NetApp, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Record revenue for FY25 driven by all-flash storage growth and market share gains, with all-time highs in gross profit, operating profit, margin, and EPS.
• Growth Opportunities: Focus on four growth opportunities, leveraging AI for efficiencies, refreshed systems portfolio, and positioned for enterprise AI market.
• Cloud Services: Public cloud services grew 44% year over year in Q4, with first-party and marketplace storage services composing ~75% of public cloud segment revenue.
• AI Initiatives: Expanded AI ecosystem, introduced reference architectures, and saw 150 AI deals closed in Q4, with FY26 expected to be pivotal for enterprise AI storage.

Segment Performance

• Hybrid Cloud: Q4 Hybrid Cloud revenue was $1.57 billion, up 3% year over year. Product revenue was $845 million, up 5% year over year. Support revenue was $625 million, flat year over year. Professional services revenue was $98 million, up 13% year over year.
• Public Cloud: Public cloud revenue was $164 million, up 8% year over year. Excluding the divested spot business, public cloud revenue grew 22% year over year.
• All-Flash Storage: All-flash array annualized revenue run rate grew 14% from Q4 a year ago to a record $4.1 billion. All-flash made up approximately two-thirds of hybrid cloud segment revenue.
• AI Business: AI business grew fivefold year over year in Q4, with approximately 150 AI infrastructure and data lake modernization deals closed.

Guidance

• Fiscal Year 2026: Total revenue expected to be $6.625 to $6.875 billion (3% growth year over year, excluding divested spot business). Consolidated gross margin 71%-72%, operating margin 28.8%-29.8%, EPS $7.6-$7.9.
• Q1 2026: Revenue range $1.455-$1.605 billion (1% decline year over year, excluding divested spot business). Consolidated gross margin 71%-72%, operating margin 25%-26%, EPS $1.48-$1.58.

Risks

• Macroeconomic Uncertainty: Global slowdown, inflation, and uncertainty in US public sector and EMEA.
• Tariffs and Geopolitics: Impact on enterprise spending, particularly in manufacturing segments in Europe and uncertainty on trade policies.
• Supply Chain and Input Costs: Potential margin pressure from input cost increases and tariff impacts.

Question and Answer

Q: Touch on guidance and product gross margins A: George mentioned momentum in all-flash and cloud, with Wissam discussing gradual improvement in product margins and cloud margin range.

Q: Execution and macro impact on deals A: George noted some deal timing slips due to macro uncertainty, particularly in Europe and US public sector.

Q: AI deal color and macro in guide A: George talked about AI deals with large cloud and enterprise providers, and Wissam mentioned macro embedded in Q1 guide and tariff impact on margins.

Q: Keystone customer conversations and AI win rates A: George discussed Keystone momentum and high AI win rates due to strong competitive position and tools.

Q: Public sector exposure and FX impact A: Wissam mentioned low teens US public sector exposure and minimal FX impact in Q4, with FY26 guidance reflecting FX considerations.

Q: Broadcom acquisition and AI deal growth A: George and Wissam discussed Broadcom acquisition impact on hyper-converged and AI deals, and AI win rate acceleration.