NetApp at Nasdaq Summer Conference: Strategic Growth in AI and Cloud

On Wednesday, 11 June 2025, NetApp (NASDAQ:NTAP) participated in the Nasdaq Summer Conference, where President Cesar Sonuda and Investor Relations Chris Newton outlined the company’s strategic direction. The discussion highlighted NetApp’s transformation into an intelligent data infrastructure company, emphasizing growth in AI, cloud services, and strategic partnerships. Despite facing challenges like fluctuating flash memory costs, NetApp remains focused on leveraging its strengths to capture market share.

Key Takeaways

• NetApp is transforming into an intelligent data infrastructure company, focusing on AI and cloud services.
• The company’s hybrid cloud business is its primary revenue source, with public cloud services rapidly growing.
• Strategic partnerships with hyperscalers like Microsoft, AWS, and Google Cloud are crucial for NetApp’s growth.
• Flash storage and enterprise AI are significant growth drivers, with notable year-over-year increases.
• Disciplined capital management includes returning a substantial portion of free cash flow to shareholders.

Financial Results

• Revenue Composition:

- Public Cloud: Approximately 10% of total revenue.

- Hybrid Cloud: The remaining revenue, including flash and hybrid flash/hard disk business.

• Growth Metrics:

- Flash Storage: 14% growth year-over-year, gaining 3 points in market share.

- Public Cloud: 43% growth year-over-year, driven by cloud storage.

• Gross Margin:

- Support Revenue: Approximately 92% gross margin.

- Cloud Gross Margin: Increased by 11 percentage points year-over-year, with Q4 at 79.3%.

- FY ’26 Target: Cloud gross margin above 80%; product gross margin in the upper 50s%.

• Capital Allocation:

- Dividend: Approximately $400 million annually.

- Share Buybacks: Remaining free cash flow returned to shareholders.

Operational Updates

• Hybrid Cloud:

- Flash: A significant growth driver, focusing on modernizing data centers.

- Block Storage: New ASA products for customers needing block functionality, gaining 1 point in market share.

• Public Cloud:

- Differentiation: Integrated technology in hyperscalers’ consoles, supporting workload migrations.

- Customer Success Team: Aids in deployment and value creation in the public cloud.

• AI:

- Enterprise AI Approach: Modernizing data lakes, AI factories, and AI-as-a-Service offerings.

Future Outlook

• Growth Drivers:

- Continued investment in flash and block storage solutions.

- Expansion of public cloud services within hyperscalers.

- Enterprise AI as a major opportunity, focusing on data lakes and AI-as-a-Service.

• Strategic Plans:

- Strengthening partnerships with hyperscalers.

- Modernizing customer data centers and infrastructure.

- Leveraging existing data for AI applications.

• Challenges and Opportunities:

- Opportunity: Strong AI demand can accelerate growth.

- Challenge: Managing commodity price fluctuations for flash.

Q&A Highlights

• Hyperscaler Partnerships:

- Revenue Share: Hyperscalers benefit from infrastructure economics; NetApp gains from software.

- Enabling Workload Migration: NetApp technology supports enterprise applications on hyperscaler clouds.

• Gross Margin:

- High support revenue margin due to AI leveraging.

- Improvement in cloud gross margin from software-only deployments.

- Product gross margin impacted by flash memory cost fluctuations.

In conclusion, NetApp’s strategic focus on AI and cloud services positions it for growth in high-demand markets. For further details, please refer to the full transcript.

Full transcript - Nasdaq Summer Conference:

Lane Curtis, Interviewer: Lane Curtis, very happy to have with us NetApp from the company Cesar Sonuda, president, as well as Chris Newton from investor relations. So I’ll do thirty minute fireside, but Chris is gonna do a safe harbor for all of us to wake us up.

Chris Newton, Investor Relations, NetApp: That’s right. Hi, everyone. Today’s discussion may include forward looking statements regarding NetApp’s future performance, are subject to risk and uncertainty. Actual results may differ materially from the statements made today for a variety of reasons described in our most 10 ks and 10 Q filed on the SEC and available on our website at netapp.com. We disclaim any obligation to update information in any forward looking statement for any reason.

Back to the show.

Lane Curtis, Interviewer: Nice work. So I’m new to the story. Think maybe some other investors are as well. The company has been around over thirty years, started with disk storage, obviously has made a big transition to flash and cloud. Maybe you can kind of just from a very high level walk us through how you think about the business, where it’s come and where you are planning to push it.

Cesar Sonuda, President, NetApp: Well, sure. of all, thank you. Good afternoon to everyone. A pleasure to be here. As you said, we are thirty two years old company, experienced company.

And we define ourselves as an intelligent data infrastructure company. We help our customers to build their intelligent data infrastructure. We help customers on their data management, data storage capabilities, vulnerability, security around their data. We’ve been building the company on top of our ONTAP software, which is our biggest differentiator. And the way we’ve been monetizing this ONTAP software has helped us data management, data storage.

And the way we monetize historically has been selling our hardware and software together. As you have rightfully said, we start with a value proposition around disks. We moved into a flash arrays and lately as well on cloud storage. And lately, means the last ten years, we’ve been already working on the cloud storage. And I think this is one of the biggest differentiators because most of our customers, many of our customers are truly hybrid cloud.

And we have managed to build a very in-depth partnership with the three hyperscalers. Ten years ago, we started bringing our technology, in this case, our software, into the hyperscalers marketplace. But since five years ago, we’re the ones and actually the only ones that have managed to bring that software, that technology as a party service inside hyperscaler. So in other words, five years ago, we launched Microsoft Azure NetApp Files. With Microsoft, that’s part of their own console.

Two point years ago, we launched with AWS FSx ONTAP, which is, again, in their console. They offer this service storage with our technology. And since one point years ago, approximately, we announced Google Cloud net up volumes with Google Cloud. So all in all, a lot of progress made. The mix of our business has been changing a lot in the last years, flash becoming twothree of our overall hybrid cloud business, public cloud, mostly cloud storage, being the driver of the business.

As you all know, we report the business into hybrid cloud, which we have flash and our public cloud business, which is what I just talked about.

Lane Curtis, Interviewer: Maybe can you give us a perspective of the weightings between those two? How big is hybrid versus cloud? And what kind of what are the relative growth rates? And how do you think about the go forward growth rates for the different segments?

Cesar Sonuda, President, NetApp: I’m going to take the numbers and then I took all the growth Yeah,

Chris Newton, Investor Relations, NetApp: sure. So public cloud makes about 10% of our total revenue. The remainder is the hybrid cloud business. As Cesar mentioned, that’s a combination of our flash business, which has been growing significantly fast. We gained about three points of share last year in all flash, outpacing any of the other competitors.

And then a hybrid flash hard disk business, which has been declining as customers shift to all flash based technologies. However, we expect that to asymptote out as there’s a segment of kind of cold storage that’s most cost effectively hosted on nearline based disk today. And so those are the primary components of the hybrid cloud segment.

Cesar Sonuda, President, NetApp: I think from a growth levers perspective, as we think about the future, we see four big opportunities for us. The one is flash a lot. As Trisio said, I mean, last year for us was a 14% growth. We actually outpaced the market. We grew almost three points market share on the

So that’s an important growth opportunity. It’s a market that is growing, and we are outpacing the market. So there’s no doubt that for us, that’s a big investment area. And I’ll talk later a little bit more about some details there. big opportunity for us is block, block storage.

We’re not new to block. We’ve been selling block for many years. As you know, we have approached our customers with a unified storage value propositions. We have thousands of block customers, but they were using block mainly through that unified storage approach. But since one year plus ago, we brought to the market new products, which is kind of we call it ASA, which basically is focused on bringing to customers only block, and there’s we recognize there’s customers that only need that functionality.

They don’t want to pay for all the unified storage. They don’t need all the features that we’re bringing with our unified storage value proposition. So that block storage has also been a good growth engine for us. We actually capture one point market share in the last twelve months, which is as we were expecting. So there’s another big growth opportunity.

The one is public cloud. And this is one of the areas, and I said at the beginning about NetApp, but this is one of the areas that it’s critical for me that we all understand the differentiation that we bring to that market. we’re talking about hundreds of millions of revenue already with last year 43% growth. So this is a really important growth engine for NetApp. But the biggest differentiation is that, while many other companies are talking about the partnership that we’re building with the hyperscalers, we’re the only ones that have become a party service in those hyperscalers.

So in other words, today, there’s thousands, thousands of ISVs, thousands of companies that are part of the hyperscalers marketplace, and NetApp is one of them. We have different products or services in the marketplace. To be very transparent, we have that since ten years ago. Ten years ago, we started bringing On top into the marketplace. We call that as a party service, right?

So we’ve been doing that for many years, and it’s a growth engine. However, as I said before, the biggest differentiation in that cloud storage strategy and relations with hyperscalers is that they have decided to bring our technology as a party service in their own console. So they’re the ones selling that technology, that product through their sellers, through their channels. You could think about it somehow as an OEM business for us, right? So we do the co engineering, and they are the ones going to market with that product.

It’s not truly an OEM business because we have invest, given the strong partnership we have with them, bringing cloud specialists that can help the sales force because we are experts on that infrastructure and storage piece. And we have also invested with some cloud architects on storage, and we have also built and created a customer success team. So once those customers have deployed or have acquired that product from their hyperscalers, we bring our customer success team to help them on the deployment, on the ramp up in that customer success, customer value in the public cloud. On the growth lever, so I said flash, I have said block, public cloud. And the growth lever, which I’m sure we’re going to go deeper, is AI.

And what we talk about there is enterprise AI, where we believe that we have a huge differentiation as well in value proposition. Very high level. If you think about AI, AI is basically built on unstructured data. And that has been and it is the sweet spot of NetApp, right, unstructured data. So we have a huge installed base, and that huge installed base has a lot of unstructured data.

So it’s a very natural conversation for us with our customers. I think the last years, what we have seen is many projects, many customers thinking about building large super pods or large LLM models, learning models or training models. And we’ve been competing there, and we’ve been bringing value proposition to our customers. But the real big opportunity that we see just got started, which is what we call enterprise AI. Three things.

I don’t go three things there, but yes.

Lane Curtis, Interviewer: Yes. We’ll dig into them. Maybe one more just kind of high level question for you in terms of the you talked about gaining three points of share in hybrid cloud. Can maybe just give us the landscape of who you compete against and why you’re winning? And then maybe the same kind of question for cloud.

You mentioned the three major hyperscalers, they have their own storage products. So like who’s your competition in cloud versus hybrid cloud?

Cesar Sonuda, President, NetApp: Yes. Look, on the hybrid cloud space, we compete with companies that have been there for years on the storage side, right? You’ll know the names. We believe that we have a better value proposition because we are actually the thing that I’ll say is we have refreshed in the last eighteen months pretty much all our products. So we have a complete new set of products that brings great performance, reliability, security.

We have a thirty two years history. There’s one thing that is important for our customers is the trust. We have a very loyal customer installed base, and the trust is based on the reliability of our technology, especially in the security side, data management differentiations, etcetera. So on the flash side, on the hybrid cloud, certainly, flash has been a big growth lever. And as I said, block has also been a big growth lever.

We’re working on modernizing data centers, modernizing their infrastructure. Certainly, and we see a lot in Europe as well on their sustainability piece, how our technology can help them on their ESG scores and on their sustainability agenda. So all in all, that has been our hybrid cloud overall value proposition. It’s true that AI is a combination between hybrid and public cloud. So let me kind of move to the public cloud and then come back to the AI.

On the public cloud, here’s what we see. We see some NetApp customers. We have a combination. You know, we have thousands of customers in the public cloud. And we see a combination of existing NetApp customers that have moved workloads that were working with NetApp or workloads that were working with our competitors on prem to the public cloud.

But they wanna have that with our technology with ONTAP because they need that performance, they need that reliability and the interoperability between their on prem world with the public cloud world. At the same time, we have a single control pane. Many of you know about Blue XP. That central control pane can help our customers have all the data management capabilities in that central control pane of the data they have on prem, but also in the public cloud. And this public cloud, once again, is a multi cloud, right, because they can do that with the three hyperscalers.

So for us, it has been existing customers moving existing workloads or new workloads into the public cloud, but also a great source of new customer adds. Customers that wanted to go and move some of their workloads to the public cloud. And the public cloud, the hyperscalers decided that the best place to kind of store their data was with our technology, and that has been a great source for us of new customers. As you can imagine, those customers working with our customer success team, I’m talking the non NetApp customers, we talk to them about their on prem needs as well because they might have also their own data centers. So that’s a new source for us to go and bring our hybrid cloud business.

The last piece is the AI. We approach it there with different motions. But think about AI. Many of our customers or many customers have been building their LLMs and training models with hyperscalers. But as they go and think about the inference, the modernization of the data lakes, think about the RAG or fine tuning, they’re thinking in doing that in their on prem environment.

And that’s a huge opportunity for us to connect hybrid cloud with public cloud, and that’s a good growth opportunity for us.

Lane Curtis, Interviewer: I lied. Another kind of overview question because I wanted to talk about product sales versus subscription reoccurring revenue. So maybe you can walk us through the accounting of if you sell an appliance as flash array, that’d a product sale. But what’s the reoccurring amount and how big is that of the overall mix?

Chris Newton, Investor Relations, NetApp: You got it. So when we sell a traditional product, it’s a combination of hardware, software. More than half of the value is related to the value of the ONTAP software package. The revenue for that product sale is typically recognized in the period that it was sold. Associated with the product sale are support contracts for the hardware and software.

It’s 100% attach rate at point of sale. Those contracts tend to be three to four years in nature. The revenue for them are recognized ratably over the life of the contract. So what’s not recognized goes into our deferred revenue balance. We receive cash for the entire thing upfront, and that’s why we have such great cash flow.

We also offer storage as a service in our hybrid cloud segment. That is a baseline revenue agreement. Right? So you’ve got a minimum commit. There’s incremental charges if they go over that commit.

The contracts are multi year in nature, recognized ratably on a monthly basis. The unbilled portion of those contracts goes into our unbilled RPO. And then finally on the cloud side, that’s largely a consumption business. And so that is recognized as the data is used or the capacity is consumed.

Lane Curtis, Interviewer: I don’t if you have an overall percentage, but I’m assuming since the cloud is growing so fast that the percentage

Chris Newton, Investor Relations, NetApp: Well, so cloud is consumption. It’s a pay go model, right? That’s how the public clouds tend to sell. The support revenue stream is about half of the hybrid cloud business. And Keystone, while we don’t disclose the revenue, is growing pretty rapidly.

So those two elements compose the subscription services. Support alone is about half of the hybrid cloud Trying

Lane Curtis, Interviewer: to figure out as the more and more moves to the cloud, what’s the impact? So maybe you could walk us through the economics. Mean, you talked about you have some hybrid customers that might migrate. You might get some share from other people’s hybrid. You might even win some cloud customers as well.

So maybe you can just talk us through, four to 3% growth is quite strong. Is there a way to kind of think about what’s contributing from those factors to that growth?

Cesar Sonuda, President, NetApp: Yes. I mean, you can go through the numbers. I think from a strategy point of view, little numbers, the way I will I’ll share is, look, as we think about the footprint of our customers in their own prem environment, we’re gaining share toward big push and new products on the flash side. I think, Chris, as I said before, is our block, value proposition, modernizing those data centers. I think Keystone has been a good growth engine for us as well.

I mean given the choice for customers to consume our technology as a service in the non prem environment through Keystone is a good value proposition for them. I said before a couple of times, I’ll go deeper on the enterprise AI, and I think this is a good opportunity for me to share that because this is a really good growth engine for us. As I said before, the last years, you’ve seen companies really focusing on creating these training models, LLMs, super pods. And as I said, we’ve been participating in all that value proposition and offering. We have several customers have gone with us there.

But what we think is going to be the biggest opportunity is now, what we call enterprise AI. And think about enterprise AI in three vectors, right, or or three areas. The one is modernizing data lakes. So the discussions that we have with our customers is is that we have all this unstructured data. We have all this backup data.

We have all this legacy data. How can you help me to ensure that it’s ready for AI? And one of the key message that we openly share with our customers, hey, don’t be confused. Your job is to make sure you bring AI into your data, not the other way around. So in other words, let’s go and work on building that intelligence, that infrastructure, right, where you kind of modernize those data lakes and take advantage of all the data that you have so we can then really go to the next level, which is what we call AI factory.

In other words, how do we do the inference? How do we do the RAG? How do do the fine tuning? Some of those models are going to come from the work that you have done with hyperscaler, right? And customers have realized, hey, if I go and do all the inference, Diaperscaler is going to be extremely expensive for me.

So what we’re seeing customers doing is, hey, I’m going to do it in my own on prem environment. I have the capabilities. I need NetApp to help me build that intelligent, that infrastructure with your hardware and software. And by the way, given your interoperability with hyperscaler, I’m in a really good position to go and take advantage of that in my own data center. We have seen as well customers saying, I’m going to use a party.

I’m going to use some of the NetApp partners that have been building those AI labs to have those AI factories, WWT, CDW, all their partners that have been building all those capabilities with us. And we also have seen diaperscalers themselves trying to bring all that functionality into an on prem environment for them as a stack. And we’re working with them, for example, Google Distributor Cloud, which, as you know, we did a public announcement where basically we’re teaming up and On top is integrated there as well. So we’re seeing that as part of the overall AI factory. So one, modernizing data lakes what we call AI factory lever is what we call AI as a service.

So think about AI software companies, so companies that are basically integrating AI elements, and they need data management capability, data storage capabilities to really help them to operate with an hyperscaler, but also in their own prem environment to serve their own customers.

Chris Newton, Investor Relations, NetApp: Or public customers. Right? So a lot of tier two clouds are building AI as a service on NetApp.

Cesar Sonuda, President, NetApp: Very good point.

Lane Curtis, Interviewer: Yeah, guess is there a way to parse it out because it sounds like AI is the driver of them consuming the same services. Are you getting any value add for if it’s an AI application, do you make more money on that? Or is it more about just driving the share to to NetApp in terms of storage?

Cesar Sonuda, President, NetApp: I’ll say, you know, when you think about that modernization of data lakes or you’re thinking about, well, each of these scenarios basically require NetApp technology, both most of the cases, hardware and software. So that’s a new opportunity for us. We think about it as a new workload inside our AI umbrella. The truth of the matter is we’re seeing the peak of the iceberg. I think we’re seeing the starting point of what enterprise AI will become.

We have some wins. The pipeline has been growing. I think customers are really preparing their data for that inference. They’ve been preparing their models. They’ve been doing the training.

So we are quite optimistic for the next years to come.

Lane Curtis, Interviewer: I wanna ask you kind of a question. I mean, I’ve I’ve been I’ve known I cover semis, but I I’ve known your company for a very long time. Do feel like investor sentiment has swung over that period. What investors typically miss on your story? I mean, you’re talking about some very good growth in cloud and AI and such.

Obviously, the sentiment on your stock hasn’t always been high.

Cesar Sonuda, President, NetApp: I

Lane Curtis, Interviewer: think I was remember some lows a couple of years ago. So what are people getting wrong? And are people still getting stuff wrong?

Cesar Sonuda, President, NetApp: I don’t think you’re getting it wrong. We need to tell a bit of our story, and that’s what I’m here for. What I’ll say is our growth lever the company has been transforming a lot the last years. That will be the thing that I’ll say. The places where we’re growing the business, our growth levers and big bulk of our business is in areas that is our growth engines.

Flash is one of them. So I said 14% growth, winning market share. Certainly, Block is another good opportunity for us. But probably, I think the two areas what we probably could do a better job telling the story and going deeper is the hyperscaler differentiation. We’re talking about hundreds of millions of dollars.

Last year, it was a 43% growth.

Chris Newton, Investor Relations, NetApp: Of party and marketplace cloud storage services.

Cesar Sonuda, President, NetApp: Cloud storage services. Well said. And AI, you know, the way we’re approaching AI with that enterprise AI approach that I share and our, you know, market share on unstructured data, the partnership with hyperscalers and that interoperability between the on prem world with the public cloud for AI is key. So probably those things are are key things for me to to land. I don’t know, Chris.

What do you think?

Chris Newton, Investor Relations, NetApp: You know, so for those of you who followed the company five years ago, I would say we’re radically transformed. The composition of our revenue has shifted from low growth markets to higher growth markets. The quality of the revenue is significantly higher as well. So we are now servicing and growing on all flash, which is a growth market, our public cloud services where we’re uniquely differentiated and seeing tremendous market growth. Those two business areas also carry higher gross margins than the old business.

So we’re seeing greater gross profit. You can see that in the improvement of the consolidated gross margin of the company. And we continue to be very physically prudent as we manage the business. Returning up to 100% of free cash flow to shareholders in the form of a dividend, which takes about $400,000,000 per annum to service and the remainder going to share buybacks. So we’re slowly bringing down share count to help accelerate earnings growth.

Lane Curtis, Interviewer: How just in terms of your cloud business, these three hyperscalers, can you walk us through the timing of that? And to be 10% of revenue, was that all three kind of contributing? Or is that still layering in, I guess? What stage are you in terms of that deployment of cloud?

Cesar Sonuda, President, NetApp: We started I mean, the partnership we announced was with Microsoft, Right? So we start earlier with Microsoft. The one was with AWS, and the one has been with with Google Cloud. So, you know, each one of them was, you know, one year half approx later.

Chris Newton, Investor Relations, NetApp: Right.

Cesar Sonuda, President, NetApp: Right? So all of them are contributing to our growth. All of them are actually performing quite well. Winning new logos with them. And, yeah, we don’t disclose the numbers for each one of them, but we start different time frames.

Chris Newton, Investor Relations, NetApp: And I’ll point out that’s for the party natively integrated services that they’re branding and selling. We actually started down our cloud journey over a decade ago where we posed a question internally that said, we don’t make storage. We monetize ONTAP through other people’s storage that we build into an integrated system. Why can’t we look at the Amazon Cloud as a similar monetization vehicle for ONTAP to put more data under the auspice of ONTAP management? So whereas a lot of our competitors, those who have server businesses, looked at cloud as an existential threat because servers are fungible and why not move to the cloud.

So we were very early to adopt the cloud. And I think that enabled us to have these unique relationships that we do today, coupled with the fact that our history is in file services. And that was a gap in the clouds where our legacy, our enterprise tested robustness, the breadth of what we do around file services really did help the cloud providers fill a gap for transferring large enterprise file based workloads without having to refactor them. So we were kind of a sweet spot business. But we also looked at it as a huge opportunity for us.

I think it’s paid off very well.

Lane Curtis, Interviewer: Just curious, people are always scared of hyperscalers. In the semis, as well as in software, it’s the same thing. People always are worried that they could do their own thing. For the hyperscalers, do they actually even care? Mean, you’re kind of a value add.

You have a software layer on top. They’re still, I’m assuming, getting economics on this. So are they actually pushing your product? Or is it kind of and would you

Cesar Sonuda, President, NetApp: Each one of them, as they go and push it, they’re gonna get some enterprise applications, applications running on their on their, you know, on their cloud. So there’s only a piece for them. You know, the rest of the piece and, you know, basically, can move that workload if they have the technology there.

Lane Curtis, Interviewer: Yeah.

Cesar Sonuda, President, NetApp: So we are an enabler for them to go and move that workload.

Chris Newton, Investor Relations, NetApp: Exactly. And they do get economics from it, right? We have a revenue share arrangement with each of them. They write in Google and Amazon. It’s our software running on their infrastructure.

So they’re getting compensated for their infrastructure. We’re just getting the software piece. In Azure, we deploy our systems. So we’re getting compensated for the software as well as the underlying storage, but it gives Azure an opportunity to drive more and more enterprise migrations.

Lane Curtis, Interviewer: And I want to ask you maybe the final question just on gross margin. You mentioned it. In terms of these different pieces, can you talk about how that would affect the mix? Then generally people look at flash storage, very cyclical market, their calls. How much of an impact does that have on your gross margins on the product business?

Chris Newton, Investor Relations, NetApp: All right. I’ll start with the pieces of gross the least mobile gross margin pieces and we’ll end with the most volatile. So support revenue. I mentioned it’s a significant portion of the company’s total revenue. That’s been a fairly stable gross margin, roughly 92%.

We leverage AI in a lot of our support capabilities, which is why we’ve been able to get our support numbers so high. Next, it’s a fairly small portion of our business, but professional and other services. I’m sure most of you know PS is historically a very low margin business. But our Keystone Storage as a Service offering recognized in that line. It’s what’s been growing our professional and other services line and also what’s been driving up the gross margin there.

Cloud, a growing, a fast growing part of our revenue. It’s also an improving gross margin. We gained 11 points, so 1,100 basis points of gross margin in the past year on that business. More and more of what we’re deploying is software only. And so as we’re seeing revenue scale on fixed assets, that margin is improving.

We exited Q4 at 79.3% and said we expect continued improvement above 80% as we move through FY ’26. Now finally, product gross margin. So I mentioned earlier that half of what customers buy from us is software. And so the impact that flash has is only on the hardware piece. Flash is less than half of our COGS.

So it is 25% of the total customer purchase. Generally, our industry is one where the commodity price fluctuations are passed through. Now there’s always some timing difference on when you’re able to pass through price increases or hikes. It’s not a perfectly efficient market. So you may see some near term tail or headwinds to product margin.

But over time, the underlying commodity fluctuations shouldn’t really have that much of an impact. We’ve said our long term target for product gross margin is in the upper 50s. So we’ve been there. We did see a bit of a dip down in Q4 and expect Q1 to be fairly flat quarter on quarter. But then again, continued progression upwards.

Lane Curtis, Interviewer: Well, ended there. Thank you very much.

Chris Newton, Investor Relations, NetApp: All right. Well, awesome. Thank you for having us.

Cesar Sonuda, President, NetApp: Thank you. Thank you.

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