Ari Terjanian

Ari Terjanian asked about the drivers behind the uptick in large deal activity during the quarter, specifically whether it was due to execution or pull-forward ahead of potential shortages. He also questioned the sustainability of the year-over-year decline in OpEx and expectations for the second half and next year.

Answer

George Kurian (CEO) attributed large deal wins to execution and pipeline, not supply chain pull-ins, noting these wins offset the US public sector decline. Wissam Jabre (CFO) stated OpEx trends are a matter of timing, expecting it to be slightly higher in the second half as NetApp continues to invest in business growth.

Ari Terjanian with Cleveland Research Company inquired about the factors driving the increased large deal activity in the quarter, asking if it was due to execution or a pull-forward ahead of potential shortages, and questioned the sustainability and expected trajectory of operating expenses.

Answer

CEO George Kurian attributed the large deal activity to strong execution and pipeline, clarifying there were no pull-ins due to supply chain issues. He noted that these wins helped offset a significant deterioration in the U.S. public sector. CFO Wissam Jabre stated that operating expenses were flat sequentially and down year-over-year, but are expected to be slightly higher in the second half due to continued investment in business growth.

Ari Terjanian of Cleveland Research Company asked for an update on the all-flash competitive landscape, noting a peer's strong results, and inquired about the customer take-rates of pricing actions taken last year.

Answer

CEO George Kurian acknowledged the competitive environment but stated NetApp saw no adverse competitive patterns during the quarter. He clarified that recent product gross margin pressure was due to year-over-year component cost increases, not new pricing actions, as they are in a 'wait and see' mode regarding tariffs. He expressed confidence that cost comparisons will become more benign through the year, helping margins recover.

Ari Terjanian of Cleveland Research Company requested an update on the all-flash competitive landscape, noting a peer's raised outlook, and asked about the customer take-rate of pricing actions implemented last year.

Answer

CEO George Kurian described the market as consistently competitive but noted no specific adverse trends in the quarter, attributing some performance differences to NetApp's higher exposure to weaker markets like the U.S. Public Sector. On pricing, he stated the company is in a 'wait and see' mode on tariffs and that recent gross margin pressure was from component cost increases, not pricing on new systems.

Ari Terjanian asked for an update on the market dynamics related to the Broadcom acquisition of VMware and the potential opportunities or challenges this creates for NetApp as customers evaluate new architectures.

Answer

CEO George Kurian stated that NetApp is well-positioned to support clients regardless of their path. The company offers solutions for customers who stay with VMware, those who re-platform to cloud or container-based architectures, and those who move to on-prem alternatives with partners like Microsoft and Red Hat. He believes NetApp has strong options for customers as the situation evolves.

Ari Terjanian asked for clarification on the recent surge in AI deals and whether there was any pull-forward of demand due to product pricing changes.

Answer

CEO George Kurian attributed the doubling of AI deals to broader engagement and execution by sales teams and partners over long sales cycles. CFO Mike Berry acknowledged some product pricing changes but stated there was no material pull-forward of customer demand as a result.

Ari Terjanian of Cleveland Research Company asked about the decision to participate in the upcoming GTC conference and how Pure Storage plans to differentiate itself in the competitive AI training market.

Answer

CEO Charles Giancarlo explained that while the AI training market was traditionally HPC-oriented, Pure has made modifications to its product to address HPC performance characteristics within its existing R&D budget. He expressed confidence that the new capabilities to be unveiled will 'make a big splash.'