, there. next us talked George's again, when that guide two add -- into and going we I expect hope headwind about in a material QX product FX for has is We things And this mind, at year. other will want that we year, flat. least that about OpEx. been too,

other even is, higher keep EPS thing with a a tax mind, in grown The rate we've tax perspective, from significantly rate.

lots bottom hey, good drive able fiscal things into line. the confidence that us to So, of 'XX being in give going

Operator

go The come Long next from will question Tim ahead. Barclays. Please with

Tim Long

questions, I could. if Two

And hybrid-based some what sounds cannibalize have a risk curious some after flash? you impact or that. of you're like Could a there performance on I -- on higher the revenues? Any cloud little the the that mean there structure follow-up to then, that'll that on is expecting And and margin just would systems. or First, product. the talk disk bit it replace flash C about

George Kurian

I of capacity that's to Performance recently that it's and workload flash, flash X have think a latency. performance performance from capacity array. a distinct profile the X flash sub-millisecond arrays kind are typically the In milliseconds. profile we announced about flash

flash on distinct upsell flash. will percentage that's impact the the hybrid use business flash of and our will they mix array over hybrid an time So, be Capacity are cases.

Tim Long

And cloud engagement you That's helpful. level Okay. by progressed their related in customers some cloud pushouts Thanks. then big And cloud players? different guys how on-premise also to and that's I recovery, hybrid level you of Thank to deployments? services the with cloud-based that, your then, you. ONTAP taking have start of transitioning have the the of two-parter. But on around. we've got part One, the any going any engagement? mean, noticed

George Kurian

We with cloud have engagement continue great partners. provider our to

in our to small. As part I good mentioned, are customer be the is because limited cloud initial business. impact deployments quarter of acquisition a the The continues

So that's the first.

case, to cloud after multiple use done well, we the regard with pleased have progress. with and services initial cross-selling I'm Second,

there reducing we with churn not they're customers right? service. of terms the is is off but difference, on are that pattern In they churning are level consumption, use engaged case, storage the So, no our the performance of the

feel it's clients I think to combination a of really I the is good. right part help So, the being use services. of best partner Actually, your

installed base, then, continue of see penetration And it's early, our in to forward moving while of we steadily. that terms

NetApp think the I our in managed commercial accounts higher enterprise in segment. penetration is much than our

Operator

Please ahead. The question with Morgan. will Chatterjee next JP Samik go from come

Samik Chatterjee

critical enterprises mean broader the seeing had just about optimization guess in It guess, enterprises that, and in I more Public budget I optimization. follow-up. for don't two were the critical storage and demonstrated indicate to some during the Just being relation consumption the these being And in with the addressable market start how in cloud defining I were that lot pressures the cloud. you I were room I can to cuts. just and I do not does see there's leveraging And everything have use trends on cloud, that case Cloud. that Public around that the Cloud as around a and is you're you if relation every think a CloudOps? as the of

George Kurian

a that all, trend trend. strong long-term be I towards of to First think the continues cloud

the at even the data growth analysts market as center if look than cloud I most cloud as you higher providers, growth. infrastructure from data well is the think public from recent

So, one. that's

up of is actually in base. operating would the patterns our is the that be see premises. customer fact real on lower think a cost think workload spin term to then benefit model the profiles can customers environment behavior I learning I cloud you the different second environment over are spin and cloud because a the what we of long down than will

impact to understand and as cloud larger spread will than in base, particular is it able being much across a less example, -- we customers behavior change actually customer for today. services of our of the are, We the be any consumption much

customers resources completely. sharpen it benefit and the go from our to the about focusing use go-to-market to technology more more of bullish allow motion continuing sharply remain cloud We're to after success we the our So, to customer our opportunity.

Samik Chatterjee

line, versus you of the seeing And the challenges? sort little of Spot rates does between engagement on just down XXX%, how rest digging portfolio the to difference a And Like, have of around a on bit and like more deeper. relation bit in Spot are you same seeing break revenue Okay. maybe when what maybe in the Cloud retention Insights? that net

George Kurian

stabilized and Spot targets. Cloud our well, internal has has done and Insights met

the cloud was So, the business. storage mostly shortfall from

think I opposite, had optimization, perfect a the in is tool right? it's When cost about quarter. good that and concerned for are they people that, Spot a part,

Operator

and Krish next Cowen Company. question go Sankar with ahead. Please The come from will

Krish Sankar

how some is the seems like year this do from offsetting. it portfolio, year, being Cloud first cloud there? optimization think than magnitude The -- then Second have And cloud it your more to more of despite the ARR? be I service could of be was decline your is, us get portfolio than a of Public And one service tell -- the performance seems calendar at your you XX% XX% Any of cloud -- this? improvement follow-up. point to

George Kurian

overrun to deals, all add those large a environment. spending quarter. by of typically small development those to cloud first new a -- the find is their services out customers The were acquired Those business services, in continue customers -- some the they because our few deploy rather customers and they production small they was and are We storage. benefits customers in they environment our testing of of the reduction from being customers test or the cloud are the CloudOps contracted actually from of who than impact our to the and actually quarters

So, additions. in I a that good we Surely, don't but issue feel Can we more think the new about there? was quarter. material customer do

Mike Berry

about materially. to Mike. We that It's is Krish, quarters. over expect see that don't about could. XX%. relatively We but talked remain by changing little about, bit CloudOps storage XX%. I next hey, is if cloud the quarter, And several It'll consistent move we a around

Mehdi Hosseini

George you it smaller, need question, quick have? follow-up, wanted there visibility it. deal and George, that, kind do Got how start months’ that Thank Like, maybe then to of as to sizes today? don't what simple visibility And as a at they'll approval of gets look gets CFO when you is mean, how larger, deal also just better, other many Are like leading are kind for it. other size said, as Got find, a George, business you And metrics customer's like look Super a your have any do helpful, is to I into? earlier you to an mentioned Mike. spending you I or purchases? again. indicators you.

George Kurian

do We wallet. do whether We are our the or a larger analysis, We bring look we look gaining We are losing level at business of at lot models for account to -- need we especially whole share customers. we total at look share. customer. to new

have consumption well our with business. done We

rather the couple quarters than use that offering, CapEx Keystone to go many of are chosen over past have there Our the route. customers that

with right? involved customers, heavily we're So,

we conversation the purchase. broader they general, customers I'm just to I'll the it's in with improves, see when sort start starting business take outlook just that, of theme is with what that daily tell to their you that larger a generally customers.

performance large GDP ahead come segment Some other along parts go market, typically turns segments and GDP lead around. when the that enterprise of economic and that of

probably best business of the indicator. cycle customers, at look leading So that's the those

Operator

Please will question from Sheerin next come Stifel. go ahead. Matt with The

Matt Sheerin

on on that a on from And playbook? seeing both NAND given to pricing, expectation costs, aggressive part pricing any the I Are components pricing incremental and question of give more input the environment. competitors not the with you an slower had is be demand you of lower opportunity pressure the environment? or

George Kurian

be environment, any in I it the kind a a player doing I ordinary. and out environment don't competitive competitive continues of anything to a environment. think it's demand see tough of always

else, see especially opportunity, be arrays, market. that think competitive the the I in just we like to with everyone flash QLC-based

Operator

come Please from Bank. Deutsche The with next question go will Sidney ahead. Ho

Sidney Ho

You more a in revenue saw on overall past guys decline year-over-year years where XX% you XX of of cycles have down quarters a multiple or basis. the few seen

this think out. how XXXX, of and shake the cycles just Curious I follow-up I XXXX. contrast of with in think question. you terms will us duration completely the Maybe have previous they're downturn. And that different. cycle depth and help was Maybe in then the compare

George Kurian

did than that today we've got in different mix think I the a Listen, we past. of business

business models business. business cloud percentage think I the growing there's like a of recurring our revenue from more

base. acquire broaden market to the have I new of customer tried parts our to resources that more think allow less to that move us and are customers cyclical we to our of

I good pivot will say that in And not we good seen direction. continue would progress. job, certainly enough, done we've a to but we've

quite segment large the the think to what I customer pattern behavior similar we've past. in is seen

that is year. XXXX what I XXXX -- see that think difficult customers, very that similar to we The the I quite would today. is thing out many point was only a for

-- this presaged it by has downturn not expansion. been many And years of hasn't -- so, there's many, economic been

predictable more So, we're the pattern in will buying a that be they customers back hopeful than past. have in

Sidney Ho

quick here. Okay. Maybe great. follow-up a That's

answer expenses. earlier operating on the on the Just

quarter? to be which see to quarter, XXX from the for the about you forward about clear, growth. at July you it? OpEx until in Is July down And the seasonally going be talked expenses resumes? revenue OpEx it's growth expecting until level for those flat in think how You know anyway levels down are April that But we the OpEx I hold you should holding quarter

Mike Berry

it's Sidney, Yes. Mike.

is of will in the QX to that So, back. nuances, thing couple compensation, we come brief, a do back The number, will incentive that this there's of come restructuring in a hopefully get have QX try of is QX. I'll We'll that benefit. the keep in portion all

about in -- the Sidney, of some You've this, seen the downturns. you talked last

as this of You've out coming it seen well.

to a flat absolute from comp. everything we perspective, it's So, to as dollar just that of on try we based keep incentive probably controllable in on movements else outside that. up an But slightly will QX as QX perspective, can

Operator

Suva The Jim question Citigroup. with will go come ahead. next Please from

Jim Suva

significant. the for Mike. very gained have have I and George, you in significant them George them I'll you several questions, for share, order. and ask market the one can all different But same in time, answer past years, one at any

more you I of market, have shifts. gain share I'm past it's pricing aggressive? years slowdown, get share, any wondering any are seeing competitive gains. multiple competitive if the a you're With to continuing but share leagues you Are seeing spoken even several or know your

of from so, just And I'm wondering kind perspective. that

And then two guidance, of you then or or X we at X looking it FX? full lapse year FX severe, sorry, FedEx quarters I'm can Are you you're the keeping and can't, for Mike, it material. the because your the a which more -- because maybe kind quarters on discredit comment more still but are headwinds just was simply is the FX, very remarkable, and so

when we Thank that? you. So, lap of looks to start any

George Kurian

of part, share is the large some than on the our exposure enterprise to our think competitors. bigger I

cycle, so, will our exposure I a think to down we probably And in customers. given those concede share

where strong we kind we keep I a are full of the hybrid I think compete we the key to second the that of all good market, segment flash and lineup more is a now can feel share of forward. which offering capacity moving in segments arrays, the have that gains, have driving flash flash

focus that and And sharply market are the more on more so the the cloud then, our storage I can think, align in more a field comments, to on tailored going in go-to-market as each. for focus in model I better market sharply we execution we noted my

Mike Berry

revenue, for the And your be would in compared and zero, then points Jim, I almost QX. a in that slightly we it's to basis about XXX QX. QX but Mike. for basis-point a in this QX on is in On headwind full it a be lap full about year, FX expect question, to XXX now, XXX expect headwind would year it

Operator

come from will Please with ahead. William go question next Ader The Blair. Jason

Jason Ader

-- In you your competitors headwinds sharply we on AFA words, NAND margin because pricing coming street a are know model. other side of cost from the pricing that have on business? down some revenue any your model cost-plus seeing George, there of just are Hey guys -- kind

George Kurian

market customers' two. for so between distinctly and going think quite be versus material dollars, overall I in think cases cannibalization budget that we use to the the flash. segmented I there's don't performance the and capacity

comes down being available. budget really dollars it think customer I to

Jason Ader

Got you.

XXXX kind it what is this in, -- and where affected than really it for NAND is XXXX, back like, the drastically of revenue we industry? different prices whole So saw came down

George Kurian

in seen always in and dollars. we've that buy they customers think dollars, budget I

customers' So, you us. it’s focus NAND being me more actually spending I and down the coming that's for I the see now, do the IT think real if of budget pricing think don't really material I right area headwind. ask

Operator

The go next Meta question Please with will from ahead. come Marshall Morgan Stanley.

Meta Marshall

you that's the guys we a the refined and integrations spoken a where a sense of to that to and just go-to-market kind just more go-to-market part of that have of to CloudOps get of portfolio, was happen sharpened of that on On aligned some wanted motion. I that. whether product or going are of portfolio kind

is And of storage second piece kind just then of question the on that the cloud piece.

of kind sense customer anything overlay motions sharpening of You set, getting guys Thanks. some go-to-market visibility happening just less sales? Just of, have that's bit to into had of a kind there. that visibility increase of are cloud storage on a little the these

George Kurian

Yes.

we've momentum Meta, I think Instaclustr, Spot we good the teams piece, for CloudOps and team. one brought motion. into unified CloudCheckr CloudOps the integrated seen sales on And together with the selling first,

and customer particularly there's a to next think, few that hope over buying buyer we good Instaclustr, Spot the to of terms It's yet. synergy motions I success in quarters. early it exploit call and too

see of capabilities brought us of for already some the the of of Spot those compliance, should we product portfolio, you functionality terms Spot. more In CloudCheckr into and into bringing

And are FYXX design head chip we resources or to hyperscaling do those -- hyperscale the application to closely I going regard be motions aligned we're the doing on, listen, that hyperscaler cloud think align sales I more think motions. or is the to and is with work some our are cloud into with closely most providers buying key as that With of SAP hyperscalers, we important going what VMware. that even storage,

that that of customer a think behavior. I will better understanding give us

business. in in from of that's work And our the are so the We've good but us. our capabilities consumption yet see impact full adoption cloud cloud seen of subscription storage success doing to we business, ahead customer

Operator

go with from come Suisse. will Cross ahead. question Shannon Credit Please Next

Shannon Cross

headcount mentioned a much on provide can proverbial how but on you. where office made? have your were a don't X% I impact you've wondering, it back And I of details I I'm of line? your some Thank you you should headcount? how the know, invested, know we more think of was, areas the top the about then, follow-up. revenue-focused reduction cuts And versus couple

George Kurian

less factor Broadly the the quarter. I guidance. biggest those places we are to the cuts you were our for to think contributors impacted us year, expect market revenue when that those that us. -- we speaking, for factored next guidance we our significant And into should and resources were on focused into this opportunities, guide

focus well have those the in some on opportunities. decisions ARR spirit as forward. the cloud think the made CloudOps, let's are of think I best that But markets and we've going the as that to in I in best portfolio impact will

Our add quarter want the anything? do changes. to guidance envisages for you those Mike,

Mike Berry

no. No,

we the the have Outside of I And it or ARR. said, right little think we of that's It's George that, to did we areas. a a feel we great on answer. focused board. productivity baked all across where in. revenue issues, as good bit We didn't tried focus that

Shannon Cross

then seeing? you're question were guess, my Thank the given pressures in cuts year-over-year you. there of And Hybrid drove is, stock-based all increase any Cloud? the what second comp in I

George Kurian

In noted as Hybrid Cloud, impacted my Store. comments, I we Data in Astra

than Astra in to combination going Kubernetes Store. completely a rather a continue the SolidFire and ONTAP Control, grow are a which to continue plan we in, we use had forward. better we that don't to to case like architecture but of Astra And We Data small sustain, then, solve through business we able invest separate

Mike Berry

into have on ESPP our those of on period during months look that depending do entry question you'll on back an stock-based ESPP, purchases. I'll in every six your stock And $XX when comp, do call the it, take price movements lower see every typically of was that there six a account about on to the catch-up to the Shannon, the time. we price million, And we quarter months, of program.

Shannon Cross

going at will be is million clear. million or catch-up? $XX another catch-up it's now. stays done So level forward? you'll to your assuming And be that So Just be stock $XX where the at, there

Mike Berry

on rate. what happens is stays down. six it the won't months in in dependent stock It is And So, drop date. price at where that run the purchase

Operator

Please next The Chokshi question Northland. from ahead. go will come with Nehal

Nehal Chokshi

it as guidance demand been even now has the in Has by January relative to of year-over-year C-Series February quarter? What trend implied worsened the the month with the available? the

George Kurian

not about We're to happening what's comment going this quarter.

think our in of as see spending broadly guidance, the pattern cautious, year. speaking, for about we're you IT I the can

performed I think the many as and enterprise, how concerned and in large -- parts spending short the particularly well. service of certain Germany, spend Europe, not in but segments, robust well, have be about business the how term. parts there particularly performed we're Americas, will our high and tech UK provider And of

Nehal Chokshi

what's Okay. product capacity were And all-flash late on postmortem you why with on the guys arrays? the lower

George Kurian

-- of the ago, high those and our end ago, at that was it product. arrays could realized flash flash. hybrid but few that we quarters And We has pickup, have few that expected. us lineup. taken strong introduce hybrid than those to with we believe bit We use to continue little time we needed lineup, a serve see cases that to a use started We flash a cases. support A more we full months created capacity we a we

about in good our and in feel It cases, capacity I price guarantees the comprehensive the now. functionality, and So, of lineup is most points terms market. use

Operator

Loop with from ahead. Baruah Please go The next Ananda come Capital. question will

Ananda Baruah

with And just has that on Thanks. I a you than markets greater sort company the there end is your Do to competitors? services And do try remarks that and can to of to follow-up. key have to or quick focused you circling financial exposure George, feel about provider. diversify that Hey service exposure? then, back those your concentration anything you're

George Kurian

let to I competitors. you that want our ask them comment Listen, I about question. don't should

does that They impact they those what customers. business. it we they in our we high-tech lots down and think have service large have are of and cycle, benefits are I customers base customers, having enterprise and a forward-leaning. customers. are is when But -- are demanding And seen of got a there's provider to large

things we've business. a years, Over the our to done expand few

I enterprise. the results. also call we've customer in years. been early perhaps sign the commercial It's we but We've most for And that pleased past number grow invest below us, We vehicle continue and one, cloud brought has enabled importantly, broad seen push, has segment. new the business. to to been in to large I'm single our push with for think, we've of issues good that up over that route-to-market a Cloud too the strongest most enterprise the customers. the very few

Ananda Baruah

That's quick think, great 'XX prepared in Mike, in industry in reference context. response both And and remarks and mix shift 'XX. remarks follow-up I sorry, your in -- in prepared shift to made in a not to yours his you all-flash Mike, -- all-flash question is, mix -- the or

the you you So, from trend I was what something just is that's that trend? guys current wondering And a being as see in see that is. distinct it. Do break

amplification Thanks. trend. an So,

George Kurian

towards the been I think Disk-based price said NAND costs cycles, shift of mix have when system. a sort up and down, than see a speaking, steady of more have past comes systems as down broadly we you like flash. in flash-based

fact have also capacity will and broad NAND that we will our two lineups, also which now from the which high-performance shift that to that's complete flash, case, So, expect from we from benefit trend. benefit In flash, NAND. the benefit

Operator

Kyle last go with will question Jefferies. come ahead. Our from Please McNealy

Kyle McNealy

both from higher will of What's it the impact? material on data some talking Where a high-performance, think Thanks. you environment near-term have sheer bit of talk workload Is about kind And been little you get all-flash? 'XX growth we about that through the business? growth? it or do expect impact to low-latency past from? see AI you've macro the it you come mix AI we'll those positive the new softer factors? a positive Can have to Is until

George Kurian

the that of market resilient cycles. to are parts in grow to continue workloads more AI commodity

NetApp. have suited are moving So sciences, do forward. we certain diagnostic see example, especially I various very types system. for analysis, of life industries well, to image in audio of that we large done in mean, financial that perfectly services, and for are number or elements sciences, cases detection example, cancer to that high-performance a more workloads, AI a and files store of life continue countercyclical those

we so, And more today. of chain a be are expect those business AI benefiting material the contributor cases tool going forward. certainly, use to as And to grow, from to range our continues that we

Kris Newton

going for Thanks, some George closing pass to comments. Kyle. to I'm back it

George Kurian

Thanks, Kris.

aligned strong our have demonstrated our and in of Our to strategy is customers address with secular long-term key for cloud data-driven each the within positions in We trends long-term key transformations. priorities success control. our and controlling growth the of markets digital elements

position. we Over our a the challenging history, better opportunities of been and focus, new several in course our that sharpen periods we have used have to macroeconomic through emerge attack

to We are doing committed that again.

focused prudent across Thank you. support in expect the quarters. can the Cloud tightly of company our stewards and control, our give managing business. you our Public reinvigorate storage You of efforts business updates approach to us a the We'll elements our remain within in on more business, to build coming progress

Operator

This for presentation. attending Thank today's conference has now concluded. you

disconnect. now You may

NetApp (NTAP) 22 Feb 232023 Q3 Earnings call transcript