NetApp Inc Q2 2025 Earnings Call Transcript

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

Question: Asiya Merchant - Citigroup Inc. - Analyst : Great. Thank you. For taking my question and congratulations on strong results. If I may, George and Mike, you've talked about macro in the past and some kind of uneven recovery across certain verticals. So maybe if you could just start with that. And relative to this 5% revenue growth for the full year, how much of that is predicated on macro versus now that you have a fuller portfolio that is addressing all the external storage needs. Thank you.

Question: Asiya Merchant - Citigroup Inc. - Analyst : Great. And if I may, on the AI side of things. I know you've talked about in the past that this is still ahead of us. Any updates you can give how you're seeing various enterprises deploying NetApp solutions as it relates to modernizing your data storage for AI. And any insights you can give us to sort of when you think AI inferencing will be a bigger factor for you guys. Thank you.

Question: Asiya Merchant - Citigroup Inc. - Analyst : Great. Thank you and congratulations.

Question: Amit Daryanani - Evercore ISI Institutional Equities - Analyst : Yes. Good afternoon everyone. I guess just to start with, George, Mike, can you just talk about the strength and really the durability of what you're seeing on the all-flash array side, you folks have had near 20% growth for a few quarters now. How do you think of that all-flash array growth as you go into the back half of the fiscal year, where compared things start to get a little bit more difficult for you. I'd love to kind of just understand that. And then if I just stop to the all-flash array team, I'd love to just understand the growth you're seeing right now, how much of that do you think is share gains versus maybe new products like the A-Series that's opening up newer workloads and our environments for you?

Question: Amit Daryanani - Evercore ISI Institutional Equities - Analyst : Got it. And then, Mike, could you just touch on this prebuying of memory that you folks are doing right now. I guess, do I think of the sequential uptick in inventory is essentially all pre-buys? And then can you talk about this -- is the -- are you changing that you look at inventory pre-buying longer term? And is it something you think you're going to do on a more consistent basis? Thank you.

Question: Timothy Long - Barclays Bank - Analyst : Thank you. Two as well, if I could. First, Mike, you mentioned the RPO down sequentially. I know there's some unbilled in there, but everything else sounded pretty strong with the billings and the outlook and the pipeline. So if you could just walk us through the RPO down in the quarter? And then secondly, I was hoping you could touch on the public sector. Pretty strong results Q-on-Q and year-over-year. Just curious what drove that and what's the outlook for that business, given the changing political landscape for that type of business? Thank you.

Question: Jason Ader - William Blair & Company L.L.C. - Analyst : Yeah, thanks. Good afternoon. George, I wanted to ask you about any potential ripple effects that you guys are seeing from the Broadcom VMware acquisition, specifically on storage projects, just as customers maybe have less budget or look to re-evaluate their on-prem infrastructure plans and strategies. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 21, 2024 / 10:30PM, NTAP.OQ - Q2 2025 NetApp Inc Earnings Call

Question: Jason Ader - William Blair & Company L.L.C. - Analyst : Okay. Thank you. And then Mike, maybe for you, just the Keystone product or the Keystone offering, does that go in the professional services line? Is that what I heard you say?

Question: Jason Ader - William Blair & Company L.L.C. - Analyst : Okay. And would we -- as we look forward in the model, I mean, should we see professional services growth in Flex because Keystone becomes a bigger part of that mix over the next couple of years?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Thanks for taking the question. First, I know you stopped disclosing the split of hardware from software within hybrid cloud. But I'm wondering if there's anything in particular going on in terms of the mix between your software and hardware business, that might be affecting product gross margins either in the recent quarter or in the outlook. And then as a quick follow-up. I'm just wondering if there are any specific characteristics of the customer or you see experimenting with AI applications in the enterprise. For example, do you see a bias towards something like financial services or certain kinds of industry, any patterns that you're observing? 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. NOVEMBER 21, 2024 / 10:30PM, NTAP.OQ - Q2 2025 NetApp Inc Earnings Call

Question: Joseph Cardoso - JPMorgan Chase & Co - Analyst : Hi, thanks for the question. This is Joe Cardoso on for Samik Chatterjee. Maybe just first question here. Can we just get an update on the competitive environment, particularly with you seeing another quarter of muted or a challenging macro. Curious that this is just -- this prolonged macro is driving you to see an increasing intensity across your peer group? And then I just have a quick follow-up.

Question: Joseph Cardoso - JPMorgan Chase & Co - Analyst : Thanks George. And maybe just a follow-up on the new US administration coming in. I know you touched on it real quickly, but like specifically, how are you thinking about any implications around any potential tariff government and efficiency initiatives, taxes, et cetera, that the new administration has talked about thus far where are you seeing headwinds? Where are you seeing tailwinds? Any potential areas that we should be flat investors should be wary of? Or your guys are too early to tell essentially. Appreciate any color on that one. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 21, 2024 / 10:30PM, NTAP.OQ - Q2 2025 NetApp Inc Earnings Call

Question: Param Singh - Oppenheimer & Co. Inc. - Analyst : Great. Thank you for taking my question. First of all, good to see that your public cloud revenue is starting to improve again. I wanted to get a sense of what are some of the changes that you recently implemented that's driving a recovery in that growth? And then when do you think we can get to a teens growth back again in that public cloud revenue segment? And then I have a follow-up.

Question: Param Singh - Oppenheimer & Co. Inc. - Analyst : Got it. Perfect. Thanks so much for the color George and Mike. And then as my follow-up, I want to focus a little bit on Keystone. You talked about the $330 million unbilled RPO and then assuming a typical duration of about 3-ish years, you're still pretty small on the Keystone side. What are you hearing in terms of feedback from customers? And when do you think Keystone can start to become a much more meaningful part of the overall Net story?

Question: David Vogt - UBS Investment Bank - Analyst : Great. Thanks guys. George, one for you to start. Can you maybe share some color on the success of the block portfolio in the flash numbers and what maybe sort of the revenue sort of dynamic was in the quarter as well as any potential impact on margin given sort of its new offering for you in a new market that you're really targeting aggressively. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 21, 2024 / 10:30PM, NTAP.OQ - Q2 2025 NetApp Inc Earnings Call And then I'll give you the second one also for Mike. You mentioned obviously not taking any more purchase commitments for the balance of this year. as you see some softening in NAND. Can you remind us again sort of the lag effect of NAND, if it does roll over and soften a bit, what that would mean for pricing in the market and how that would affect product revenue growth over the longer term relative to your framework? Thanks.

Question: Steven Fox - Fox Advisors - Analyst : Hi, good afternoon. I only had one question. George, I was wondering if you can expand a little bit on the comments around the partnership with Google Cloud and how that's driving more highly -- high regulated customer business and public sector business. What are the early indicators? How quickly do you ramp into that sector more and more over time? Thanks.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yeah, thanks. Thanks for fitting me in. I guess my question is going back to earlier point, just to make clear and maybe push back a little bit. Is that -- last quarter, I think you talked about your first-party and hyperscale marketplace. Storage services, I think, was grew north of 30%. I think in that context, you had alluded to that, that contribution was about two-thirds of that public cloud piece of business. So now you've got -- I want to make sure I'm understanding today, it sounds like is it -- did I hear it right, it's now about 80% of that public cloud business? And if so, why would mid-teens growth be right? Why wouldn't it accelerate much higher as we start to see the lack of growth in the declining business really become significantly smaller. I'm just trying to understand if that's maybe conservatism or if there's something else there.

Question: Louis Miscioscia - Daiwa Securities Co. - Analyst : Well, let me just blend, I guess, two questions into one. It looks like, obviously, the Americas was a little bit stronger from Europe. So can you comment on just European demand? It seems the economies are maybe a little bit slower there. And then could the difference be that the US is actually doing better, trying to deploy AI applications in comparison to Europe? Thanks. Thank you.

Question: Ananda Baruah - Loop Capital Markets - Analyst : Hey, thanks guys, appreciate it. I guess, George, a question maybe in a little clarification. So the new high end -- here's kind of the question, the new high-end ASA product. How important is that to ASA product line, is it as important as the mid-range product that you introduced a little while ago, those have made a really big impact. And then sort of in the prepared remarks, the comments about new customer acquisition, which you referenced a few times on the call. Is that directly related to the new high-end products? Or I guess, to what degree has the new high-end products actually led to the new customer acquisition? And that's it for me. Thanks.

Question: Nehal Chokshi - Northland Capital Markets - Analyst : Yeah, thank you. Congrats on a strong result. At insight, you guys introduced your AI vision, which is quite expensive, and I believe that has some forward-looking product developments. One of those product development, I believe, is correct me if I'm wrong, it's the decoupling the scaling of data management compute and data storage. Is that correct?

Question: Nehal Chokshi - Northland Capital Markets - Analyst : Yeah. One of the elements of the forward-looking AI vision as far as how NetApp's portfolio may evolve is the decoupling of the scaling of the data management compute and the data management storage components. Is that correct?

Question: Nehal Chokshi - Northland Capital Markets - Analyst : Yeah. And how long do you expect to before you can really introduce that? And how have you lifted this? Is this more like the lift it took to go to clustered ONTAP. Or is it more like the lift it took to optimize for flash? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 21, 2024 / 10:30PM, NTAP.OQ - Q2 2025 NetApp Inc Earnings Call

Question: Ari Terjanian - Cleveland Research Company - Analyst : Hi, thanks for taking the question. Nice to meet you and congrats on the good results. First, just a clarification on the AI deals. That 100, is that deals in the quarter? And if so, that -- like what drove the doubling from 50 last quarter, it's pretty strong results. And then just as it pertains to the SSD pricing and whatnot, to the extent that there are any pricing actions to your product, do you think there is potentially any pull forward of demand? Or do you anticipate any impact from any pricing changes? Thank you.