NetApp Inc Q2 2026 Earnings Call Transcript

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

Question: Aaron Rakers - Wells Fargo Securities LLC - Analyst : Yeah, thanks for taking the question. I guess the first question would be: As we think about the component environment, both from a potential pricing perspective as well as whether or not you might be seeing any constraints, I'm curious on how the company is managing that. 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 25, 2025 / 10:30PM, NTAP.OQ - Q2 2026 NetApp Inc Earnings Call Have you leaned in on any strategic purposes? And any thoughts on the duration of those strategic purchases as far as the next couple of quarters? How much visibility do you have on the pricing dynamics underpinning the gross margin outlook? Thank you.

Question: Aaron Rakers - Wells Fargo Securities LLC - Analyst : And Wissam, I appreciate that. That's a very thorough answer. Looking back historically, how quickly could you pass those through? Is that within a given quarter? Does it take a couple of quarters to see that flow through?

Question: Aaron Rakers - Wells Fargo Securities LLC - Analyst : Yeah. Thank you, Wissam. 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 25, 2025 / 10:30PM, NTAP.OQ - Q2 2026 NetApp Inc Earnings Call

Question: Erik Woodring - Morgan Stanley & Co Ltd - Analyst : Great. Thank you, guys, for taking my questions. Maybe I'm going to ask a similar question to Aaron and Wissam that is you're effectively at 60% product gross margins? I know you said we should expect them to be relatively unchanged through the rest of the year. First part of that is just, is this a function of mix to All Flash? Is there still pricing tailwinds? Is this BOM cost down? I don't know if you could just maybe contextualize what the real drivers are of that product gross margin expansion? And then second, I'll just ask both questions at once, is I realize you don't really need to talk to fiscal year '27, it's too early and the commodity cost environment is quite volatile. But are we at peak product gross margins? Can product gross margins expand from here? Like I'd just love to understand how you think about the sustainability of where we are even regardless of the memory cycle? Thank you so much, guys.

Question: Erik Woodring - Morgan Stanley & Co Ltd - Analyst : All right. Thanks, Wissam.

Question: Samik Chatterjee - JPMorgan Chase & Co - Analyst : Hi. Maybe if I can pivot a bit more to the revenue side. George, you talked about the AI-related transactions or deals that you closed, looks like 200 versus 125 last quarter. Wondering what you're seeing in terms of trends there? It sounds -- it looks like an acceleration on the headline number of deals you're seeing. And is the AFX solution that you launched at INSIGHT, what customer feedback are you getting? And is that playing into those deals that you're now seeing? And I have a quick follow-up after that. Thank you.

Question: Samik Chatterjee - JPMorgan Chase & Co - Analyst : Got it. Got it. And then maybe a quick follow-up for Wissam here. Wissam, when I look at the 3Q revenue guide, it's roughly flat; modestly, maybe down quarter-over-quarter. I realized last year, you had the same seasonality, but for most of the previous years, prior years, you typically have a seasonal growth from Q2 to Q3. So obviously, it's a dynamic macro and you have public sector headwinds, but anything specifically driving this seasonality to be a bit below average relative to your prior years into Q3?

Question: Samik Chatterjee - JPMorgan Chase & Co - Analyst : Got it. Thank you.

Question: David Vogt - UBS AG - Analyst : Great. Thanks, guys, for taking my questions. I'm going to roll them into one. So maybe George and Wissam, when I think about the demand drivers going into the second half of this year, and I think you said you still expect federal to be sub-seasonal. How do we marry that outlook and then going into '27 with how you're thinking about inventory and purchase commitments because your inventory on the balance sheet is still relatively modest? It doesn't seem like you took in a lot of finished goods for my quick look. I'm just trying to think how we should think about marrying maybe a recovery in some of the verticals like US Federal next year. Hopefully, that's behind us. And how you're thinking about adding purchase commitments and working capital to support the business next year? Thanks.

Question: David Vogt - UBS AG - Analyst : Yeah. Did you talk like couple of quarters or full year purchase commitments given the environment? Like what's your philosophy going into next year?

Question: David Vogt - UBS AG - Analyst : Great. Thank you.

Question: Krish Sankar - Cowen and Company LLC - Analyst : Yeah. Thanks for taking my question. The first question, George, is for you. You spoke about the 200 AI deals that you closed in the quarter. What is the average size of these deals? And also, where are we in the pilot production journey for enterprise adoption of AI? Is there a way to think about that into 2026? pAnd then I have a quick follow-up.

Question: Krish Sankar - Cowen and Company LLC - Analyst : Got it. And then as a quick follow-up, this is for you, Wissam. You spoke about the first-party hyperscale services demand was very strong last quarter. Can you just quantify how much did that grow last quarter, the services business?

Question: Krish Sankar - Cowen and Company LLC - Analyst : Great job.

Question: Steven Fox - Fox Advisors LLC - Analyst : Hi. Good afternoon. I just had one question. given all the supply shortages that you're talking about, which seems to have accelerated, I guess, in the last several months. And I understand that you've taken some tactical moves to secure supply. Why do we think -- or is there a risk, I guess, that you run into next year sometime not saying first quarter, second quarter, but is there a risk that at some point that the lack of supply hurts overall demand, whether it's because of overall price of product or just your availability to ship? Thanks.

Question: Steven Fox - Fox Advisors LLC - Analyst : Okay. So that -- you're confident that it's the price -- whatever price you're talking about a year from now, George, is sustainable in the marketplace, I guess?

Question: Steven Fox - Fox Advisors LLC - Analyst : Great. Thank you for the color.

Question: Simon Leopold - Raymond James - Analyst : Great. Thanks for taking my question. I wanted to see how you thought about your opportunities to win business with some of the sovereign or Neo clouds who are not necessarily hyperscale and building their own storage solutions. How do you see that fitting into your strategy? And what opportunities have you seen so far there?

Question: Simon Leopold - Raymond James - Analyst : And how do you think about the competitive landscape in that application and broadly the AI opportunities? 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 25, 2025 / 10:30PM, NTAP.OQ - Q2 2026 NetApp Inc Earnings Call

Question: Simon Leopold - Raymond James - Analyst : Thanks,

Question: Ananda Baruah - Loop Capital Markets LLC - Analyst : Yes. Thanks, guys, for taking the question. George was, with video such a big theme at INSIGHT let me just have you and take the opportunity to ask you, anything notable or interesting on video that you saw over the last 90 days that you're seeing emerge? And I guess, video specifically, but unstructured generally in your customer base or in some of the proof of concepts. I have a quick follow-up, too, if I could. Thanks.

Question: Ananda Baruah - Loop Capital Markets LLC - Analyst : That's helpful. Thanks. And just a quick follow-up on memory. The hard drive makers seem, as we go through next year, like they're pretty intent on mixing up pretty quickly from 20 TB drives to 30 TV drives. Is that consistent, relatively speaking, with what your customer base is looking for also? I guess I'm wondering if that's organically in tandem with what your customers also would want. That's it for me. 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 25, 2025 / 10:30PM, NTAP.OQ - Q2 2026 NetApp Inc Earnings Call

Question: Ananda Baruah - Loop Capital Markets LLC - Analyst : Thank you.

Question: Louis Miscioscia - Daiwa Securities Group Inc - Analyst : George, on the last earnings call, you seem to be a lot more encouraged about AI, and obviously, you have a lot more wins this quarter. And I guess you were asked this question before, but let me just try again. Obviously, there's been a massive growth in many areas, mostly in servers. But storage, in general, hasn't really seen a big, big pickup from AI. So when do you think inference applications really start to create more data that would then drive material new revenue for you? Do you see it as maybe first half calendar '26, second half? I mean I assume at some point it has to hit.

Question: Louis Miscioscia - Daiwa Securities Group Inc - Analyst : Okay. Thank you.

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Yes. Thank you so much. George, you said at the end of your prepared remarks that you would be capturing share in the market. And I was wondering how much of that is predicated on some of the flexibility you have in pricing given the supply that you have secured versus product portfolio mix capability. How are you thinking about that? And I have a follow-up.

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Okay. Thanks, George. And just a follow-up. You just raised your Public Cloud gross margin range and you're already at more than halfway through that range with a slight increase in revenue in the quarter. I'm just wondering, like what's a natural ceiling with for this business that you see? And maybe you can just -- maybe Wissam can just comment on cash flow as well. It was a little bit weak in the quarter, just thinking through trajectory over there, that would be helpful. Thank you.

Question: Wamsi Mohan - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Okay. Great. Thank you so much.

Question: Param Singh - Oppenheimer & Co Inc - Analyst : Yeah. Hi. Thank you for taking my questions. So I really want to dive a little bit more into your AI wins. You talked a little bit about AI differentiation with AFX and what's helping you win versus competitors. Wanted to understand what are you hearing from customers? Technically, do you feel you're there yet? And if you could share what mix of your AI wins are with existing customers as opposed to taking share for -- from new customers?

Question: Param Singh - Oppenheimer & Co Inc - Analyst : Got it. And before my follow-up, anything -- sorry, just a quick follow-up. Assuming that you keep winning and your revenue trajectory is going to improve on the product side with incremental workloads coming into AI inferencing. Add to that, you have Keystone going faster, easier comps with spot, increasing public cloud mix, wouldn't it be reasonable to assume that off a 5% normalized growth rate this year, you should see an acceleration into next year? Would that be the right way to think about it?

Question: Param Singh - Oppenheimer & Co Inc - Analyst : Got it. Thank you so much. Appreciate it.

Question: Ari Terjanian - Cleveland Research Co LLC - Analyst : Thanks for the question. First, just on the quarter, good to hear the uptick in large deal activity. I know, George, at the start of the year, you referenced some larger deals in the pipeline. What do you think drove some of the larger deal activity this quarter? Was it execution or maybe there's some pull forward ahead of potential shortages? And then my second question, it seems like OpEx was down year over year. It seems like it's been trending that way. How sustainable is that? Is that more timing related of hiring? How should we think about that in the second half and next year? Thank you.

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

Question: Asiya Merchant - Citi Infrastructure Investments LLC - Analyst : Great. Thanks for taking my question. Just I was wondering, you answered partly that about the high-performance mix shift. I think there was some mix shift that worked the other way in the prior quarter. So just -- as you look ahead, the guide for the overall gross margin ticking higher here, if you can just lay out how you're thinking about the mix here? And then what's embedded in terms of Public Cloud revenues because obviously, that's the higher margin. What's embedded in terms of public cloud revenue growth expectations for the third quarter? Thank you.