Storage vendor forecasts disappointing quarterly revenue, but is confident in cloud strategy
Storage vendor NetApp shocked the tech market and Wall Street with a disappointing first-quarter forecast that will be down 17% year over year, resulting in a less rosy outlook for fiscal-year 2020. Despite the disappointing earnings results, though, NetApp expressed confidence in its multicloud strategy, which the company tells Channelnomics is dependent on partners to facilitate.
The Lowdown: NetApp’s previous forecast for the first quarter of its new fiscal year was between $1.31 billion and $1.46 billion. Now it says the quarter will likely close between $1.22 billion and $1.24 billion due to declining hardware sales and enterprise software agreements not renewing. Even with the renewal figures excluded, NetApp’s revenue still would be 12% off the previous period in fiscal-year 2019. NetApp adjusted its 2020 outlook, saying revenue for the year will likely be 5% to 10% lower than fiscal-year 2019. The company previously forecast single-digit growth.
The Details: NetApp is transitioning from a traditional transactional hardware and software sales model to one more aligned with cloud services, with customers paying for services and support. In an interview with Channelnomics, Chris Lamborn, head of worldwide partner go-to-market and programs, said the NetApp multicloud strategy recognizes that partners are essential to facilitating better outcomes with customers. Lamborn expressed confidence in NetApp’s plans to stimulate partner engagements with public, hybrid, and private cloud customers that will lead to more revenue activity. NetApp’s CEO also expressed confidence in the overall strategy, saying it will take time to build momentum and growth.
The Impact: The impact of this disappointing quarter, the revised forecast, and the company’s commitment to its cloud strategy and partners is likely more attention and enablement for channel partners. Expect to see more messaging from NetApp on the value of its technology and strategy – particularly when combined with the expert capabilities of its cloud integration and consulting partners.
Background: NetApp recently rolled out changes and improvements to its partner program, which include the consolidation of service providers and resellers into a single track, added incentives to re-engage with existing and dormant accounts, competitive displacement rebates, and a new focus on digital transformation. Also, NetApp is making system improvements to simplify and expedite common processes such as incentive applications and rebate processing.
The Buzz: “Our customer conversations indicate that our hybrid multi-cloud portfolio of solutions is the right one,” said NetApp CEO George Kurian. “We believe we can return to growth over time by prudently reallocating investments to expand sales coverage and accelerate our participation in the growing private cloud and cloud data services markets.”
Channelnomics Point of View: NetApp and other legacy hardware vendors are transitioning from traditional transactional sales models to ones that are more aligned with cloud consumption models. Such transitions are often difficult, resulting in short-term revenue declines as sales teams, partners, and customers adjust culturally and operationally. Chances are that NetApp will start showing positive returns on its channel strategy late in its fiscal-year 2020 and in fiscal-year 2021, as previous examples of this transition show it takes about 18 months to turn the corner.