Editor’s note:As revenue declines, NetApp (Nasdaq: NTAP) turns to VMware to tap into the growing hyperconverged market, writes Stephen Belanger of Technology Business Research. NetApp operates a large campus in Research Triangle Park, N.C. It reported latest earnings and financials on Wednesday.

HAMPTON, N.H. – In 4Q14 NetApp’s revenue declined 3.6% year-to-year to $1.6 billion, as product revenue declined 8.4% over the same period. TBR believes NetApp’s hardware revenue continues to be challenged as OEM revenue declined 21.3% year-to-year in the quarter. Furthermore, NetApp’s branded business, which began 4Q14 following two consecutive quarters of year-to-year revenue growth, declined 1.7% from 4Q13.

Despite hardware market challenges, NetApp continued to focus on branded products such as Data ONTAP and its E-series and FAS systems to spark sales in an increasingly commoditized market. This strategy met with a degree of success as NetApp increased Clustered Data ONTAP node shipments by 160% year-to-year.

In 4Q14 NetApp’s operating margin of 13.1% declined 100 basis points year-to-year. NetApp’s operating expenses remained relatively flat year-to-year, as the vendor continued to invest in cloud, flash and analytics. NetApp is positioning to expand its presence in these key growth areas as these technologies will continue to experience strong demand and drive transformation in the storage market.

NetApp partners with VMware to bring an EVO:RAIL hyperconverged solution to mid-size customers

In December, NetApp extended its partnership with VMware, creating the NetApp Integrated EVO:RAIL Solution to target the fast-growing hyperconverged market. NetApp already offers a converged solution through its FlexPod partnership with Cisco; now NetApp will leverage its new EVO:RAIL solution to target midmarket customer organizations with limited IT staff. While NetApp’s FlexPod portfolio is comprised primarily of built-to-order solutions, the Integrated EVO:RAIL Solution provides a pre-built solution for remote and branch offices.

The partnership with VMware was a necessary step for NetApp to maintain its competitive position against vendors such as EMC, Dell and HP that announced similar partnerships with VMware for EVO:RAIL solutions over the past six months. NetApp will point to its Data ONTAP storage operating system to differentiate the NetApp Integrated EVO:RAIL Solution from competitors, messaging the cost efficiency of hyperconverged appliances combined with the benefits of Data ONTAP including simplicity and flexibility. As medium-size organizations deploy converged and hyperconverged systems, TBR believes NetApp is well positioned to capture EVO:RAIL-based opportunities based on its established relationships with midmarket customers and the brand recognition it has developed with Data ONTAP.

NetApp partners with CommVault to provide its channel partners with a competitive backup and recovery appliance

NetApp relies more heavily on its channel partners than competitors, and in 4Q14 indirect sales accounted for approximately 80% of the vendor’s revenue. NetApp has a track record of enhancing its channel-only portfolio and providing extensive training to its channel partners. The vendor bolstered this strategy with the announcement of a partnership with CommVault in January, 2015, creating a backup and recovery appliance that will be manufactured by distributors and sold through channel partners.

Under the terms of the deal, NetApp will provide its E-Series storage hardware while CommVault will provide its Simpana software. The two vendors have selected Avnet and Arrow to manufacture the appliance, which will be sold through CommVault and NetApp channel partners only. The new offering will fill a gap in NetApp’s portfolio and provide its partners with a backup and recovery appliance to compete against vendors such as Symantec (NetBackup) and EMC (Avamar),helping increase NetApp’s revenue from its E-Series systems.

(C) TBR