NetApp's new CEO talks about hybrid cloud, customer challenges

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I think the overall sense is that execution has been an issue at NetApp, whether it's on the sales front, the development front moving things along more quickly, or on the competitive landscape front. What can you tell customers to convince them that NetApp has a clear, strong vision and direction going forward?

First of all, I've spent the majority of my time since taking on this role out with customers and partners and I can tell you our long-term perspective of the evolution of IT resonates with customers. They recognize that building a hybrid cloud architecture is something all the IT organizations in the world have to navigate.

Second, we are uniquely positioned, being one of the world’s best at storage and data management. We're not trying to defocus our expertise from that fundamental problem and we are working with the technology providers of today and tomorrow, both cloud service providers as well as system companies, to deliver an integrated solution for our customers. That's the starting point.

The discussions have been extraordinarily positive. Our customers see our partnership and have experienced working with us over 20 years. They want us to win.

In terms of our execution itself, it is a place of enormous focus for me and we will just have to deliver results to demonstrate progress. I'll tell you a couple of things. The first is we have done very well with our new portfolio of technologies, both the ones that we grew organically within NetApp as well as the ones that we acquired, capabilities like the E-Series or our OnCommand Insight storage resource management product sets. They have grown much, much faster than the industry and the challenge ahead of us is to ensure that growth now translates into top-line growth.

We have not shown top-line growth so far because we are going through this fundamental product shift between the old scale-up technology and all of the newer technologies in our portfolio. As a percentage of our business, as we noted on our earnings call, the old continues to shrink and so there's daylight ahead for us and we need to go capture it. The second area in execution that we, like every other company, has got to deal with is focus, accountability as well as making the changes needed to deal with the changing IT landscape. They include new ways to deliver our technology to customers, new partnerships with the emerging providers of capabilities to customers and being willing to take some risks so that we can experiment and learn quickly. We're doing that but we've got more work to do there.

As you say, it's a very challenging environment for all tech companies today, in particular in the storage space. You've got big traditional competitors like EMC and you mentioned some of the emerging companies. I would push back that some of them are a little more than fringe at this point. You've got companies like Pure Storage that are pretty highly valued and are making some significant inroads with customers. I want to explore your competitive differentiation. What do you bring to market that is unique?

The first is our track record of having worked with customers and partnered well with the ecosystem that customers want their technology providers to partner with. Thousands and thousands of customers have benefitted from that.

Second, technologically we feel very good about the progress we've made. We've had many, many competitive wins against some of the pure-play competitors and it is both because we offer capabilities that they don't for the mainstream market, not the early adopter market, and we have a roadmap for customers that the startups don't have -- which is a long-term perspective that any technology they buy today needs to fit into a roadmap of hybrid cloud. Without question, the cloud is a topic of conversation with every customer, whether it's on-premises, whether it's a service provider customer or whether it's someone trying to construct an architecture that combines an Amazon, for example, with on-premises computing. We have hundreds of customers that are already doing it with us today so we feel we're ahead of where the market is.

What's unique about our value proposition is that every technology that you buy from NetApp has a roadmap to the hybrid cloud. It's expensive to do from an R&D perspective and you need to have a total solution approach, an architectural approach that a point technology provider cannot meet.

More than a year ago I met with Joe Tucci, a similar kind of interview. Joe emphasized that EMC is a software company and he went through a variety of reasons for why that is important. Is NetApp a hardware company or a software company and is the answer to that question changing?

Our intellectual property has always been predominately in software. From the early stages of the company's evolution, NetApp's value was in our operating system software, in our storage and data management software. Our approach is essentially to deliver that software through the systems form factor but instill the system capability itself to rely on the commodity supply chain. We've always believed that by doing so we could offer customers the best price-performance value in the marketplace and we've done that with serial ATA drives, we've done that with scale-out technology and we are doing that with flash.

We do build integrated systems, but the intellectual property, the genius in our system, is in our software. What you've seen from us over the last couple of years has been to take the number one storage and data management operating system, Data ONTAP, and make it available on platforms that are beyond NetApp’s own hardware. We have, for example, extended the virtualization capability of our operating system so that we can virtualize not only NetApp systems but also systems from EMC, Hitachi, Hewlett-Packard and others so a customer can build a resource pool for storage that transcends not only our systems but also white box and competitor products. We think we're the only company in the world that can do that.

The second is we have extended beyond traditional storage systems to enable our software to run on public clouds. We announced a technology called Cloud ONTAP, which is a version of our Data ONTAP operating system that now virtualizes storage from Amazon Web Services and allows you to build a seamless data management architecture combining on-premises, service provider and public clouds. We think we're the farthest ahead in that set of capabilities without question.

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