Data storage giant NetApp Inc. beat expectations as it delivered its first-quarter financial results today.

However, its revenue was down overall and although the company maintained its full-year profit outlook, it noted that it continues to face a “challenging macroeconomic environment” that has forced enterprises to make cuts to their information technology spending budgets.

The company reported net income of $149 million, down from the $214 million profit it racked up one year earlier. Earnings before certain costs such as stock compensation came to $1.15 per share, ahead of Wall Street’s forecast of just $1.07 per share. Revenue fell 10%, to $1.43 billion, but came in above the analyst’s target of $1.41 billion.

Investors were not particularly impressed nor especially concerned either, as NetApp’s stock closed flat prior to the earnings call, and declined about 1.6% in late trading.

NetApp made its name as a pioneer of high-end enterprise storage arrays but these days it has reinvented itself as a hybrid cloud data services and data management company. The majority of its revenue now is derived from the cloud.

It’s helped by the fact it works very closely with public cloud infrastructure providers such as Amazon Web Services, Google Cloud and Microsoft Azure. It also sells its popular NetApp Ontap file storage as a managed service on public clouds.

Chief Executive George Kurian (pictured) said the company was managing all elements of its business within its control to drive better performance in its storage business, while building out a more focused approach to the cloud. He pointed to the company’s “substantial innovation that helps customers build stronger, smarter and more efficient hybrid multicloud infrastructures.”

Steve McDowell of NAND Research told SiliconANGLE that NetApp did as well as can be expected given the state of the storage market. “It beat expectations top and bottom for a fourth straight quarter,” he pointed out. “I don’t see any major red flags.”

Breaking down the numbers, it’s clear that some aspects of NetApp’s business are doing better than others. Product revenue came to $590 million in the quarter, down 25% and below analysts’ consensus forecast of $595.4 million. Public cloud revenue jumped almost 17%, to $154 million, just above the $153.8 million target. On the other hand, hybrid cloud revenue dropped more than 12%, to $1.28 billion, though it did beat the consensus target of $1.26 billion.

Kurian said on a conference call with analysts that the still-nascent public cloud business underperformed the company’s internal expectations, as it was expecting even faster growth. Even so, McDowell told SiliconANGLE the cloud was still the biggest bright spot in NetApp’s results. “Public cloud is the only segment to show year-over-year growth for NetApp,” he said. “I was skeptical of this business when they launched it, but it seems to be resonating with enterprise customers.”

The analyst added that there remains considerable room for growth in the public cloud, as NetApp’s cloud-based Ontap offering is not yet available on Google Cloud. “George noted during the call that we can expect an announcement about an ‘expanded relationship’ with Google soon, so that’s good revenue potential moving forward,” he said.

Finally, McDowell pointed to signs of recovery in NetApp’s all-flash array business, where revenue falls within its Product segment. “NetApp began refreshing its all-flash portfolio earlier this year with a handful of new and updated models, and that’s starting to pay off,” he said. “Kurian noted during the earnings call that the new products are selling better than expected, and that NetApp’s pipeline for the new all-flash products is healthy.”

For the second quarter, NetApp is looking at earnings of between $1.35 and $1.45 per share, just ahead of Wall Street’s target of $1.38 per share. In terms of revenue, it forecast a range of $1.455 billion to $1.605 billion, better than the $1.51 billion consensus estimate.

For the full year, NetApp is maintaining its earlier profit forecast of $5.65 to $5.85 per share, above Wall Street’s target of $5.71 per share.

Photo: SiliconANGLE