Bullish NetApp forecasts virtual boom

Network Appliance held a conference in New York City last week in which it laid out the reasons why far from battening down the hatches in anticipation of a recession, it is planning a to expand its sales force and its biggest ever advertising campaign.

Comment: NetApp's years of storming revenue growth may be over, but the company is still growing very fast and is about to close its fiscal year 2008 with around 18% revenue growth. This is no mere early stage growth. NetApp's annual revenue this year passed €1.893 billion/US$3 billion.

One of the reasons NetApp gives for its slowdown is reduced IT spending in the financial services industry, which is one of its top three vertical markets. Wall Street is already very nervous about its own short-term prospects, so it is no surprise that some financial analysts want NetApp to reef in its sails in expectation of further cutbacks in the financial sector, or worse, a deepening of the US recession. Not spend money hiring new staff and running ad campaigns.

NetApp will not say how many new sales staff it plans to hire, but has indicated it will bump up its headcount by around 1,000 or 15% in the next twelve months, and that the focus will be on sales people. The ad campaign may not be hugely expensive, but like the recruitment it is not a belt-tightening action.

NetApp is adamant that a downturn is an opportunity to gain market share in preparation for economic revival, and argues that it demonstrated this when it survived the bursting of the Internet bubble and bounced back with four years of storming growth of more than 30% each year from fiscal 2004 to 2007.

Among the external reasons for the strength of NetApp's recovery was an explosion in the growth of file level data, which NetApp's NAS storage was well suited to handle, and Oracle's decision to promote the use of NetApp gear to store high-end databases.

This time around, NetApp calculates that the biggest external force at play is the rise of server virtualisation, which requires customers to rework their data storage, among other things making it more flexible and improving data protection.

As well as generating more storage spending, the server v-word can result in a dramatic re-vamp of IT operations that brings an openness to new ideas and new storage suppliers, NetApp argues. In the company's own words, the best time to try to sell new bathroom fittings is when the entire building is being demolished.

It remains to be seen how well placed NetApp's optimism is. Although all the signs are very positive, it's not clear yet exactly how widely or when server virtualisation will be taken up, how much storage spending it will generate, and whether any of this would be affected by an IT spending downturn.

As part of an attempt to answer those questions, NetApp invited BT to tell the New York conference about a huge server v-word project that involved NetApp storage. According to BT, it paid for itself within just eight months and cut server maintenance costs by 90% - a convincing argument that if a squeeze comes, customers will to spend on server virtualisation, confident it will lower their operating costs hugely.

Timothy Stammers