NetApp, Inc. Q3 FY2025 earnings call

• George Kurian noted revenue growth of 2% y-o-y and operating margin 30% above expectations. First-party and marketplace cloud storage services and AI were bright spots. Inconsistent execution led to deal slips, and tighter controls on deal progression were implemented.
• New products introduced include entry and mid-range AFF, A-Series high-performance and C Series capacity flash arrays, and new entry-level and midrange ASA systems. Public Cloud business focused on first-party and marketplace cloud storage services with innovations in Amazon FSx for NetApp ONTAP and Microsoft Azure NetApp Files.
• AI business performed ahead of expectations with over 100 AI infrastructure and data lake modernization wins. StorageGRID object storage solution enhanced for scalability and flexibility.
• Public Cloud strategy after selling Spot by NetApp, with first-party and marketplace storage services growing over 40% y-o-y.

In Q3 FY 2025, NetApp's revenue was $1.64 billion, up 2% year-over-year. Product revenue was $758 million, up 1% year-over-year. Support revenue was $621 million, down 2% year-over-year but flat in constant currency. Professional services revenue was $88 million, up 14% year-over-year, mainly driven by Keystone (Storage-as-a-Service) which grew nearly 60% year-over-year. Public cloud revenue was $174 million, up 15% year-over-year. Hybrid cloud revenue increased 1%, and the all-flash array business grew 10% to an annualized revenue run rate of $3.8 billion. C-Series capacity flash arrays, storage grid object storage systems, and ASA scale-out all-flash block storage systems delivered solid growth. First-party and marketplace cloud storage services grew well over 40% from the prior year, driving total Public Cloud segment revenue growth of 15%. Excluding Spot by NetApp, first-party and marketplace storage services made up over 70% of the Q3 Public Cloud segment revenue.

• Full year 2025 revenue guidance: $6.49-$6.64 billion (5% growth midpoint). Gross margin ~71%, operating margin 28%-28.5%, EPS $7.17-$7.27.
• Q4 2025 revenue guidance: $1.65-$1.80 billion (3% growth midpoint). Gross margin 69%-70%, operating margin ~28%, EPS $1.84-$1.94.
• Impact from strong US dollar and divestiture of Spot by NetApp adjusted guidance.

• Execution risks due to deal progression slipping in Q3.
• Impact of foreign exchange rates on revenue.
• Public sector weakness in Q4.
• Tariff risks and NAND market dynamics affecting costs.

Q: Aaron Rakers asked about sales execution efforts and duration of issues.

A: George Kurian discussed tighter closing plan controls and expected discipline to continue.

Q: Meta Marshall asked about execution vs customer uncertainty and public sector.

A: George Kurian talked about European market caution and US public sector guidance.

Q: Mehdi Hosseini asked about competitive landscape and QLC mix.

A: George Kurian stated no fundamental change to competitive landscape and discussed product portfolio refresh.

Q: Irvin Liu asked about product gross margins and competitive pass-through.

A: George Kurian discussed product gross margin trends, NAND market, and future margin expectations.

Q: David Vogt asked about deals closing late and all-flash array performance.

A: George Kurian explained reasons for deal slips and all-flash array performance drivers.

Q: Jason Ader asked about Spot impact annualization and US Fed exposure.

A: Mike Berry discussed Spot revenue impact and George Kurian talked about US public sector exposure.

Q: Ruplu Bhattacharya asked about cost actions and free cash flow.

A: Mike Berry discussed operating expenses, cash flow, and NAND pre-buy strategy.

Q: Steven Fox asked about competitive dynamic and NAND pricing risk.

A: George Kurian talked about competitive differentiators and NAND market dialogue.

Q: Krish Sankar asked about AI in enterprise and Spot impact on Q4.

A: George Kurian discussed AI enterprise cycle and Mike Berry talked about Spot revenue in Q4.

Q: Simon Leopold asked about tariffs and risk.

A: George Kurian discussed flexible supply chain and minimal China dependency.

Q: Lou Miscioscia asked about AI revenue contribution timeline.

A: George Kurian discussed early innings of AI enterprise adoption.

Q: Unidentified Analyst asked about Keystone customer behavior.

A: George Kurian talked about Keystone as-a-service models and customer flexibility.

Q: Ananda Baruah asked about Analyst Day targets and fiscal '26 guidance.

A: Mike Berry stated no change to long-term targets and held fiscal '26 guidance.

Q: Asiya Merchant asked about flash installed base conversion.

A: George Kurian discussed all-flash footprint penetration and new customer growth.

Q: Samik Chatterjee asked about disaggregated solution and hyperscaler deals.

A: George Kurian talked about disaggregated storage progress and hyperscaler business momentum.

Q: Ari Terjanian asked about VMware and Broadcom dynamics.

A: George Kurian discussed NetApp's position with VMware and cloud re-platforming.

Q: Ari Terjanian asked about VMware and Broadcom dynamics.

A: George Kurian discussed NetApp's position with VMware and cloud re-platforming.

Q: Param Singh asked about deal push-outs and competitor replacement.

A: George Kurian explained deal slips were tied to customer procurement lifecycle, not specific competitor vs NetApp refresh.