NetApp, Inc. (NASDAQ:NTAP) Q3 2023 Earnings Call Transcript

Page 2 of 12

David Vogt: Maybe, George, I just want to go back to your comment that you mentioned that you lost some momentum in Hybrid Cloud. Just wanted to drill down on that comment. Can you maybe elaborate on a little bit more specifically, what did you mean by that? Obviously, it’s a key driver of the business and an important cash flow engine, but just would love to get some more color on that. And then I have a follow-up. Thanks.

George Kurian: I think there are three elements of that. I think the first, we have been a little bit later than we would have liked to introduce lower cost more value-oriented capacity flash arrays. We’ve corrected that. We feel really good about the early interest in our C-Series. The second was that we have moved resources to the more stable, steady growth parts of the market, like the commercial market and lower parts of the enterprise from the cyclical large enterprise segment. We haven’t done as much as we need to, and we’ll continue to do that heading forward. And the third is that from a compensation and goal alignment perspective, we’re going to sharply focus certain parts of our field organization to drive our flash portfolio while aligning other parts of our field organization to focus on the cloud business.

David Vogt: Got it. And then maybe just a follow-up to that is, so typically, what is the lead time, or how does the cycle — or the sales cycle work from, let’s say, start to traction for these initiatives? Should we expect sort of a recovery in, let’s say, the second half of fiscal ’24 in these particular markets driven by the strategy, or does it take a little bit longer or maybe shorter to see some tangible benefits? Thank you.

George Kurian: I think, first of all, we are excited about the C-Series products. They will be available this quarter. I think the material impact of those product portfolios will be in the first half of next fiscal year. The large enterprise segment will continue to be a place of caution for us. I think that we will need — we are working with our customers to understand their buying behavior. My sense is that — and my hope is that they are back buying more aggressively than they have been in the second part of next fiscal year. So, we hope that — the product portfolio is in the market this quarter. Commercial and lower-end parts of the enterprise should see some benefits from that in the first half of next fiscal year. But the large enterprise segment, we’re a bit more cautious about. And your expectation is more accurate around second half of next fiscal year is our hope.

Operator: Next question will come from Steven Fox with Fox Advisors. Please go ahead.

Steven Fox: Just following up on those last comments around the commercial versus large enterprise. I guess, how do we think about just sort of a pivot back so that you prepared for the cycle? Like what are you looking for in order to maybe have the right resources ready for when the large enterprises do come back and you need to be prepared to service them in a more aggressive manner? And then, I had a follow-up.

George Kurian: We are very closely engaged with these customers. We’ve known them for decades. I think the fundamental pattern is the improvements in their business prospects. So, as soon as they see that, they start the discussions with us on purchasing.

Steven Fox: Okay. That’s helpful. And then, just in terms of the benefits now with NAND and other component costs low, can you just talk about — give us a sense for how much of your sales are benefiting from the low-cost NAND in this current quarter? And how much more there would be to go before you like at 100% of where NAND prices are? Thanks.

Page 2 of 12