Release Date: November 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NetApp Inc (NTAP, Financial) reported a 19% year-over-year increase in all flash storage, contributing to strong revenue growth.
- The company achieved record Q2 operating margin and EPS, exceeding expectations.
- NetApp Inc (NTAP) was recognized as a leader in the 2024 Gartner Magic Quadrant for primary storage platforms for the 12th consecutive year.
- Keystone, the storage as a service offering, saw revenue growth of approximately 55% year-over-year.
- Public cloud segment revenue grew 9% year-over-year, with first-party and marketplace cloud storage services increasing by 43%.
Negative Points
- Operating cash flow decreased to $105 million from $135 million a year ago, and free cash flow was down to $60 million from $97 million.
- The company experienced higher inventory levels due to strategic SSD purchases, reducing inventory turns to six times in Q2.
- Despite strong performance, the macroeconomic environment remains unchanged, posing potential challenges.
- The public cloud subscription services segment is declining, impacting overall cloud revenue growth.
- Free cash flow for fiscal year 2025 is expected to be slightly lower year-over-year due to timing of cash payments.
Q & A Highlights
Q: Can you discuss the impact of macroeconomic conditions on your revenue growth and how your product portfolio is positioned to address external storage needs?
A: The macroeconomic environment has remained unchanged from previous quarters. We are well-aligned with priority spending areas such as data center modernization, new applications, cyber resilience, cloud, and AI. Our strong product portfolio and execution are driving growth, independent of macroeconomic conditions.
Q: What updates can you provide on AI deployments and when do you expect AI inferencing to become a significant factor for NetApp?
A: We are in the early stages of preparing data infrastructure for AI, with numerous wins across various verticals. These are indicators of future large-scale deployments. We anticipate AI inferencing to become more significant in the second half of next year, with growth opportunities still ahead.
Q: How do you view the durability of growth in the all-flash array segment, and what is driving this growth?
A: We have experienced four consecutive quarters of high growth in all-flash arrays, outpacing the market and competitors. This is due to our alignment with customer spending areas and a unique value proposition, including a single operating system and advanced hybrid multi-cloud capabilities. Our innovation pipeline and execution in the market are strong, supporting continued growth.
Q: Can you explain the strategic pre-buying of memory and its impact on inventory levels?
A: The increase in inventory is largely due to strategic pre-buys of memory to cover expected demand in fiscal '25. We are not planning further pre-buys as we are seeing some softening in the NAND market. This strategy has been effective in managing supply chain risks.
Q: What are the key drivers behind the strong performance in the public sector, and how do you view the impact of the new U.S. administration?
A: Our U.S. public sector business performed well due to long-term projects supported by program spending. Globally, we saw strong public sector performance. The new administration may bring new priorities, but alignment across legislative and executive branches could facilitate policy implementation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
