NetApp CEO on earnings, competition

Network Appliance recently posted fourth-quarter and year-end financial results showing a 39 percent increase in quarterly earnings over the same period last year -- and a 31 percent increase over 2003 as a whole. NetApp CEO Dan Warmenhoven spoke with Computerworld about the company's financial results, the competition from vendors embracing the Windows Storage Server 2003 NAS operating system and when the company's global distributed files system would be ready.

Excerpts from that interview follow:

Q: What has contributed most to the almost 40 percent increase in year-over-year quarterly revenue you just announced and the 31 percent increase in annual revenue?

The annual one's easier to deal with. We've just seen accelerating growth throughout the year. The Q4 time frame was just the culmination of that. If you look at it by product line, I think the big contributor was our ATA-based products, a product line we call NearStore. It's known as secondary storage. And that's related to the customer issues of compliance and disaster recovery. The entry-level solutions which were new this year, the FAS 250 and FAS 270, were big contributors.

As we stretched the product line down, we really opened up opportunities to solve problems in the distributed enterprise, regional and branch office kind of stuff. If you look at verticals, our biggest strength was in the U.S. federal government. That's up to 12 percent of the total company business. That's way up from prior (years). And (we had) terrific success in the financial services area globally, and then telcos. To a certain degree, there's been a tech rebound. Our tech customer base was always traditionally 20 percent to 25 percent of our business. They've been under pressure over the past few years. You saw a rebound there.

Q: What is NetApp doing to address branch and remote office backup to a centralized data center?

There's two strategies reflected in our product offerings. The first is to make the distributed office an extension of the data center and the way it's managed. The notion behind the enterprise entry-level configurations is to have the content of those systems, in other words the data stored there, either pushed out from data center -- you know, software updates, database information, whatever -- extracted from the data center and have it replicated out. Alternatively, you can do things like remote mirroring over those smaller systems back to a secondary storage center that's in a data center. A lot of our business is high-capacity NearStore ATA-based systems, and I mean tens of terabytes, used as the mirror for backup and recovery of the branch office systems.

Go ask a CIO, "Do you have policy for backup in your regional offices?" And he'll go, "Yes." If you ask him, "Do you think it's adhered to faithfully?" And he'll go, "No." In fact, most will laugh. They have no confidence (that) their backup procedures are being executed on a regular basis. The only way to guarantee that happens is to do it automatically, electronically and network all that stuff and mirror all that back to the data center.

Strategy 2 is to eliminate the need for having the data local in the first place. Why do I have that data out there? The answer is generally performance. But if I can provide an end user with an experience of high-perform access to centralized data, then, in fact, I can eliminate a lot of the stuff that gets stored out there. And so the strategy there is to use caching technology -- NetCache. What that does is provide high-performance interaction with data that's centrally located.

You move a temporary copy out there, let the end user operate on it, and when they're done, the permanent storage is back at the data center.

Q: Can you break out sales of iSCSI-related products?

It was surprising in terms of the adoption rate. The SAN (storage-area network) business grew quite nicely this year. But in the fourth quarter, and we introduced iSCSI products this year, iSCSI was 10 percent of our total bookings.

Everybody's surprised by the adoption rate of iSCSI.

Q: What are customers using it for mainly: consolidation within the data center, or outside of the data center?

Storage consolidation within the data center and outside. It's primarily used in Windows environments, although there's a significant amount of Linux adoption as well. Microsoft has been very aggressive in their endorsement and support of iSCSI.

Here's the Windows world. It's always had two styles of information access: file access for NAS (network-attached storage) for your home directories and shared data servers and block access for the Microsoft application environments like SQL Server and Exchange. If you're a customer and have an extensive Microsoft environment, you basically have two storage infrastructures. You're almost forced down that path. And iSCSI allows you to collapse those into a single storage infrastructure based on Ethernet. And our systems obviously act as the storage target, (which) allows you to store both block and file data there.

It's a very attractive, cost-effective solution for many customers, and they're moving to it very quickly.

Q: What are you doing about increased competition from vendors such as HP, IBM, Dell and EMC, which are embracing Windows Storage Server 2003 for NAS?

We don't really see it as direct competition. I think they're operating in a different segment of the market. Our products start at a terabyte. Our low-end system is $20,000 to $25,000 in price. That's well above what the Windows-powered NAS products sell at -- typically $5,000 and much less storage. If you have a little data, go buy Windows-powered NAS. But if you have a lot of data, you worry about replication back to the data center, recovery, provisioning -- you know, all these kinds of things -- your management problem goes up exponentially as (the) size of (the) data you're trying to manage increases.

They make the jump from a Windows (architecture) to ours when they reach a certain volume threshold. So it almost creates a natural segmentation in the marketplace.

Windows-powered NAS doesn't do mirroring, it doesn't do iSCSI, it can't support SQL server or Exchange. So it's meant really for file-server environments.

Q: Will NetApp ever break down and embrace Windows Storage Server, or will you continue to insist that your customers use of Data Ontap operating system?

I believe it will be Data Ontap because that's our core IT. Think about our business model. We think of ourselves as a software vendor. Most of our hardware we source from other companies. We're not a hardware manufacturer. We're a system integrator in that sense. We buy hardware components and add our software. Why would it make sense for us to buy the hardware and then add the software from Microsoft?

Q: What are you doing for tiered storage and information life-cycle management? When will Storage Grid be fully baked and be integrated?

It depends on your perspective. It is either fully baked now or it never will be. We have a lot of customers using Storage Grid architecture now for a variety of applications: semiconductors for high-end simulation, energy exploration for oil and gas, the motion-picture industry. We're the foundation technology for Shrek. They're using an early version of Storage Grid.

The core components will be integrated between Spin OS and Data OnTap in about 18 months from now.

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