Editor’s note: Decreased demand for traditional products and aggressive competitor pricing drove down NetApp’s 3Q15 results. And a result will be more competition between two tech giants with a major presence in RTP is heating up as NetApp launches a new campaign targeting EMC, reports analyst Stephen Belanger for Technology Business Research.

HAMPTON, N.H. – In 3Q15 NetApp’s corporate revenue declined 6.3% year-to-year to $1.4 billion, primarily due to product revenue declines of 12.3% over the same period to $815 million.

TBR attributes the vendor’s revenue decline to contraction from traditional products such as ONTAP 7-Mode, as many customers that are deploying cloud and analytics solutions are opting instead for emerging storage technologies including scale-out, software-defined storage (SDS), converged and flash storage. While NetApp continued to have success addressing demand for these newer storage technologies, its declining traditional storage business dragged down overall corporate performance.

Additionally, NetApp continued to face a very aggressive pricing environment as major OEMs such as IBM, EMC, HP and Dell, and niche storage vendors such as Pure Storage and Nimble Storage are using aggressive pricing to compete for customers.

NetApp focused on driving operational efficiency by streamlining its workforce and business structure. However, these actions did not bring down expenses sufficiently to maintain NetApp’s gross margin, which declined 250 basis points year-to-year to 61.2%. NetApp’s operating margin of 10% also declined 250 basis points year-to-year due to increased product, sales and marketing investments as the vendor works to realign to changes in global storage demand.

NetApp’s R&D efforts remain focused on high-demand products and services including cloud, flash, SDS and analytics. The company will continue to promote its unified data fabric strategy and target customers with complicated data needs that integrate public and private cloud storage with on-site data. NetApp is working to evolve from its legacy in traditional storage systems to become a strategic advisor to customers that are transforming their infrastructure and adopting cloud, analytics and mobile technologies. As NetApp continues to hone its software and service capabilities, these segments will contribute an increasingly large portion of the company’s revenue.

NetApp targets EMC with new marketing campaign

NetApp continues to focus its marketing efforts to ensure its Data Fabric vision, which promises to deliver tightly integrated solutions for on-premises, private, public and hybrid cloud environments, and its extensive portfolio are top of mind with SMBs, enterprises and NetApp partners. For example, NetApp launched a campaign in October to directly target traditional storage vendors, but more specifically EMC, called “EMC You Later.”

NetApp is using this campaign to gain both mind and market share in the growing flash storage market, and NetApp believes its flash architecture provides the unique performance capabilities lacking in traditional storage systems. This campaign is aimed at traditional storage vendors, specifically EMC, which is facing transition challenges with the pending acquisition by Dell. This campaign should assist NetApp with customer evaluations that spur sales opportunities for NetApp partners. TBR believes this is a gallant effort on NetApp’s part; however, market traction will be slow in the highly competitive flash storage market where traditional and niche storage vendors offer similar performance incentive programs.

NetApp enhances its channel program to help channel partners address rising hybrid cloud demand

Channel partners remain central to NetApp’s go-to-market strategy. In 3Q15 channel partners accounted for 77% of total revenue, and TBR anticipates they will contribute more than 75% of NetApp’s total revenue for the foreseeable future. NetApp is investing in its portfolio to support channel sales efforts, enabling partners to go to market with solutions that are better able to address customers’ evolving storage needs around cloud computing, flash, analytics and SDS. NetApp is also investing in training and support to help channel partners drive sales around key growth areas.

In 3Q15 NetApp announced enhancements to its channel program to help partners take advantage of rising cloud computing demand. The vendor revealed specialization training and services to help partners’ transition customers to Clustered ONTAP. NetApp also announced Data Fabric solution kits around key workloads such as enterprise applications to help partners serve customers’ cloud deployments. The Data Fabric solution kits combine software, systems and services, which will enable partners to speed deployment and provide greater value to customers. TBR believes these enhancements to NetApp’s channel program will support its core indirect revenue streams, as partners will be better positioned to address customers’ cloud computing demand and carry out NetApp’s Data Fabric vision.

(C) TBR