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

George Kurian: I think it’s always a competitive environment, and it continues to be a competitive environment in a tough demand environment. I don’t see any player doing anything kind of out of the ordinary. I think that just like everyone else, we see the opportunity, especially with QLC-based flash arrays, to be competitive in the market.

Operator: The next question will come from Sidney Ho with Deutsche Bank. Please go ahead.

Sidney Ho: You guys have seen a few down cycles in the past 10 years where you saw multiple quarters of overall revenue decline of 10% or more on a year-over-year basis. I think that was in 2016, 2020. Curious how you think this cycle will shake out. Maybe just help us compare and contrast with the previous cycles in terms of the depth and duration of the downturn. Maybe they’re completely different. And then I have follow-up question.

George Kurian: Listen, I think that we’ve got a different mix of business today than we did in the past. I think there’s a growing percentage of our business from more recurring revenue business models like the cloud business. I think we have tried to move more of our resources to parts of the market that are less cyclical and that allow us to acquire new customers to broaden our customer base. I would say we’ve done a good job, not enough, but we’ve certainly seen good progress. And we will continue to pivot in that direction. I think the large customer segment behavior pattern is quite similar to what we’ve seen in the past. I think that 2016 is quite similar to what we see today. The only thing that I would point out is that the — for many customers, 2020 was a very difficult year.

And so, there’s — it hasn’t been — this downturn has not been presaged by many, many years of economic expansion. So, we’re hopeful that customers will be back buying in a more predictable pattern than they have in the past.

Sidney Ho: Okay. That’s great. Maybe a quick follow-up here. Just on the earlier answer on the operating expenses. You talked about holding OpEx flat until you see growth. But to be clear, are you expecting OpEx to be down in the July quarter from the 675 level in the April quarter, which I know it’s seasonally down for OpEx anyway for the July quarter? And you hold expenses at those levels going forward until revenue growth resumes? Is that how we should think about it?

Mike Berry: Yes. Sidney, it’s Mike. So, there’s a couple of nuances, I’ll try to keep this brief, is that in the Q4 number, we do have a portion of the restructuring benefit. We’ll get all of that in Q1. The thing that will come back in Q1 is incentive compensation, hopefully will come back. You’ve seen this, Sidney, in the last — you talked about some of the downturns. You’ve seen this coming out of it as well. So, on an absolute dollar perspective, it’s probably up slightly Q4 to Q1 just based on that. But everything else from a controllable perspective, we will try to keep that as flat as we can outside of movements in incentive comp.

Operator: The next question will come from Jim Suva with Citigroup. Please go ahead.