Network Appliance announces results for first quarter fiscal year 2007

Network Appliance, Inc, the leader in advanced networked storage solutions, today reported results for the first quarter of fiscal year 2007. Revenue for the first fiscal quarter were $621.3 million, an increase of 39% compared to revenue of $448.4 million for the same period a year ago and an increase of 4% compared to $598 million in the prior quarter.

For the first fiscal quarter, GAAP net income was $54.7 million, or $0.14 per share1 compared to GAAP net income of $60.1 million, or $0.16 per share for the same period in the prior year. This first quarter of fiscal year 2007 is the first quarter in which Network Appliance adopted the implementation of FAS 123 expensing of stock options in the GAAP results. Non-GAAP2 net income for the first fiscal quarter increased 55% to $96.6 million, or $0.25 per share, compared to non-GAAP net income of $62.1 million, or $0.16 per share for the same period a year ago.

"NetApp delivered another strong quarter, driven by strong growth in every region of the world," said Dan Warmenhoven, CEO of Network Appliance. "Our new products and new relationships are gaining momentum, and our business with enterprise customers reached record levels. Our results demonstrate that the NetApp value proposition resonates with customers and continues to drive our competitive success."

* Network Appliance estimates that growth in revenue for the second quarter of fiscal year 2007 will be in the range of 21/2% to 4%, which translates to 32% to 34% growth year over year.
* Including the implementation of SFAS123 and with current information and assumptions, the company expects second quarter GAAP earnings per share to finish between $0.13 and $0.16 per share. Network Appliance expects second quarter non-GAAP earnings per share to be in the range of $0.25 to $0.26 per share.
* For the full fiscal year 2007, Network Appliance estimates that revenues will finish in the range of 32% to 33% higher than fiscal year 2006.
* Including the implementation of SFAS123 and with current information and assumptions, the company expects GAAP earnings per share for fiscal year 2007 to be in the target range of $0.61 to $0.69 per share. Network Appliance estimates full-year non-GAAP earnings per share to be in the range of $1.04 to $1.06 per share.

During the first quarter of fiscal year 2007, Network Appliance demonstrated value and leadership in the data centre with new products and solutions for the enterprise, introduced the industry`s first all-in-one solution for the small and medium business (SMB) market, and continued its leadership position in the iSCSI and network-attached storage markets.

This quarter, NetApp challenged the largest storage competitors for data centre leadership by introducing a new line of products and services designed to enhance customers` data management capabilities, offer the best total cost of ownership, and achieve the highest productivity. The FAS6030 and FAS6070, new flagship systems that greatly extend the breadth and scale of the NetApp storage systems portfolio, extend the NetApp FAS line to a substantially higher level of performance and scalability. Additionally, NetApp debuted an enhanced NetApp Manageability Software family and new Fibre Channel (FC) SAN capabilities as well as Premium Support Services for the FAS6070 and Rapid Deployment Services for Storage Implementation.

Highlighting its greater value in data centre environments, the expanded NetApp portfolio offers modular, transparent scalability for the largest data centre applications and consolidations; maximum flexibility to help customers adapt to business changes; and the highest availability of application data, ultimately enabling more productivity for IT administrators and achieving the best overall total cost of ownership. These offerings are aimed at enterprises that have vast data requirements and demanding service-level agreements and that operate large-scale Oracle, SAP, and Microsoft enterprise applications.

During the quarter, NetApp announced the availability of its new Data ONTAP GX operating system, giving customers with high-performance computing (HPC) applications extreme throughput, flexibility and NetApp hallmark simplicity and reliability. Data ONTAP GX combines the global namespace functionality of SpinOS (acquired through the Spinnaker Networks acquisition) with the key data management, performance and high-availability features of Data ONTAP 7G. Although the needs of NetApp enterprise customers are well served by the performance, features and functionality of Data ONTAP 7G, HPC customers in the areas of energy, entertainment and electronic design automation have an insatiable demand for extreme levels of performance. Coupled with the new FAS6070 and/or FAS3050 systems, HPC customers can leverage the clustered file system technology inherent in Data ONTAP GX, which enables individual files or datasets to be striped across multiple nodes to achieve far greater performance than can be achieved with a traditional storage system. Data ONTAP GX, coupled with the new FAS6070, scales in capacity up to 6PB and achieves the unprecedented industry performance of more than one million operations per second, based on the SPEC SFS benchmark.

During the quarter, NetApp unveiled the StoreVault S500, aimed at the small and medium business market segment. StoreVault S500 combines enterprise-proven storage technology from NetApp with the scalability, simplicity, security and affordability that are missing in today`s network storage solutions for SMBs. The StoreVault S500 is the industry`s first scalable all-in-one network storage appliance for the SMB market segment that supports NAS, iSCSI SAN, and FC SAN, providing SMB customers unparalleled flexibility compared to direct-attached storage.

Continuing disclosures of privacy breaches are driving requirements for enterprise-wide encryption and key management. This quarter, Decru, a NetApp company, unveiled a new key management platform, the Decru Lifetime Key Management 3.0 Appliance (LKM Appliance). The LKM Appliance extends Decru`s capabilities for secure, automated, enterprise-class management of storage encryption keys and adds integration capabilities for third-party encryption products.

In other product news, NetApp was awarded Storage Vendor of the Year and NAS Product of the Year for the NetApp NearStore R200 storage system at the Storage Awards: The Storries III. Judged by the readers of Storage Magazine, the UK`s leading IT storage magazine, the Storage Awards recognize excellence and innovation in the UK storage industry.

From a market perspective, according to IDC`s Worldwide Quarterly Disk Storage Systems Tracker Q1 2006,3 NetApp gained revenue share in the networked storage market, growing to a 9.6% share in Q1 2006, up from an 8.5% share at year-end 2005. NetApp also gained capacity share in networked storage, growing to 19.5% from 15.8% in the same period.

In the FC SAN market, NetApp continued to grow faster than the market in both revenue and capacity, both sequentially and year over year. Sequentially, FC SAN market revenue dropped 12.9% while NetApp grew 17.4%. Year over year, the FC SAN market revenue grew 14.8% while NetApp grew 60.2%.

In the NAS market, NetApp grew faster than the market in both revenue and capacity, both sequentially and year over year. Sequentially, the NAS market revenue dropped 1.5% while NetApp grew 7.3%. Year over year, the NAS market revenue grew 14.7% while NetApp grew 17.8%. NetApp continues to lead the NAS market in terms of capacity, with a 45.8% share in Q1 2006, up from a 42.6% share at year-end 2005.

NetApp demonstrated continued leadership in the iSCSI market in terms of revenue and capacity, with first place market share for Q1 2006 in capacity shipped (40%) and in revenue (29.7%). In Q1 2006, the iSCSI market revenue dropped 7.2% sequentially, while NetApp grew 10%.

Also this quarter, NetApp announced it has shown the strongest market share growth among the top 10 vendors of storage software and has moved into the top four vendors for market share in 2005. According to Gartner`s report "Market Share: Storage Management Software, Worldwide, 2005,"4 the total market for new licence revenue in 2004 to 2005 grew at a rate of 8.8%, with NetApp beating the market with a growth rate of 42.3% for the same period. For the third year in a row, this was the fastest growth rate among the top 10 vendors in the space and for the first year places NetApp in the top four, with a total overall market share of 6.5%.

On the partner front, NetApp unveiled several new solution enhancements and partner offerings with Attune Systems, Brocade, Cisco, Emulex, Microsoft, Symantec, and Reconnex, to address a variety of data concerns, including network file management, data content monitoring, data protection, and FC SAN scalability.

In corporate news, NetApp entered into a definitive agreement to sell its NetCache business to Blue Coat Systems. Also during the quarter, Edward Kozel, a member of the Yahoo board of directors and CEO of cRight, Inc, a developer of anti-piracy software, joined the NetApp board of directors.

* The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com on Wednesday, 16 August 2006, at 1:30pm Pacific Time. This press release and any other information related to the call will also be posted to the Web site at that location.

* The conference call will also be available live in a listen-only format at (866) 700-0133 in the United States and (617) 213-8831 outside the United States. The passcode for both numbers is 31954843.

* A replay will be available for 72 hours following the completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, with replay code 85474493. The Webcast replay will be posted on our Web site for at least one year.

1 Earnings per share represent the diluted number of shares for all periods presented.
2 Non-GAAP results of operations exclude amortisation of intangible assets, stock-based compensation, restructuring charges/recoveries, net gain/loss on investments, and the related effects on income taxes.
3 IDC`s Worldwide Quarterly Disk Storage Systems Tracker Q1 2006.
4 Gartner Dataquest, "Market Share: Storage Management Software, Worldwide, 2005," Aman Munglani and Nikhil Pank, 28 June 2006.