back to article NetApp falls into loss-making territory as yearly revenues drop 10 per cent

No wonder Tom Georgens had to go; NetApp’s first fiscal 2016 quarter showed a $30m loss, its first for several years. Revenue of $1.34bn was 10 per cent down on the year ago’s $1.49bn, and 13 per cent down on the immediately preceding quarter. A year ago, profits were $88m. In the prior quarter they were $135m ... and now …

  1. Anonymous Coward
    Anonymous Coward

    Buy-backs

    NetApp is also buying back shares. If spraying shareholders with spare money while you retrench your business and lay people off is the right answer, what is the question? Those shareholders don't know what to do with it either. Nobody wins except perhaps the execs with embarrassingly large holdings in their own companies' stock.

    NetApp is not alone in the 'can't remember what money is for' club.

  2. PghMike

    7 mode vs. C mode

    It isn't surprising that current 7 mode customers aren't migrating to C mode -- it requires a full data copy of any volume switching modes, last time I checked. That's way too much upheaval to put a working storage infrastructure through.

    C mode sales are pretty much all new sales, and NetApp directs the same customers who would have been buying 7 mode systems to buy C mode systems for their new filers. The real question is how the sum of 7 mode + C mode sales are growing, or shrinking. That tells you how NetApp's traditional business is doing.

    Pretending it is good news on its own that C mode sales are growing is silly: of course C mode sales are growing; the sales are starting from a relatively small installed base.

    1. RollTide14

      Re: 7 mode vs. C mode

      Disclosure: Former NetApp Employee

      I completely understand the rationale behind your 7mode vs CDOT comment, I'm just curious as to why NetApp customers are different than EMC/HP/IBM customers.

      EMC went from CX-VNX1-VNX2-Xtremio, HP from EVA to 3Par, etc which are full rip & replace but I never see people knocking this. I would assume that ALL customers share similar pain points doing massive migrations.

      I'm genuinely curious as to what why EMC customers are 100% ok with this while there is major resistance from the NetApp ones?

      1. Anonymous Coward
        Anonymous Coward

        Re: 7 mode vs. C mode

        If Microsoft were judged by customers upgrading to the next version adoption like people comment about NetApp, you would think they would be out of business. Look at how many customers are out there still on Windows Server 2008 which is way older than CDOT and even customers though unsupported are still running Windows server 2003. Just because Microsoft announced Windows Server 2012 in well, 2012, doesn't mean everyone jumped to it immediately. Many Microsoft customer are still not on 2012.

        Moving from 7-mode to CDOT is no different from moving from one version of Microsoft Server to the next or one EMC VMAX to the next. It is a migration, one that typically happens when a customer does the next hardware refresh. Considering NetApp hardware is typically refreshed every 3-7 years, it's not out of line that only 15% have converted considering the full featured version of CDOT has only been shipping for about 2 years. Everyone makes a big deal out of NetApp doing this because it is the first migration to a new OS since 1993, but yet companies like Microsoft, EMC, HP etc, do this on every product cycle and nobody bashes them. Haters going to Hate Hate Hate.

      2. Anonymous Coward
        Anonymous Coward

        Re: 7 mode vs. C mode

        HP EVA to 3PAR was easy as is 3PAR to 3PAR, the migration tools are built into the array, provided for free, and in the case of EVA migration managed directly from the familiar EVA management interface. From EVA to 3PAR you're really taking a step up in terms of performance and capabilities and they've made it very simple and painless, I'm not sure the same could be said for the current Netapp transition.

      3. Anonymous Coward
        Anonymous Coward

        Re: 7 mode vs. C mode

        It's all about the NetApp promise; "no forklift upgrades". Violate that, and you've broken the trust chain.

        The other issue is that C-Mode seems so complicated... I keep asking myself, why do I need it? I loved my little Filer, I don't need to scale-out.

        1. RollTide14

          Re: 7 mode vs. C mode

          But once again, many other companies have broken that trust. Example: Xtremio said no disruptive upgrades ever, then getting from 3.0 to 4.0 was completely disruptive....yet people still seem to be gobbling it up.

          However, I think hit the nail on the head with CDOT seeming complicated.

      4. yo_G

        Re: 7 mode vs. C mode

        This is an excellent question. The only theory I can come up with, and it's pretty tentative, is that that being an EMC customer appeals to people who expect this kind of thing from their storage vendor. They like being told how to do things. They like being dominated. They like taking it up the a** every now and then.

  3. Naselus

    tbh, the competitors are right.

    ONTAP is great for storage appliance, but storage appliances aren't where the world is headed. Netapp's obsession with trying to sell what is basically an appliance O/S as an all-singing, all-dancing solution to all mankind's problems doesn't really wash when many customers are moving to cloud solutions. While C-mode is all well and good compared to 7-mode, it's not a ground-breaking reaction to the direction the market is moving. SAN software and architecture improvements aren't going to change the fact that the SAN is no longer a must-have item for every server room, or that the server room is no longer a must-have for every SMB, or that many of the big DC owners are looking a cheap, easy SATA JBOD storage solutions instead of network-attached storage appliances.

    1. Anonymous Coward
      Anonymous Coward

      Time to Open Source ONTAP as Software Defined Storage

      Former NetApp'er here.

      NetApp's business model doesn't work today. NetApp used to proudly boast to new employees that that the way they were so profitable was to introduce filers based minus-1 hardware technology that had hit commodity pricing. And in today's environment, minus-1 tech can't compete with JBOD, so the model is broken.

      Instead, NetApps should Open Source 7-Mode/C-Mode and sell maint ala the Linux model. Ditch the hardware engineering staffs and get back to their SW heritage.

      Where's Elliot Management and the other sharks forcing NetApp to unlock value when you need them?

      1. Anonymous Coward
        Anonymous Coward

        Re: Time to Open Source ONTAP as Software Defined Storage

        You're a former NetApper yet you call it "NetApps"?

  4. Anonymous Coward
    Anonymous Coward

    Product

    Product revenue was down 25% yoy and product margin down 6 points to 51%.

    Are there any more clear signs of a non competitive product?

    Triple digit increase in Cluster Mode. Sounds impressive until you read in the seekingalpha earnings transcript the customer base running Cluster mode represents just 15%!

    Company's in serious trouble and layoffs, buybacks and heavy discounts will not save it.

    Typically the managers who put a company in a precarious position aren't the ones who turn it around. Need serious executive management changes and to re-examine their strategy.

    1. Anonymous Coward
      Anonymous Coward

      Re: Product

      Product revenue was down 25% yoy and product margin down 6 points to 51%. Are there any more clear signs of a non competitive product?

      Well, it could also be a sign that NetApp had to drop is revenue and margin to compete against companies like Nimble, Pure and others who are selling product at a loss to buy share. Nimble loses $25 for every $100 in product it sells. Pure is even worse, so when you are selling against competitors who are selling at negative margin to gain share, of course you are going to suffer some setbacks in profit and revenue. That is at least until the competitors who are selling at negative margin go out of business or have to raise their prices to stay in business.

      1. madanko

        Re: Product

        You're partially correct in that Pure did drop their trousers early on, according to their fillings, with a 29% margin in obvious attempts to gain footprint, which is understandable for a startup. According to Nimble's reports their margins are 67% so they don't appear to be giving their kit away thus Netapp's (and EMC's) significantly lower margins appear to be driven by weak product demand.

        1. Anonymous Coward
          Anonymous Coward

          Re: Product

          There is more to it than margin. Look at the revenue numbers from Pure and Nimble. Pure is bleeding money so fast losing more than they are making they are being forced to do an IPO. In their 2015 FY they lost $180M on $174M in revenue. Yet their CEO stated they would continue business as usual. Nimble in their Q1 did about $71.3M in revenue and lost about $29M on that revenue, $10M more than the previous year, so net they are still operating at a loss regardless of the 67%margin. Result is companies like EMC, HP, Dell, IBM and NetApp all have to drop their margins to compete, not due to weak product demand, but to competitors buying share. Although technically if someone is buying on price and you lose to them, I guess that equates to weak product demand, but not because of lack of interest or innovation, but when the competitor is selling at a loss.

  5. chrismevans

    Where are the new products?

    What is NetApp doing to evolve its business? Except for E-series and AltaVault (a tiny add-on solution) there's nothing new to see here. It's a continued focus on Data ONTAP, which still consists of two platforms, despite the deception to make it look like one (that's why customers aren't moving). By new products I mean things outside of traditional storage appliances. NetApp isn't changing and until they do, the company will continue in terminal decline.

  6. FDavids

    NetApp isn't innovative, that is why they win awards.

    Wow, all of this negative drivel on how NetApp isn't innovative, CDOT sucks, CDOT is bad for Flash, Bla, Bla, Bla, YET, NetApp wins the best of show award for at the 2015 Flash Memory Summit for its flash innovation and in addition wins three more awards for the best Unified Flash product, best NAS flash product and the best Infiniband Flash product. Who would have thunk that a company who all of the people posting comments here says their products suck so bad they are going out of business would win awards for their flash products. By the way, these awards by the way are voted on by IT professionals who buy and use the products, based on independent surveys.

    1. Lynrd

      Re: NetApp isn't innovative, that is why they win awards.

      I didn't read anything that said the product sucks. I read that people aren't buying it. When a $250,000 solution from Nimble is a viable alternative to a $1.5M NTAP solution, that sort of thing can happen.

      1. Anonymous Coward
        Anonymous Coward

        Re: NetApp isn't innovative, that is why they win awards.

        $250k vs. $1.5M? Man I really can't see that comparison working out for you. One of the two vendors is definitely not quoting what you were asking for. $1.5M would buy you a huge distributed multi-site, multi-protocol behemoth with a ton of flash. $250k of nimble would but you a reasonably small, locally redundant flash system.

        If all you wanted was the small single flash solution why ask for a multi headed top of the range.

        Horses for courses, ask your sales reps to re-quote based on your needs not because they are trying to get a foot in the door or make their annual sales target in one transaction.

        1. Anonymous Coward
          Anonymous Coward

          Re: NetApp isn't innovative, that is why they win awards.

          No actually 1.5M buys you a lot of headaches and support calls, but hey whatever rocks anyone's boat. Some people just enjoy punishment.

        2. This post has been deleted by its author

      2. Anonymous Coward
        Anonymous Coward

        Re: NetApp isn't innovative, that is why they win awards.

        I should have used the words "not innovative" instead of "sucks". Net is there are many people saying NetApp is losing share because their product is "not innovative", but yet NetApp won four awards for innovation at the recent 2015 Flash Memory Summit. Someone, either the haters on this site, or the people who voted on them to get the awards is wrong. I am basically saying it is the haters.

        FYI NetApp Market share at #2 behind EMC has been relatively stable plus or minus 1% since 2012 even though prices had to be lowered to compete with the likes of Nimble and Pure who are giving product away, so net is from a customer count perspective, NetApp has added net new customers and gained customer share even though revenue has been relatively flat YOY. So again customers are buying NetApp and replacing their competitive products on the floor with NetApp, so again, looks like they haters who are saying nobody wants to buy NetApp products are wrong.

        1. Anonymous Coward
          Anonymous Coward

          Re: NetApp isn't innovative, that is why they win awards.

          Not in my patch. In fact, ive taken a few NetApp customers and lost only once, in a small deal im not concerned about. Netapp may be winning against someone but head to head, it isnt me.

          Im quite happy that NetApp has its head up its ass and is in complete denial, it means they can lose more business to me.

          Disclaimer, as if you didnt know: competitor.

          1. Anonymous Coward
            Anonymous Coward

            Re: NetApp isn't innovative, that is why they win awards.

            disclaimer: I compete with NetApp with several storage brands. Not EMC or HPQ.

            Last 3 NetApp customers I've come across:

            1. Existing NetApp shop, engineering shop, requiring performance upgrade: NetApp all new $1.25M Upgrade: $780K. Full replacement with my brand X (50% faster, 50% more capacity than the upgrade) $450K

            2. New opp for design company: NetApp $162K, my brand Y - 50% more capacity, massive flash performance, better warranty: $124K

            3. Existing NetApp shop. NetApp offer: $850K to add to existing install. Alternative Brand Z: $310K. Customer chose to keep digging the hole "..because they have an investment in NetApp..."

            67% success rate + nice thoughts knowing that customer #3 is putting a NetApp sales rep's kid through at least two years of college.

            NetApp makes good gear, but the innovations that they brought to the table have been matched or surpassed by other storage brands, or functionality that was key has been incorporated into O/S or applications. In my opinion, if it weren't for Netapp's installed base of loyal customers and resellers, they would be in even more trouble than they are.

    2. yo_G

      Re: NetApp isn't innovative, that is why they win awards.

      haha! BEST OF SHOW!!

      1. Anonymous Coward
        Anonymous Coward

        Re: NetApp isn't innovative, that is why they win awards.

        Some Pig!

  7. Anonymous Coward
    Anonymous Coward

    Can we please stop the technical discussions for a moment ....

    .... It's time to assume the brace position as Netapp is "Operationalising its Strategy" once more.

    When Tom Georgens said "As CDot goes - so goes Netapp" - the keyword was "Goes". Only remaining question now is "When?".

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