NetApp's AI-Driven Growth: CEO Highlights Record Fiscal Year 2025 and Future AI Strategy

NetApp CEO: "The Demands Of AI Are Complex And Unrelenting"

'Our fiscal year 2025 results demonstrate how the alignment of our solutions with key IT priorities, our focus, and the strength of our business model enable us to deliver strong performance in an uncertain environment. Additionally, the unfolding enterprise AI market is driving urgency amongst customers to modernize their data infrastructure, drive cloud transformations, and increase cyber resiliency. We are currently negotiating sizable AI and data infrastructure modernization deals with multiple large enterprises, which we expect to close later in the year,' says NetApp CEO George Kurian. Growth in cloud storage and all-flash storage along with significant pull from enterprise AI adoption helped NetApp enjoy growth during the company's fiscal 2025 fourth quarter and full year despite macroeconomic issues, including uncertainties caused by the Trump administration tariffs. NetApp CEO George Kurian Thursday told financial analysts during the company's quarterly analyst call that strong growth and significant market share gains in all-flash storage, along with accelerating growth in first-party and marketplace storage services, led to all-time highs for gross profit, operating profit, operating margin, and earnings per share in fiscal year 2025. "[It was] a clear indication of our ability to navigate a dynamic environment," Kurian (pictured) said during his prepared remarks. "By relentlessly prioritizing our four growth opportunities and leveraging AI for increased efficiencies, we are able to invest in growth and expand our profitability metrics." [Related: NetApp CEO: We Are 'Solving The Problems For The Era Of Data Intelligence By Bringing AI To Your Data'] As opposed to five years ago, when all-flash storage and public cloud services accounted for less than half of NetApp's total revenue, today they represent over two-thirds, Kurian said. "Looking ahead, we expect these growth drivers, along with our laser focus, prioritized investments, and robust execution, to deliver more company records in fiscal year 2026 and beyond," he said. AI adoption and its hunger for data means enterprises and government organizations are looking at NetApp to help deliver competitive advantage and operational efficiencies, Kurian said. "The demands of AI are complex and unrelenting, with massive volumes of data scattered across multiple silos," he said. "This fragmentation leads to difficult integrations, inefficiencies, and challenges in governance, security, and data protection. GenAI transformation has made it clear that legacy architectures are inadequate to serve these complex workloads. NetApp's unified data architecture, spanning any data type anywhere, enables customers to build an intelligent data infrastructure, delivering the required flexibility needed to overcome these barriers." NetApp continues to expand its installed base and reaching new customers with its AI-ready intelligent data infrastructure, which Kurian said reduces cost and complexity by seamlessly bridging on-premises and cloud storage with unified control. For instance, he said, NetApp's all-flash array annualized revenue run rate grew 14 percent during the fourth quarter over the same period last year to a record $4.1 billion, and all-flash made up about two-thirds of the company's hybrid cloud segment revenue. About 44 percent of NetApp's installed base under active support contracts are all-flash, he said. "The rich data services of our all-flash unified data storage systems create a secure foundation for consolidating organizational data and accelerating AI-powered insights," he said. "As organizations seek to build future-proof, AI-ready infrastructure, they increasingly choose our solutions, driving our faster-than-market growth." NetApp is also in the early stages of its entry into the dedicated block storage market and is seeing accelerating growth from its block-optimized ASA systems, Kurian said. NetApp in fiscal 2025 focused its public cloud services to emphasize highly differentiated first-party and marketplace cloud storage services, which Kurian said in the fourth quarter resulted in first-party and marketplace cloud storage services growth of 44 percent year-over-year. Hybrid cloud growth has let NetApp help customers accelerate AI deployments and achieve faster time to value, Kurian said. "As the market for enterprise AI evolves, customers are moving from proof-of-concepts to real-world deployments, driving the need to unify their data for business impact," he said. "Our secure, cloud-integrated, silo-free infrastructure positions us as a leader in this transformation. We power AI pipelines from data preparation to model training to production deployments on-premises and in the cloud. In the fourth quarter, our AI business grew five-fold year over year, again performing ahead of plan." During the year, NetApp expanded its AI ecosystem with such partners as Nvidia, Domino, Dremio, the Open Platform for Enterprise AI open-source project, and hyperscaler AI providers, Kurian said. This included the development of new AI reference architectures with partners including Nvidia for AIDP, Cisco for FlexPod, Lenovo for AIPod, and, most recently, Intel for AIPod Mini, Kurian said. The fourth quarter saw NetApp's high-performance Ontap all-flash storage certified for Nvidia DGX SuperPOD, Nvidia cloud partners, and Nvidia-certified systems. "Building on our large installed base of unstructured data, we enable customers to gain intelligence from their data in place, making it ready and useful for production AI use cases without the need for migrations or changes to data operations," he said. "We are helping customers deploy AI inferencing in production today and expect fiscal year 2026 to be a pivotal year for enterprise AI storage, with the opportunity outstripping that of model training." When asked by an analyst for details on AI's impact on NetApp, Kurian said the company is seeing an ongoing unfolding of the enterprise AI market. "Inferencing and the use of AI tools to drive business advantage is the core of the opportunity in the enterprise and 80 percent of the overall storage opportunity, and we have done very well in that," he said. "We think that fiscal year '26 will continue to accelerate and expand that opportunity for us. Kurian, in his prepared remarks, also said enterprise AI customers are using his company's cloud footprints, whether it is to do AI in the cloud or start their AI proofs of concept in the cloud. When it comes to the global macroeconomic outlook, NetApp sees mixed signals with a general slowdown in growth, lingering inflation concerns, and a significantly higher level of uncertainty, and expects some increased spending caution as well as on-going friction in U.S. public sector and EMEA, Kurian said. "Our fiscal year 2025 results demonstrate how the alignment of our solutions with key IT priorities, our focus, and the strength of our business model enable us to deliver strong performance in an uncertain environment," he said. "Additionally, the unfolding enterprise AI market is driving urgency amongst customers to modernize their data infrastructure, drive cloud transformations, and increase cyber resiliency. We are currently negotiating sizable AI and data infrastructure modernization deals with multiple large enterprises, which we expect to close later in the year. This gives us confidence in our full-year outlook." When asked by an analyst for details about macroeconomic impacts to NetApp, Kurian said the majority of sales that didn't close in the third quarter did close in the fourth quarter, and that sequential growth in the fourth quarter was above the company's typical trend. NetApp is also seeing evidence of overall political instability, he said. "Some of the GDP growth rates have come down, and [there's a] degree of caution in customers waiting for clarity on trade policy and other macroeconomic policies, particularly in Europe, and, of course, in the US public sector," he said. When asked about how the Trump administration tariffs are impacting NetApp, Kurian said his company has a diverse supply chain. "We have no exposure to China," he said. "Final assembly of our products, which confers country of origin, is in Singapore, Hungary, Mexico, and the U.S. So it allows us to have a very small impact [from] tariffs. And also, the semiconductor exemption allows us to have a pretty small contribution of costs from tariffs. We see the primary impact of tariffs, or really the uncertainty introduced by tariffs, [to be] causing enterprises to kind of slow down, particularly in the manufacturing segment in Europe." "We feel really good about that," he said. "Overall, the cloud business is performing very well, both due to strong technology differentiation and good execution. And as we have shared, we are expanding the range of not only enterprise application use cases, but analytics and AI use cases, and so I feel really pleased with the focus and the execution we had in that part of our business this year." For its fiscal 2025 fourth quarter, ended April 25, NetApp reported total revenue of $1.73 billion, up 3.6 percent over the $1.67 billion the company reported for its fiscal 2024 fourth quarter. This included product revenue of $845 million, up from $806 million; support revenue of $625 million, nearly unchanged from $623 million; professional and other services revenue of $98 million, up from $88 million; and public cloud revenue of $164 million, up from $152 million. Total revenue beat analysts' expectations by $10 million, according to Seeking Alpha. Americas commercial business accounted for 42 percent of NetApp's revenue, while the U.S. public sector accounted for 8 percent. About 78 percent of revenue came via indirect sales channels. NetApp also reported GAAP net income of $340 million or $1.65 per share for the quarter, up from last year's $291 million or $1.37 per share. On a non-GAAP basis, NetApp reported net income of $397 million or $1.93 per share, up from last year's $382 million or $1.80 per share. Non-GAAP net income beat analysts' expectations by 3 cents per share. For all of fiscal 2025, NetApp reported total revenue of $6.57 billion, up 4.8 percent from last year's revenue of $6.27 billion. This included product revenue of $3.04 billion, up from $2.85 billion; support revenue of $2.51 billion, up from $2.49 billion; professional and other services revenue of $355 million, up from $320 million; and public cloud revenue of $665 million, up from $611 million. Americas commercial business accounted for 40 percent of NetApp's revenue, while the U.S. public sector accounted for 11 percent. About 78 percent of revenue came via indirect sales channels. NetApp also reported full-year GAAP net income of $1.12 billion or $5.67 per share, up from last year's $986 million or $4.63 per share. On a non-GAAP basis, NetApp reported net income of $1.52 billion or $7.25 per share, up from last year's $1.38 billion or $6.46 per share. Looking ahead, NetApp expects that because of macroeconomic uncertainty fiscal 2026 total revenue will be in the range of $6.625 billion to $6.875 billion dollars, which at the $6.75 billion midpoint reflects 3 percent growth year over year. If its divested Spot business was excluded, total revenue growth would be about 4 percent year over year. Fiscal year 2026 consolidated gross margin is expected to be in the range of 71 percent to 72 percent, while operating margin is expected to be about 28.8 percent to 29.8 percent. NetApp is also expecting non-GAAP per-share earnings of $7.60 to $7.90, for a midpoint of $7.75. For its fiscal 2026 first quarter, NetApp expects revenue to range from $1.455 billion to $1.605 billion, which at the $1.53 billion midpoint suggests a 1 percent year-over-year decline. Excluding Spot, the revenue guidance would be a year-over-year growth of 1 percent. NetApp also expects first quarter consolidated gross margin in the range of 71 percent to 72 percent and operating margin in the range of 25 percent to 26 percent. Earnings are expected to be in the range of $1.48 and $1.58 per share with a midpoint of $1.53.

NetApp : NTAP Q4 and FY2025 Transcript

Chief Financial Officer & Executive Vice President, NetApp, Inc. I would now like to turn the conference over to Kris Newton, Vice President, Investor Relations. Please go ahead. Hi, everyone. Thanks for joining us. With me today are our CEO, George Kurian; and CFO, Wissam Jabre. This call is being webcast live and will be available for replay on our website at netapp.com. During today's call, we will make forward-looking statements and projections with respect to our financial outlook and future prospects, including, without limitation, our guidance for the first quarter and fiscal year 2026, our expectations regarding future revenue, profitability and shareholder returns, and other growth initiatives and strategies. These statements are subject to various risks and uncertainties which may cause our actual results to differ materially. For more information, please refer to the documents we file from time to time with the SEC and on our website, including our most recent Form 10-K and Form 10-Q. We disclaim any obligation to update our forward-looking statements and projections. During the call, all financial measures presented will be non-GAAP, unless otherwise indicated. Reconciliations of GAAP to non-GAAP estimates are available on our website. Thanks, Kris and good afternoon, everyone. Thank you for joining us. Record revenue for the fourth quarter and fiscal year 2025 was driven by strong growth and significant market share gains in all-flash storage, along with accelerating growth in our first party and marketplace storage services. We achieved all-time highs for gross profit, operating profit, operating margin and EPS in FY 2025, a clear indication of our ability to navigate a dynamic environment. By relentlessly prioritizing our four growth opportunities and leveraging AI for increased efficiencies, we are able to invest in growth and expand our profitability metrics. In fiscal year 2025, we refreshed our entire systems portfolio, sharpened the focus of our cloud services, and positioned ourselves to lead in the enterprise AI market. I believe that we've now reached an inflection point where the growth of all-flash systems and public cloud services, reinforced by the ongoing development of the AI market, will drive sustained top line growth. Five years ago, these areas accounted for less than half our total revenue. Today, they represent over two-thirds. Looking ahead, we expect these growth drivers, along with our laser focus, prioritized investments, and robust execution to deliver more company records in FY 2026 and beyond. Organizations are turning to NetApp to help them with data-driven strategies to deliver competitive advantage and operational efficiencies. As the enterprise AI market evolves and expands, there is greater urgency to transform. The demands of AI are complex and unrelenting, with massive volumes of data scattered across multiple silos. This fragmentation leads to difficult integrations, inefficiencies and challenges in governance, security and data protection. GenAI transformation has made it clear that legacy architectures are inadequate to serve these complex workloads. NetApp's unified data architecture, spanning any data type anywhere, enables customers to build an intelligent data infrastructure, delivering the required flexibility needed to overcome these barriers. Our modern approach to hybrid multi-cloud infrastructure and data management empowers organizations to harness the full potential of their entire data estate simply, securely and sustainably. We are expanding our installed base and reaching new customers with our AI-ready intelligent data infrastructure, which reduces cost and complexity by seamlessly bridging on-premises and cloud storage with unified control. The world's biggest cloud providers, as well as governments and leading companies, trust and rely on our technology. All-flash array annualized revenue run rate grew 14% from Q4 a year ago to a record $4.1 billion. In the fourth quarter, all-flash made up approximately two-thirds of Hybrid Cloud segment revenue, and 44% of systems in our installed base under active support contracts are all-flash. The rich data services of our all-flash unified data storage systems create a secure foundation for consolidating organizational data and accelerating AI-powered insights. As organizations seek to build future-proof, AI-ready infrastructure, they increasingly choose our solutions driving our faster than market growth. In calendar 2024, we gained almost 300 basis points of all-flash market share, more than any other vendor, as reported by IDC. We are in the early stages of our entry into the dedicated block storage market with plenty of headroom for continued growth. The breadth of our advanced data management helps organizations lower operational risk and enhance business continuity by keeping data available, protected and secure. We are seeing accelerating growth from our block-optimized AFA systems, as we displace competitors' legacy installations with our simple, powerful, scale-out all-flash block storage. Our momentum outpaced the market and resulted in almost 100 basis points of share gain in calendar 2024, per IDC. Demonstrating the power of our comprehensive all-flash portfolio, we signed a deal in the fourth quarter with a leading life sciences company to replace a competitor's nearly 10 petabyte footprint. With NetApp, they can now meet diverse multi-protocol and price performance requirements under a single operating environment, streamlining their data operations. To keep pace in an AI-driven world, companies must unlock the scale and agility of the public cloud. Only NetApp can help them achieve the required cost efficiency, cybersecurity and AI readiness with services co-engineered with the major cloud providers. We continue to expand the workloads we address in the cloud and enhance our alignment with our hyperscaler partners' go-to-market motions, broadening our opportunity and accelerating growth. Over the course of fiscal year 2025, we focused our Public Cloud services to emphasize our highly differentiated first-party and marketplace cloud storage services, closely complemented by intelligent data, operational and workload services. This strategic focus continues to yield positive results. First-party and marketplace cloud storage services grew 44% year-over-year in the fourth quarter. These services compose roughly 75% of Public Cloud segment revenue, which grew 22% from Q4 a year ago, excluding the recently divested Spot by NetApp services. A SaaS provider needed high-performance, multi-protocol storage to meet their cost optimization and resiliency requirements, in Q4, this new to NetApp customer chose to migrate to AWS FSx for NetApp ONTAP. FSxN helped the customer achieve a high performance, unified file and block environment with improved availability and resiliency for efficient and secure operations with a more cost-effective solution than alternatives. Just as we have helped enterprises harness the power of hybrid cloud environments, we are now enabling them to accelerate their AI deployments and achieve faster time to value. As the market for enterprise AI evolves, customers are moving from proof-of-concepts to real-world deployments, driving the need to unify their data for business impact. Our secure, cloud-integrated, silo-free infrastructure positions us as a leader in this transformation. We power AI pipelines from data preparation to model training to production deployments on-premises and in the cloud. In the fourth quarter, our AI business grew fivefold year-over-year, again performing ahead of plan. We closed approximately 150 AI infrastructure and data lake modernization deals, spanning multiple geographies, industries and use cases. Over the course of FY 2025, we dramatically expanded our AI ecosystem, delivering innovations with NVIDIA, Domino, Dremio, the Open Platform for Enterprise AI open-source projects, and leading hyperscaler AI tool kits. We also introduced AI reference architectures, with NVIDIA for AIDP, Cisco for FlexPod, Lenovo for AIPod, and, most recently, Intel for AIPod Mini. In Q4, our high-performance ONTAP all-flash storage was certified for NVIDIA DGX SuperPOD, NVIDIA Cloud Partners, and NVIDIA-Certified Systems. Building on our large installed base of unstructured data, we enable customers to gain intelligence from their data in place, making it ready and useful for production AI use cases without the need for migrations or changes to data operations. We are helping customers deploy AI inferencing in production today, and expect FY 2026 to be a pivotal year for enterprise AI storage, with the opportunity outstripping that of model training. In the quarter, a large Asian telco service provider selected NetApp as the foundation for its AI workloads. The company needed to quickly stand up a cloud-based model training environment, and at the same time, build a larger model training cluster to support its plan to deliver GenAI as a Service. By leveraging NetApp solutions both on-premises and in their cloud, the customer optimized performance, cost and scalability for both environments. This ensured seamless integration with their training pipelines, supporting current and future AI projects. Before turning to the details of the quarter, I want to share some observations about the environment as we enter fiscal year 2026. The global macroeconomic outlook faces mixed signals with a general slowdown in growth, lingering inflation concerns, and a significantly higher level of uncertainty. Looking ahead, we expect some increased spending caution as well as ongoing friction in US public sector and EMEA. We are incorporating an appropriate level of caution in our outlook due to these factors. Our fiscal year 2025 results demonstrate how the alignment of our solutions with key IT priorities, our focus, and the strength of our business model enables us to deliver strong performance in an uncertain environment. Additionally, the unfolding enterprise AI market is driving urgency amongst customers to modernize their data infrastructure, drive cloud transformations, and increase cyber resiliency. We are currently negotiating sizable AI and data infrastructure modernization deals with multiple large enterprises, which we expect to close later in the year. This gives us confidence in our full year outlook. We are starting FY 2026 following a year of market share gains, armed with the strongest portfolio in the company's history, and a value proposition that addresses customers' top priorities. We plan to make prudent investments in R&D and sales capacity to drive ongoing innovation and capture additional market share. Looking ahead, I am confident in our ability to capitalize on this significant opportunity and deliver more record results.