NetApp Changes Top Leadership, Reports Relatively Strong Earnings

President/COO Tom Georgens is elevated to president and CEO, replacing longtime CEO and board chairman Dan Warmenhoven, who remains as executive chairman. Despite a 4 percent drop in revenues, NetApp outperformed Wall Street estimates in the face of the sluggish economy.

Network storage provider NetApp made news on two fronts on Aug. 19: It reported earnings for the first quarter of its fiscal year 2010 and made a change at the top in its daily operations.

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President and Chief Operating Officer Tom Georgens (pictured) has been elevated to president and CEO. Longtime CEO and Chairman of the Board Dan Warmenhoven-who put in 14 years as chief executive officer-will take the new role of executive chairman. Georgens had served as NetApp's COO and president since January 2008.
The Sunnyvale, Calif., storage software and hardware maker reported revenues for the quarter of $838 million, down 4 percent compared with revenues of $869 million for the same period a year ago but higher than analyst expectations. Non-GAAP EPS of 22 cents a share beat Wall Street estimates by two cents.
The company said that it will not provide specific earnings guidance for next quarter, citing "reduced visibility caused by the recent changes in the macroeconomic environment."
"Given the economic backdrop, NetApp performed well in the first quarter. With year-over-year revenue growth roughly flat on a constant currency basis, our revenue performance clearly outpaced the storage industry at large," Georgens said on a conference call with analysts, journalists and investors.
Georgens also pointed out that NetApp's operating income and operating margin both increased year over year and produced its highest gross margin percentage in more than five years.
During the conference call, Georgens addressed NetApp's failed attempt to acquire Data Domain, which was bought by competitor EMC in July for about $2.3 billion following a monthlong bidding war.
"Data Domain certainly would have brought a synergy to our product line [bringing disk-based backup and virtual tape libraries with it]," Georgens said. "But we already have a high attached rate of disk-based backup. Data Domain would have accelerated our presence in this sector, but the absence will not make vulnerable the core aspects of our business."
'Cloud Computing Will Have a Dramatic Impact on Us'
"We have been successful in selling into virtual server environments. Cloud computing will have a dramatic impact on us in the future. We are uniquely positioned to capitalize on it. Customers are urgently exploring outsourcing to the cloud and looking for best-of-breed suppliers to provide data center products. Our unified architecture and seamless scale-out are attractive to [cloud service] aggregators. ... This trend will accelerate over next few years, and we will grow commensurately."
Georgens joined NetApp in October 2005 and served until January 2007 as NetApp's executive vice president and general manager of enterprise storage systems before being elevated to president/COO in January 2008.
Before joining NetApp, Georgens spent nine years at Engenio, a subsidiary of LSI Logic-including the last two years as CEO.
"Over the past four years, Tom has proven his leadership capabilities in both strategy development and day-to-day operations," Warmenhoven said. "His appointment represents a continuity in leadership at NetApp. The company is well-positioned, and I look forward to supporting Tom as he leads NetApp to the next stages of growth."
Company Did Not Have to Drop Prices
"NetApp had a very solid quarter, especially when sales in Europe and Asia were not great," Enterprise Strategy Group storage analyst Brian Babineau told eWEEK. "More importantly, they held prices pretty tight-they didn't have to give away product.
"They showed tremendous execution. They did have a little tailwind as they had an extra week in their quarter, which, as management commented, contributed to a $20 million opportunity."

Chris Preimesberger

Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he has...