Tom Georgens - President and CEO
Kris Newton - IR
Jim Suva - Citigroup
NetApp Inc. (NTAP) Citi Global Technology Conference - (Transcript) September 4, 2013 3:05 PM ET
Good afternoon ladies and gentlemen and thank you for joining us this afternoon for the second day of the Citi Global Technology Conference. This room and meeting is reserved for NetApp, where we're going to have a fireside chat. My name is Jim Suva. I am the IT Hardware and Technology Supply Chain Analyst here at Citi.
With me on the stage is Tom Georgens, he is the President and Chief Executive Officer of NetApp. Before we start off with some general questions about overview and then quickly turn it over for investors for Q&A, the company has a few opening remarks on Safe Harbor that they would like to share with us.
My name is Kris Newton. I head up Investor Relations. Just a reminder for everyone that we may make some forward-looking statements today. All those statements involve risk and uncertainty. I recommend that you go to our website, www.netapp.com to read the full disclosures and with that, I'll turn it over to Jim and Tom.
Thank you, Kris. Tom, maybe if we can start a big picture; you sit in a very interesting role not only within your company, but within the entire globe about technology spending is going. Can you let us know about how your visibility is for where you see as far as end demand and then maybe help us compared to say a year ago or maybe earlier in the year?
Well, I guess I don’t really have anything to say other than what the other people are saying, is that I still think it's really an uncertain and it’s a challenging market. I would say that in general, over the last year, I think we've probably seeing some modest stabilization in Europe. Our European business has been okay. I think Asians depends on the country. We've had very, very good strength in Japan and China, but somewhat mixed. We still see some FX affects in a variety of areas, the government sector an area where NetApp has got number one market share.
Coming up obviously exciting time here at the end of the government fiscal year, that ends in September and I think we expect that to continue on track, has included as a lot of speculation about what October will bring with the [depth healing] (inaudible), the continuing resolution, and the budget element. So our quarter actually expands into October, so October matters. So I think there’s some uncertainly around that and I think the U.S. truly been I would say slow and steady improvement.
So I would say it generally feels a little bit better than a year ago, but if the process is slow enough sometimes its the hard thing to see it, and I still think it’s a challenging environment. For NetApp last quarter, we had overall 5% growth, we had 9% growth in our branded business. I mean there is no question that NetApp had a solid quarter where we gained share. But I think this the macro; I think we see the same thing everybody else see. So that is it’s still challenging at the top, its uneven around the world and probably some modest improvement.
Great. Now one thing that has changed from a year ago is the way that NetApp, what they do with their cash? For example, I am talking dividend and stock buyback. Now as Chief Executive Officer, you also can look at acquisitions or organic growth, external growth, all the investors in the room want all your cash now in the dividend or immediate stock back, they want result immediately, how do you sit there and manage all these polls on your cash because do you have a company that has a lot of cash flow generation, which is a great problem to have?
So things that are strategic in nature they are doing to drive our strategic initiatives, that’s got to be our top priority. But we spent the last year going overall balance sheet. We had a convert out there for five years that was becoming due. For those of you who follow NetApp closely you can understand the accounting complexity associated with that convert over the last few years, so it’s good to see that get retired.
We also went to the debt market and actually got a debt rating for the first time. So as we think about M&A, we were now in a position where we did not have to carry excess cash on the balance sheet and reserve indicates that we did a larger M&A transaction. We had enough cash to support our tuck-in activity, but we are carrying cash in case there was a larger deal that came along. And then on top of that last year, NetApp even with relatively modest top-line growth NetApp still generate over $1 billion in free cash flow.
So I think in a situation we had more optionality in terms of access to the debt market in case we needed cash quickly, getting a revolver in place, retiring the convert, and also the business continues even in a slow market that generate a lot of cash. The feeling is that we can think about uses of cash more and more expensively then we had in the past. So it hold a lot of our investor base. In fact we spend a lot of time on the road. Nic Noviello our CFO and Chris from the IR side getting their opinion about buybacks around dividend and that’s really where we camp up with a plan. So we came up with a three year $3 billion buyback, front loaded a fair amount of it and we declared our first dividend in our history and between the dividends and the buybacks we actually returned about $900 million in Q1 to our shareholders.
So from our perspective, I’d say at the end of the day our philosophy I would say is we got to operate the business, we have to drive strategic initiatives, but I think that the flexibility that we create on the balance sheet and enabled us to think differently about how much we actually have to hold in actual cash, how much we can have access to and then gave us the opportunity to return cash to our shareholders.
So I think you can look back and say it was the right decisions because you don’t have a big up roll in this room and also your stock price has been acting in the right direction compared earlier in the year or last year. One thing that’s been pretty hot during this conference also is what our company doing to increase margins, operating margins or what we call productivity gain.
Some companies who face a lot of copper or gold raw materials or labor in various parts of the world they are looking at a lot of escalation of prices or labor, other companies who are facing more stable but yet tepid demand or stable end demands, and their products are looking at mix shifts from lower operating profit margin products to higher. Can you talk about NetApp’s opportunity to potentially enhance their operating margins?
Well, we get a few things and in the most recent quarter, I believe our operating are up 2 point from a year ago. So we clearly had an acquisition that we needed to continue to integrate and get [accremated] to the NetApp systems and get leverage from the [integrated] volume and commonality apart. I think we worked with some other things on our supply line, be aggressive with our supply line particularly in the aftermath of the Thailand floods which basically impacted far big a supply line component which is described.
And then the other thing that we did earlier in the year is actually went in to this year and we looked at our operating plans and the need to commit to generating mid-teens EPS growth and we had to do that in the context of a relatively constrained environment. So we have to take a hard look at our expense structure and think about how we are going to move resources from low yield activities to higher yield activities.
And we did a restructuring earlier this year, but actually we did it in our first quarter, where we actually did a restructuring of the company; we saved about $20 million last quarter. And the intention of that is to ultimately reinvest that in the business as modulated by the success of the business going forward. So we are committed to our goal that we said at analyst day a couple of years ago of 17% to 19% operating margin and we are going to drive that forward. So this year we're looking for mid-teens EPS growth and I think we have the number of levels to get there now. We've obviously got the capital returned, we have the modulating of the OpEx reinvestment, and we also have top line growth.
So, I think we have a lot more choices and a lot more alternatives in a way to achieve our mid-teens EPS growth. But for us I think we've done a lot of supply line work over the last year, really worked on the execution, gross margins were strong, they were up from the year ago, operating margins was up from a year ago. So I think all of that was positive. And I think this year it's time to look at the operating expense structure to make sure that the people we have are focused on the right opportunities, because it's not a year where we are going to be very, very flush with incremental spending opportunity and we need to make sure that our work is prioritize and that's what we did.
And can you remind investors about how important that government is for your business, maybe a general ballpark about percent of the company. And when you look at the fiscal year-end of the government coming up, do you look at it, I mean we've been through sequester many times, it's not the first time. When you look at this are you coming at it with more caution, less caution, hey we’ve been through before, we're going to work through it again or because spending budgets have been constrained so much, is there coming a time where I said look, they’ve been squeezing the hard ware and storage so much they are busting out the scenes, they are going to have to spend. How do you approach that?
Well, I think the later question is not just about the government, but the government has got mandatory targets they need to hit by the end of the fiscal year. And even though the sequester originally was going into place at the end of the year and then got delayed, it didn't change the number of dollars that had to be changed, that had to be saved over the course of the year.
So some of the feedback that we've gotten from the agencies is that for all attempt and purposes, the sequester began at the beginning of the last fiscal year for them because they have to save the money over the course of the year. They couldn't wait until the sequester actually went to effect in March to start saving the money then because they didn’t have enough time. So they didn’t lower the target from that day forward. They lowered them for the full-year.
So from our perspective, I think a lot of the agencies have been acting as if the sequester has been affect all year. So as we get to the end, I think there's a lot of speculation how far away from their budget targets. Will they sense a very complicated year coming up and therefore be very aggressive in spending all the money they have. And then of course they have the mix of how much was spent on IT, how much was spent on people, how much was spent on other activities.
And they had the other complexity of if something going to happen on the international front, some event in the next month or so. I think in the grand scheme of things, I think things will play out on the current trajectory. I don't think we're either behind or ahead of plan relative to, is there a big pent up demand at the end year. I think that the U.S. played out a little better than we thought and I think that NetApp is number one in market share. We will get a disproportionate our business for the rest of the way.
So I think between now and September, I am not expecting a lot of surprises but I think what happens after that because now we're into the next budget year and I think whether it be the debt ceiling, the continuing resolution, the budget process. You know, I think there will be a lot of bricks will shift and a lot of complexity. So as we built out guidance for this quarter, the fact that October is part of that guidance, is that’s one of the things we kept it to consideration. That’s not clear how October is going to play out for anybody in this industry.
Jim Suva - Citigroup
Well, I don’t want to create a big uproar. So I think it's time to probably just start to get the investors to have an opportunity to ask you some direct questions. So if you can please raise your hand and we’ll get the microphone circulated amongst the investor audience here for any questions for the CEO of NetApp.
Jim Suva - Citigroup
For those on the webcast, and there's a question up here front just to know the room is pack with people standing in the back of the room some, so I'm sure there's going to be plenty of questions please.
Thanks, just for clarification first, when you talk about mid teens earnings growth that’s before the buybacks, correct?
Yeah that what we communicate that was an operational number. And but I guess more generally is that, we’ve enough the slowdown of the market was the second half of the year, we’ve got multiple ways of going after basically, going after and achieving that number even if it's not operationally. We also have the capital program as well, but the plan that we communicated is that we want to get operational in teens and then the capital program on top of that. But depending on how things play out you know our goals is to protect that mid teens number, through whatever means available to us.
Okay. And the second question is around OEM versus branded split, I think you said on the call that two quarters out you expected the OEM business to stabilize, just wanted to get defined stabilize and then also what gives you that confidence is it because the OEMs that are moving away will stop moving away at that point or is there a new OEM coming in that point like what's changing because that business to stabilize?
Yeah. I think stabilize means, basically on a year-over-year comparison being roughly flat and that’s what meant by stabilize and to your point is the combination of both of those things. Part of it is their own behavior, the other one is the mix has changed so that the declining OEMs, are a lot smaller percentage of the mix and on top of that we also have some new OEMs that will bringing to that businesses well that hopefully will loss set some of any potential future declines.
And then the other component that's also a factor is clearly the OEMs are probably more symptomatic of the overall macro, so it is macro improvement one way or the other that could lift them as a whole. So from that perspective as I look at the OEM business, we expect it to come down to some degree, the E-Series branded business on the other hand has been on the uptick and I said on the call that we're looking for the combined E-Series both branded and OEM to be actually positive for our next year, fiscal year ‘15.
Okay which leaves my last question which is around fiscal ‘15 in terms of overall revenue growth with OEM stabilizing at a pretty small percentage branded growing 9% this quarter does that mean we as investors can start to think about the revenue growth of the business approximately what the branded business is doing from growth perspective?
Yeah offset by effectively the OEM business being flat so there will be some modulating effect although not nearly as much as the 20% that we saw this quarter and I think the other factor that we need to put into that equation is why do you think the overall market growth rate will be. If I look at this quarter that we just put up we were 9% branded, I believe EMC storage business is around 3.5%, Hitachi a 1% and the server vendors mostly down double-digits that was 9% branded growth probably in the context of a flat to slightly down overall market.
So as we think about fiscal year 2015 hopefully we're looking at some growth in the market and hopefully our competitors such that we can continue to gain share and maintain our out performance relative to the market as a whole.
Tom, can you talk about how the technology is positioned today versus a year ago, you now have some distance with 8.2 in the market you have little bit history if you could talk about that and then maybe how the company could articulate its flash strategy so that it could be seen for it is and how broad based it is? And just you seem more comfortable about the technology position in the last call. So why is that and what’s driving that in that 9% versus the 3% in your opinion?
Yeah, I think certainly the, I mean the numbers speak right, but I think if you went back to a year ago and you look at NetApp through the first half of our last fiscal year we are in a major product transition and factor is now the product transition, it was the fundamental architectural transition from ONTAP to clustered ONTAP. And I like to generational transition it was our equivalent of (Inaudible) or Solaris or something like and that slowed us down in the first half of last fiscal year we saw in the growth numbers.
I think we saw in the market share numbers as well. But as with release of 8.1 which earned a lot of feature parity to the clustered ONTAP and allowed us to complete for new business and with a value proposition in that sales force is understood and is only for one time. We are able to pick up a pace, so that actually while the storage industry slowed down in the second half of the year, NetApp actually picked up the pace in Q3 and Q4. We had solid market share gains each of those two quarters and that's continue to Q1 where probably the gap is the greatest.
So I think independent of this macro dialogue which is interesting but the same for everybody. I think we went through a big product transition at the beginning of the year and it slowed us down, it was complicated, it was hard it was culmination of a lot of yields of development.
But if I look at the second half of the year, I think we start to pick up the pace, we saw very very rapid adoption clustered ONTAP, while probably a little bit slower to start than we would have liked, it turned out to be steeper than we expected and that continued into Q1 and I see that continuing the future.
Now on your specific question about 8.2, to be really specific with 8.1 we had substantial future parity with our prior products and we added to it clustered ONTAP, so you can deliver that feature set at unlimited scale and limited performance that were non disruptive operation, that is really the value proposition that we're delivering.
So what we saw with clustered ONTAP is that the initial growth all the way really pretty much through last quarter was around was primarily driven by 8.1 and was primarily new customer acquisitions and new workloads within existing customers. So it wasn't merely customers upgrading to it, it was actually new wins with this technology.
A lot of our customers that were already NetApp accounts were actually waiting for the 8.2 release that you mentioned if that closed some of the future gaps that are part of their operational process that they use every day. And until total feature gaps got closed, they were not going to migrate. So, what makes us optimistic about Clustered ONTAP is that most of the business that we've and most of the momentum we have with that is actually the new wins against the competition and it's not simply migration, because I think those days are early on.
Now that's not going to be nice edge cut over either, because they need to migrate to the new technology, typically they do not in co-ordination with a hardware upgrade and tech refresh. So now we stop that, I think we'll see all over the next six to nine months.
But I think that the migration of our existing customer base is really only a in its early days and most of the ONTAP momentum is actually the hard work that actually winning new accounts and new workloads.
Couple of questions. One if you could talk about the puts and takes of SDN relative to you guys in the (Inaudible) company that talk to it's as net beneficial to them. The software-defined networking
We're talking about SDN - software-defined networking?
Software defined networking.
Yep. So just walk me through as you think SDN involved, what the puts or takes are on ONTAP?
Well, I think from software-defined networking, I think there are some technologies there that we're integrating into our technology. So I think on software-defined networking itself, while we're trying to put networking in a neutral case maybe where the outlier. Certainly the dialog that we talk about a lot in the context of NetApp is actually [software] defined storage and there is a lot of talk about that technology. But if I look at what NetApp is doing with our Clustered ONTAP which is our key operating system.
Today we can run Clustered ONTAP on our hardware typical. We can also run Clustered ONTAP on what we call a V-series which allows us to basically put the ONTAP value proposition in front of existing infrastructure of other vendors hardware that we've been able to do that for years. We have a technology called Flash Accel, which allows us to run the equivalent of ONTAP to manage data that’s in the servers. We have ONTAP in a virtual machine that basically allows you to run a commodity hardware. We also have NetApp Private Storage for Amazon Web Services that allows us to interact and access the Amazon cloud.
So when I think of what we're trying to do with ONTAP is I want to have one enterprise data management capability that allows us to accomplish all hardware, other people’s hardware, the cloud and commodity storage, all with one set of tools, one set of processes. So that’s kind of how we view software-defined storage, and I think that ONTAP, the ability to do that on the platform independent way is something that’s unique to NetApp, and I think that is really what's going to position us well as software-defined storage plays out and the thing about is all those technologies that I talked about, that I just talked about are available today.
So I think software-defined storage is the idea of one centralized resource to do data management across the enterprise regardless of platform or regardless of location, and I don't think there is anybody better positioned to deliver that, the NetApp, and like I said, this isn’t a five-year plan. A lot of this technology is available right now.
Jim Suva - Citigroup
Do we have additional investor questions?
Could you comment on potential tuck-in acquisitions in which area you might do something?
That generates a lot of speculation whenever I do that, but I think if you look at top of my subjects, top of my subjects are cloud, top of my subjects are security, top of my subjects are data sovereignty, how do I manage data as it crosses geographical boundaries and the regulations associated with that. And then the broader question of just manageability tools, how do I monitor, how do I do change management, how do I administer performance.
So I think almost overwhelmingly on the software side, but I think we want to add more and more and more to the data management stack. I also think that there is next generation back up and also believe that almost all solutions in this space are going to have to integrated with the cloud in some way. So I think whether it would be next generation back up or archiving, I think there is some point at the end of that chain where the cloud will be part of it.
And the way I see enterprise customers, enterprise customers will be some mix of on-premise computing, typically what they will call a private cloud. There will be some mix of softwares and service, there will be some mix of enterprise service providers, and there will be some mix of hyper scale of clouds like in amazons.
And at NetApp, we want enable to customer to use Data ONTAP, where NetApp toolset to ultimately manage data in all of those environment, whether we sell the physical disk or not. For NetApp our money making engine is a differentiation of ONTAP, and we want to make ONTAP as pervasive as we possibly can. So we are not as [ready] at the disk drive sales as some of our competitors, but we are very, very keenly interested in the proliferation of ONTAP.
So as you think about how this whole thing plays out, it’s really about ONTAP the more data that we have in this world that’s formatted by ONTAP the more opportunity for us to add value to it. So in order to do that to be pervasive in that front we need to broaden the storage management portfolio. So we got fundamental technology today, but I think if you think backup archiving, data sovereignty, security, cloud integration those are all areas that would be interesting to us.
If you could hold on for one second as the microphone makes its way to you please.
Sorry when we are in EMC was talking about (inaudible) I guess in different terminology by the side of a different view of the world that they want to access storage and manage that storage across all these different platforms that the end user of the company and so would you say that that’s similar strategy that you are doing maybe you are using different words and you see world the same way?
No, in fact that actually see it different. I think that there is one world view that has a bunch of value added, we will go back to software defined networking as it’s kind of a first principle model and the idea is that I am going to bring a higher level function and I am going to centralize that and I am going control a whole bunch of devices that are going to do some low level switching around the parameter. So basically the flow of the functionality will be towards the core.
If you look at some of the solutions that’s being offered is basically the high value function is in the devices that are remote, whether it would be storage arrays, whether it would NetApp arrays or EMC arrays, the Hitachi arrays or whatever. And those are going to somehow will be managed by some engineer or some management software in the center. I think is the opposite of what this model looks like. That’s why I think the data ONTAP model is different and that is we are not trying to overlay some thin layer of software on top of a whole bunch of dissimilar architectures for multiple vendors. We are trying to centralized the value add and that is what ONTAP is.
So if you think unified storage and the way we have been doing this over the years, it is the epitome of unified storage. So the data movement, the data management, the backup, the archiving, the space efficiency is all managed in the core and basically those value is taken out of the assets far away. The actual assets are closed actually storing the data, that was the opposite of what some of the other proposals are. The other proposals are that all the high value software is actually remote actually close to the data there is some thin [veneer] of provisioning software in front of it, I don’t think that’s the useful model.
Do you have some additional questions for NetApp? You know the down side, to some more questions, I have some more questions to ask, but the room is actually packed?
I don’t think I finished this last question, so the question was not positioning a flash, that’s the problem with multi-part questions, I forget the second one and/or not the third one. So I think about flash is, we see flash and we see it in various different forms. We see flash in the host, we flash as all flash of arrays, we see flash in storage systems and we see flash as solid state [drive] inside the systems, and I think in the end. And I think that they will all exists in one form or another. And if you look at NetApps evolution, we actually get flash and the array and we did that very, very aggressively, very, very early on. We report those numbers in every call, and so much systems flash connectivity is now in every unit item and I eventually get that in hybrid arrays, nobody shift more flash storage than NetApp.
There is flash in the host and our point of view is that, we are not going to be a provider plug-in TCI Flash cards, on the other hand we want to be the storage that manage that and hence Flash Accel. And then the other category that's out there is all-flash arrays, and I think that's the useful category as well. So in February NetApp introduced Flash Ray which is kind of our next generation flash product for persistent storage with a rich feature set. But we also introduce an evolution of the E-Series technology that we had called the EF540 that was really optimized for very, very high performance all-flash array.
And on the last call we reported that we shipped over 300 of those systems. So I don't know what that translates into market share in the all-flash array market. But I would eventually guess it’s in the top very, very few. So we're from effectively nowhere in the market to top one, two or may be three position with the EF540. So there is a lot of discussion about the Flash Ray and we're very excited about it. I think that the use case of data base acceleration around very high performance with high availability that EF540. I think that's a very, very real proven market today and I think that's where we've been successful with that technology.
But in the end, I think the flash storage and on a way a flash [lives], the idea is that on a pure capacity basis and total cost of ownership basis, flash is going to be more expensive than this, more expensive than disk drives and that trend is not going to reverse. On the other hand from an IOPS per second or IOs per second point of view, flash is actually cheaper than this disk drives.
So the challenge where there is flash in the house, all-flash array, flash in hybrid array or [server-side] disk, the challenge is you want your most active data on flash and you want everything else on disk. And I think the challenge for all companies that are going to participate in the market is going to be how do we optimize the data placement to achieve optimal price performance across the entire data lifecycle. And so that's kind of how I see flash. So I think they will all exist but NetApp is going to participate in all of them.
Jim Suva - Citigroup
There is a question in the very back of the room by the door please.
What percentage of your E-Series sales in to government agency?
I certainly couldn't translate that through to the OEM business. So on the branded business, I would say, probably not a whole lot different than the Fab business. Maybe slightly more but not a whole lot different. So for the overall business, it depends on the quarter. This will be the high water mark quarter but average on the yield loan basis, there is probably about 12% to 13% and I'd say on the E-Series branded, it's probably little more than that and I can’t speak to the OEMs because I don't know all the definitions.
Jim Suva - Citigroup
Additional questions? Can you talk a little bit about public cloud? Everybody in here is very familiar with private cloud and public cloud and we know, you know, Citi Group embracing a private cloud and things like that but public cloud has been getting some attention lately, especially with Amazon and the CIA announcing a partnership there. Can you talk a little bit about public cloud and how should we be thinking about your position and how you view that?
Yeah, I think, the private cloud covers a lot of ground. So we rolled that private cloud to get that, but beyond that, we look at the cloud there, software as a service as a cloud offering and in a lot of ways, lot of those accounts look like, big enterprise accounts for NetApp. So those are clearly targets for us and a lot of them run on NetApp today. There is a lot of companies that you well know. Then there is enterprise class IT as a service. The big Telcos in Europe, and the big Telco in the U.S., (Inaudible) RAC spaces and those represented a very, very important target for us in fact, probably about two and half years ago, we actually created really our first vertical market to go after them. We created a Telco and service provider vertical market because specifically after that particular group of customers.
And now we’ve got over 200 services in the service providers that basically run on NetApp gear. Our estimate is that overall our service provider market share is probably not a whole lot different than our enterprise market share, so that role whether it goes to enterprise service providers the state on premise for NetApp that’s roughly a neutral proposition for us.
And in the broader conversation around Amazon, or Google, or Microsoft is your and international equivalents. And the question is how do we see those, and I think you can look at them in various different forms, I think one of them is we could say well, they're not reliable, they're not safe, et cetera and we do some of that, we say some of those things, but that’s not true across the board, there are workloads where that technology make sense.
I think there is another model that says, while we want to compete, we want to feel the service to compete against them. And as NetApp, I don’t see us as a data center operator, I don’t see us trying to compete with Amazon's cost of capital Amazon’s margin service, margin levels. So I don’t think it's pointless for us to build a service that’s going to find get underneath that from an economic point of view.
But on the other hand, if there's is a set of workloads that make sense, for the deployment of Amazon, I use them as example because we've built a relationship with them, if there are set of services that make sense with them that is pointless for us to argue against it, in fact it's better for us to embrace that technology and find a way to integrate it to a broader data management scheme and actually allow customers to successfully use that and operationalize it and that's we just attempted to do.
So for those of you who've seen our initial offering of NetApp private storage premise on web service it’s the way to partner with Amazon to basically enable end users to use the Amazon services in their environment and in this particular instance to use in our environment without really crushing control of a data. So you will see more and more from us in terms of our partnership with Amazon.
So the way I see Amazon is that it’s going to be all set of workloads where they're going to make sense and I think if we're going to fight against that I think we take point of view at our peril and I will be arguing against the customer’s best interest which is never good. And our view is that this is the customers that we're interested in our view is to sell ONTAP as a data management tool and if we can bring that into data management sphere make it easier for customers to operationalize this technology I think that’s good for us in the long run.
So I think at this point in time if Amazon is going to spend this kind of money and it goes in this kind of infrastructure this kind of scale and presence our challenge is how do we harness that as a partnership rather than trying to compete head to head on their terms. And that’s really what we have taken together.
So NetApp Private Storage for Amazon Web Services allows customers access to the Amazon server forms without actually releasing control of their data. So an interesting use case is disaster recovery they can replicate to remote site and keep replicating as they even need a disaster then they split up the service then split up the networking and now when they are done they wind it all down again.
So the fundamentally different approach that basically leverages what Amazon can do that they can’t do on their own without relinquishing data control and data cyber [thieves]. So from our perspective overall I think that customers are trying to understand how to operationalize the use of this technology and if can help them do that and bring that with an OPTAP it gives us more opportunities for OPTAP to be pervasive in the enterprise.
Jim Suva - Citigroup
One last opportunity to ask any questions of the NetApp CEO before we adjourn for the afternoon. Well ladies gentlemen, thank you for joining us for NetApp. And I personally want to thank on both Kris and Tom from NetApp for joining us today. Thank you.
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