NetApp (NasdaqGS:NTAP) FY Conference Transcript

Summary of NetApp FY Conference Call (December 09, 2025) Company Overview - Company: NetApp (NasdaqGS: NTAP) - Industry: IT Hardware and Cloud Storage Key Highlights - Q2 Performance: NetApp reported a 4% year-on-year growth, excluding spot business divestiture. Key growth areas included: - First-party and Cloud Storage: Grew 32% year-on-year - All-flash Storage: Grew 9% year-on-year - AI Wins: Doubled in the quarter, indicating strong momentum in AI-related projects [2][3][4] - Financial Metrics: Achieved record operating margins, gross profit margins, and earnings per share (EPS) for Q2. Product gross margins exceeded expectations due to favorable product mix and cost management [2][3] Market Differentiation - Data Management Philosophy: NetApp has focused on unifying data across departmental boundaries since the early 2000s, which is now a standard in the industry. The company has developed a hybrid multi-cloud architecture integrated with major cloud providers (Amazon, Microsoft, Google) [4][5] - Cybersecurity and Data Management Tools: Offers advanced cybersecurity functions and tools for efficient data management across hybrid cloud environments, enhancing the value of data for customers [6] Market Opportunities - IT Infrastructure Spending: The company noted a lag in storage spending compared to server and compute spending, primarily due to a lack of infrastructure refresh since 2018-2019. The shift towards AI-specific applications is expected to drive future spending [9][10] - U.S. Public Sector: Represents low double-digit percentage of total business, with 75% from U.S. federal contracts. The company is tracking multi-year appropriations and spending priorities to capture more program dollars [12][13] AI Integration - AI Use Cases: NetApp identified three main use cases for AI within enterprises: - Data preparation for AI - Model training and fine-tuning - Business operations using AI (inferencing) [16] - AI Project Growth: The number of AI projects doubled year-on-year, with significant focus on organizing data lakes for AI readiness [16][20] All-Flash Transition - Current Mix: Two-thirds of hybrid cloud revenue is from all-flash storage, with 46% of the install base being all-flash. The company anticipates gradual growth in all-flash adoption but does not expect it to reach 100% due to the need for hard drive-based storage for certain workloads [23][24] Future Growth and Margins - Long-term Growth Model: NetApp aims for mid to upper single-digit growth on the top line, with expectations for acceleration in the second half of the fiscal year. The cloud storage business is growing over 30% year-on-year [28][29] - Public Cloud Business: Grew 18% in the last quarter, with margins expected to remain between 80% and 85%. The company is expanding its offerings into new areas such as sovereign and distributed cloud [30][31] Conclusion - Data as an Asset: Emphasized the growing importance of data, particularly unstructured data, as a valuable asset for enterprises. NetApp is positioned as a data platform provider capable of unifying data across multiple cloud environments [36][37] - Financial Discipline: The company has maintained a disciplined approach to capital allocation, returning a significant portion of free cash flow to shareholders through dividends and buybacks [29][37]