NetApp Inc Q1 2026 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Krish Sankar - Cowen and Company LLC - Analyst : Yeah. Hi, thanks for taking my question. Wissam, the first question is for you. Also, actually revenue growth is decelerating from double digits to just 5% now. Is it pricing or demand or something else? And along the same path, the product gross margins are also down even when compared to similar all-flash revenue levels around $900 million. Is this due to non-pricing or what is driving it and how you think about product growth modules going forward? And then I have a long-term follow up for George.

Question: Krish Sankar - Cowen and Company LLC - Analyst : Got. Thanks, and it's very helpful to hear that. And George, I make a long term question for you. It's kind of very encouraging to see enterprises adopting AI and deploying instant workloads. It seems like they've got some proof of concept to production, but can you give a sense of some of REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2025 / 9:30PM, NTAP.OQ - Q1 2026 NetApp Inc Earnings Call the architecture these customers are following? Are they buying more storage or more capacity or more software attached? Any color there on enterprise adoption would be helpful. Thanks a lot, George.

Question: Krish Sankar - Cowen and Company LLC - Analyst : Got it. Thank you very much, George. It's very helpful.

Question: Erik Woodring - Morgan Stanley & Co Ltd - Analyst : Hey, guys. Thank you very much for taking my questions and looking forward to working together with you guys. Maybe just to start, George. I'd love to get your viewpoints as you kind of have conversations with your customers or look at your pipeline, when you think about strength in Americas commercial versus weakness in public in EMEA, is that expected to persist? Do you see any of your kind of end market customers maybe inflecting in the second half, for example. Could SMB get better in the second half here in America? We just love to know kind of underlying that guide by end market. How you're thinking about these -- the strengths or weaknesses or acceleration and deceleration of these different end markets? And then a quick follow up. Thanks.

Question: Erik Woodring - Morgan Stanley & Co Ltd - Analyst : Okay. Super helpful. Thank you. And then maybe, Wissam, great to work together again. I would just love to better understand as you think about the gross margin guide for your public cloud business, it's now 80% to 85% versus the 75% to 80% before. Kind of what has changed that influences that view? And clearly, you see that as sustainable. But if you could just unpackage that a little bit to help us understand why that continues to improve? And what influence that change, that would be helpful. Thanks so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2025 / 9:30PM, NTAP.OQ - Q1 2026 NetApp Inc Earnings Call

Question: Erik Woodring - Morgan Stanley & Co Ltd - Analyst : Yes, thank you guys and best of luck.

Question: Samik Chatterjee - JPMorgan Chase & Co - Analyst : Hey, thanks for taking my question. I guess, George, just following up on your earlier comments about the activity or engagement you're seeing on the AI side. With your sort of first couple of quarters of the year, you've settled into this sort of nice run rate of AI wins. If you can give any color in terms of the magnitude or size of those deals with your customers? And should we expect the consistent level of new wins as you go through the year? Or is the pipeline telling you that maybe AI wins do absolute as you go through the rest of this fiscal year? Any color on that on both of those fronts, please? And I have a follow-up.

Question: Samik Chatterjee - JPMorgan Chase & Co - Analyst : Got it. And then just on the guide for the full year here. I mean, it does imply if you grow 3% export in fiscal Q2. You do have a back half that needs to be around mid-single-digit growth. And I think last quarter, you did reference you're working with some customers on large data center modernization deals as well. So maybe, what's the visibility in terms of that actuation from the first half into the second half at this point? And does it include any large deals that are in the pipeline to sort of come through to enable you to act that to that more number? Thank you.

Question: Samik Chatterjee - JPMorgan Chase & Co - Analyst : Okay, great. Thank you. Thanks for taking the questions.

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Yes, thank you. Can you just talk a little bit about some of the variables in that gross margin guide for that might push you lower on a

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Okay. That's helpful. And then just on operating leverage, right, if I just think about this roughly flattish gross margins, but quarter on quarter your operating margin is up maybe similar to how it was last year. So your operating leverage is improving because last year, you had gross margin improvement, too. So should we expect that operating leverage benefit to continue in the back half of the year as well? Thank you.

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Okay, thanks, Wissam.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Thank you for taking the question. I wanted to try to get a better sense of the longer-term AI product strategy. In other words, I know you don't want to front run your insight event for October. But what I'm trying to get a better sense of is the readiness of your portfolio to support enterprise initiatives and whether you've got more products in the pipeline to perhaps move up the value chain to support initiatives for AI at the enterprise. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2025 / 9:30PM, NTAP.OQ - Q1 2026 NetApp Inc Earnings Call

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Thank you.

Question: Ari Terjanian - Cleveland Research Co LLC - Analyst : Well, thanks for taking the questions. Good to hear from everybody. Just a couple from my end. First, just on competitive landscape, like really great to see the leadership position in IDC all-flash. But I mean, it seems like today, there are some different results one of your peers raising their outlook. So just any update on the all-flash kind of competitive landscape and what you're seeing out there? And then second, just in terms of pricing. I know there was some pricing actions taken last year that would flow through the model this year. Any updates just on the take rates of the price increases that you're seeing with your customers? Thank you so much.

Question: Ari Terjanian - Cleveland Research Co LLC - Analyst : Thanks.

Question: David Vogt - UBS AG - Analyst : It's David Vogt. Hey, listen. Hey, George. I don't want to beat that or space you go back to, George, the competitive landscape, you talked about the formative high-end storage being a little bit weaker than you thought and shifted a little bit more to capacity storage. Was that in any particular region, vertical? I know EMEA and public sector was a little bit softer. And then, Wissam, I'll give you my second question. You mentioned, obviously, supply chain -- excuse me, components have an issue in gross margin. Can you share where we are from a pre-band perspective? I mean, is the balance sheet effectively no longer carrying excess inventory that you purchased previously. And so how should we think about your strategy with prebuys from a component perspective going forward?

Question: David Vogt - UBS AG - Analyst : Great, thanks, guys.

Question: Ananda Baruah - Loop Capital Markets LLC - Analyst : Hey guys, yeah. Thanks for taking the question. I really appreciate it. George, just going back to AI, you mentioned a model training wins. I think you said that are very large. And you also mentioned AI as a service, which sounds like the cloud please clarify if it's something bigger than just that. But I guess the question is, for the last couple of years, it sounds -- and RAG is still a focus as you spoke to, but it sounds like you might be expanding your TAM. And you talked about reference designs with the hyperscalers as well. So are you seeing TAM expansion here? And if so, what's a useful way to think about kind of magnitude of TAM expansion in the context of the metrics that you provided the last couple of years post the Analyst Day. And then a quick follow-up here.

Question: Ananda Baruah - Loop Capital Markets LLC - Analyst : That's it. Super helpful explanation. And then I guess just a quick follow-up in that context is just on the reg front, how are you seeing reasoning agents impact the RAG pipeline? Does it help -- is it seemingly would grow the TAM, are you seeing sort of I guess, like engagement push out as a result of that as well? Do you see any context there that impact on your business and your pipeline would be great. That's it. Thanks.

Question: Ananda Baruah - Loop Capital Markets LLC - Analyst : Thanks a lot. Appreciate it.

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Great, thanks for squeezing me in here. Just, how do you guys think about your hypervisor offerings? I understand anything you can comment on that on as it relates to Nutanix, or the disruptions that we're still continuing to see due to VMware licensing. How do you think about your product offerings on this hyper-converged infrastructure? Thank you.

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Okay, look forward to hearing about that at your INSIGHT. Thank you.