NetApp, Inc. (NASDAQ:NTAP) Q2 2023 Earnings Call Transcript

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Mike Berry: Hey Angela, it’s Mike. So, as we both talked about, look, we still feel really good about the cloud business, both Cloud Storage and CloudOps. We have some things to work through this year. So even though Q2 was not where we would like, we still feel really good about the future. We will update our views of fiscal 2024 and the $2 billion when we give you guidance for next year. So we’ll ask you to wait until we update our fiscal 2024 numbers in a couple of quarters.

George Kurian: I think where we are focused on at the moment with our cloud business is to make sure that we are a good partner to our customers so that we can optimize their spend where they need help doing that. We are going to be continuing to accelerate our focus on selling more of our cloud products to our installed base where today it’s about 15% of our Hybrid Cloud customers have our cloud products. And we have grown the number of cloud customers and the number of them that are buying more than one cloud service. So there’s lots of opportunity ahead. We’re focused on blocking and tackling and executing on the opportunities in front of us.

Angela Jin: Thank you.

Operator: Our next question will come from Krish Sankar with Cowen and Company. Please go ahead.

Krish Sankar: Yeah, hi. Thanks for taking my question. I have two of them. I’ll ask both of them upfront to either George or Mike. Thanks for the color on the cloud customer scenario. I’m kind of curious like one of your competitors just two weeks ago mentioned the storage demand is still pretty strong from cloud customers. I’m kind of curious, is the weakness you’re seeing NetApp customer specific, or is there any share loss due to competitive threats? That’s the first question. And then the follow-up is on the cloud ARR from $800 million to $700 million, yet we spoke about a high retention rate. So is the challenge now signing new customers with ANF? This is the ramp of AWS FSx? Any color there would be helpful on the ARR cut? Thank you.

George Kurian: I think with regard to what we saw in the quarter was really we have unique cloud services, which are native, first party cloud services. Those are consumption offerings that we give customers. They were the ones most impacted. None of our competitors have native first-party consumption cloud services. They offer it through the marketplace. The marketplace business for us stayed relatively consistent. And so that is what you would expect. The subscription business is less susceptible to near-term changes in usage than the consumption business. And so the benefits of consumption being you can turn it on and off also shows up when customers want to optimize spend. We want to be a good partner to the customers that want to do that.

And so we are working with our hyperscaler partners to give them access to more options to be more cost effective with their spend. Spot, which is the compute optimization platform actually did well in the quarter. So while the storage consumption was impacted by spend, as I noted in my remarks, Spot was a — which is a vehicle to optimize computing spend did very well in the quarter. And so we continue to help our customers through that journey. With regard to growth opportunities, listen, as I said, we felt very good about the number of customer adds. We felt very good about the amount of cross-selling we are starting to see dollar-based net retention rate has been strong, and so several good things in our cloud business.

Krish Sankar: And on the ARR side?

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