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Network Appliance, Inc. (NASDAQ:NTAP)

F4Q07 Earnings Call

May 23, 2007 5 pm ET

Executives

Tara Dhillon - Senior Director of IR

Dan Warmenhoven - CEO

Tom Mendoza - President

Steve Gomo - CFO

Tom Georgens - EVP, Product Operation

Analysts

Richard Farmer - Merrill Lynch

Ben Reitzes - UBS

Harry Blount - Lehman Brothers

Bill Shope - J.P. Morgan

Aaron Rakers - A.G. Edwards

Tom Curlin - RBC Capital Markets

Dan Renouard - Robert W. Baird

Kevin Hunt - Thomas Weisel Partners

Chris Whitmore - Deutsche Bank

Bill Fearnley - FTN Midwest

Brent Bracelin - Pacific Crest Securities

Kathy Huberty - Morgan Stanley

Shebly Seyrafi - Caris

Brian Freed - Morgan Keegan

Laura Conigliaro - Goldman Sachs

Glenn Hanus - Needham & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter Network Appliance Earnings Conference Call. My name is Sean, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Tara Dillon, Senior Director of Investor Relations. Please proceed.

Tara Dillon

Good afternoon, everyone and thank you for joining us today. Our conference call is being webcast live and will be available for replay on our website at www.netapp.com, along with the earnings release, the financial tables, and the reconciliation between GAAP and non-GAAP numbers.

In the course of today's call, we will make forward-looking statements and projections that involve risks and uncertainties, including statements regarding our expectations with respect to our Q1 pipeline and bookings distribution, our operating results for fiscal Q1 and FY '08, our future stock repurchases, our competitive positioning, revenue recognition on our new low end, our effective tax rate, our hiring plans, our intention to pay down remaining debt associated with our foreign cash repatriation and the benefits of the investments we made in emerging products in FY '07.

Actual results may differ materially from our statements or projections. Important factors that could cause actual results to differ include, but are not limited to our ability to build non-deferred backlog to levels more consistent with our past results and to increase our revenue over the next several quarters, changes in customer demand for products and services, increased competition, a decline in general economic conditions and foreign currency exchange rate fluctuations.

Other equally important factors that could cause the actual results to differ from those in the forward-looking statements are detailed in the Risk Factors section of our 10-K and 10-Q reports on file with the SEC and accessible through our website, all of which are incorporated by reference into today's discussion. We disclaim any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise.

With me on today's call are Dan Warmenhoven, our CEO; President, Tom Mendoza; Steve Gomo, our CFO; and Tom Georgens, our EVP of Product Operation.

Steve will review this quarter's financials and discuss our revised financial outlook for the first quarter, and then Dan will share his thoughts before we windup with everyone here for Q&A. Steve?

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Steve Gomo

Thanks, Tara. Good afternoon, everyone. NetApp reported solid fourth quarter and FY ‘07 results despite some challenges that emerged during the quarter. Our booking levels during March experienced the same IT spending delays that have been reported by other companies this spring.

Bookings were backend loaded and finished lower than our forecast. In addition in the last two weeks of the quarter, we experienced the shift in the mix of our bookings towards more deferred elements. As a result, we did not build our seasonally normal levels of non-deferred backlog at the end of the fourth quarter.

While not impacting fourth quarter revenue levels, this has obvious implications for Q1 FY '08 given our typical business seasonality. Without the benefit of normal backlog, we do not expect our usual level of revenue during Q1 and as a result our expense levels will be ahead of our business model.

We will flow our rate of hiring and investment spending in Q1 in order to return to our normal business model and more typical growth rate in the second quarter. The good news is that our competitive position remains very strong. Our win rates were solid again this quarter, as evidenced by our strong product gross margins, and our deferred revenue levels grew at an enormous rate.

As I walk through the specifics of our results, please note that all numbers comply with GAAP unless stated otherwise.

Total revenue for the fourth quarter was $801.2 million, up 34% compared to Q4 last year and up almost 10% sequentially. Foreign currency effect had an immaterial impact on this quarter's sequential results, but added about 3 percentage points on a year-over-year basis. The full year FY '07 impact was a benefit of about 2 percentage points year-over-year.

The combination of product revenue and software subscription revenue was $687.3 million, growing 31% year-over-year and 8% sequentially. Add-on software and software subscriptions accounted for 40% of total revenue this quarter compared to 40% last quarter and 42% in Q4 of last year. Our add-on software was about 28% of total revenue and software subscriptions were about 12% of total revenue.

Recall that we're using an updated methodology for calculating software that I described in detail at our Analyst Day, since all of our storage systems come configured with iSCSI, all of the protocols are now included in add-on software. The figures I just provided reflect the new presentation applied to previous quarters.

Revenue from services, which includes hardware support, professional services and educational services, was 14% of total revenue, up 22% sequentially and up 52% over Q4 of last year. Service maintenance contracts increased 14% sequentially and 44% year-over-year.

Professional services grew 37% sequentially and 66% year-over-year. Our ability to deliver more professional services demonstrates the positive impact of our hiring earlier in the year.

Non-GAAP gross margins were 61.8% this quarter. The combined non-GAAP gross margin for products and software subscriptions was 67.0%, down just slightly from last quarter, but still demonstrating solid competitive strength. In fact, this combined gross margin was at the highest Q4 level in the past five years.

Please refer to the table provided in our press release and on our website to see the reconciling items between non-GAAP and GAAP. Non-GAAP service margins improved to 30.2%. As expected, service margins returned to 30% this quarter after significant hiring dampened margins in the third quarter. We are targeting the service margins to be in the low 30s through FY ‘08.

Turning to non-GAAP expenses. Our operating expenses totaled $373 million or 46.6% of revenue. Expenses increased 12% sequentially and 41% year-over-year, as we absorbed the investment spending and hiring from the third quarter on top of our fourth quarter expenses.

Total headcount increased by 487 people in the fourth quarter, ending the fiscal year with 6,635 employees. Net additions in FY '07 were 1,659 people. As we exit Q4, our operating expense structure is slightly higher than the level targeted in our business model and our operating profit plan. This is primarily the result of the aggressive hiring that we conducted in the second half of the fiscal year.

Because the effect of that hiring will carry forward, we plan to hire only about 200 to 250 people in the first quarter, as we work to assimilate the recent new hires and increase our productivity. After Q1, our hiring will be dependent upon our revenue growth rate in order to stay within our target business model.

GAAP operating expenses include the effect of prior merger related costs by intangible amortization from acquisitions and the effects of FAS 123R.

Non-GAAP income from operations totaled $121.5 million or 15.2% of revenue below our targeted range as a result of the operating expense structure I mentioned earlier. Non-GAAP other income, which consists primarily of interest income was $17 million.

Non-GAAP income before taxes for the quarter was $138.4 million or 17.3% of revenue. Our effective non-GAAP tax rate remains at 17.5% and our full year effective GAAP tax rate is 17.2%.

The Q4 GAAP tax rate reflects an $18 million favorable adjustment to the full year FY '07 rate. That adjustment consists primarily of truing up the estimated mix of foreign employee stock compensations to the actual year-end amount and recognizing a greater than expected California State R&D Tax Credit.

Non-GAAP net income totaled $114.2 million or $0.30 per share. GAAP net income totaled $89.6 million or $0.23 per share. Our cash generated from operations was $210.7 million this quarter, up 23% over Q4 last year. Capital expenditures were $53.4 million and free cash flow, which we defined as cash from operations less capital expenditures totaled $157.3 million this quarter, growing 16% over Q4 last year.

While cash flow from operations was still strong, it was down from Q3 primarily as a result of the increase in our accounts receivable. The increase in accounts receivable was due to the more backend-loaded nature of our revenues this quarter. Over 89% of our accounts receivable are net 30 days or less. Accounts receivable day sales outstanding were 67 days compared to 55 days reported last quarter and 62 days reported in Q4 last year.

So while it’s not unusual to see an increase from Q3 to Q4 at NetApp. The size of the DSO increase this year was impacted by a lengthening of the deal cycles towards the end of March. Many deals expected to close in March did not close until April, making it very difficult to collect this April business before the end of the quarter. Inventory turns increased to 22.5 times this quarter from 18.2 times in Q3.

Turning to other balance sheet metrics, cash and investments totaled $1.3 billion, an increase of about $13 million from Q3. We repurchased about 5.6 million shares of outstanding common stock at an average price of $35.63 per share for a total cash outlay of $200 million.

Cash and investments exclude $160 million of restricted cash associated with our foreign cash repatriation last year. The debt on our balance sheet related to this repatriation is currently $85 million. We paid down approximately $66 million of this debt during the fourth quarter and we expect to pay out the remaining balance within the next 12 months.

Total deferred revenue increased by $158.1 million this quarter to $1.1 billion, a 17% sequential increase and up 62% year-over-year. This is another concrete example of the underlying health of our business.

Now, before I turn the call over to Dan for his comments, I'll discuss our target-operating model for the first quarter.

Our outlook is based on current business expectations and current market conditions and reflects our non-GAAP presentation. We are making forward-looking statements and projections that involve risks and uncertainty. Actual results may differ materially from our statements or projections for the reasons cited earlier.

Because we exited the fourth quarter without a typical seasonal buildup in non-deferred backlog, we believe it's prudent to lower our forecast for the first quarter. We expect Q1 '08 revenue to decline sequentially by 6% to 7% from the fourth quarter, which translates to about a 20% to 21% year-over-year growth rate.

As a result, we expect non-GAAP operating margins to be in the range of 12.5% to 13% below our target range of 15.8% to 16.4%. This will result in our first quarter non-GAAP earnings of approximately $0.24 to $0.25 per share. GAAP earnings are expected to be $0.14 to $0.15 per share.

We expect our diluted share count to decrease by about 2 million shares in the first quarter depending upon the stock price.

Given our expectations for the first quarter, we believe it's also prudent to hold off on discussing any revised expectations for the full year. If the macroeconomic phenomenon that we saw in March just passed, we expect to return to our target-operating model in the second quarter given our pipeline and our tighter expense control.

For instance, if we post a 10% sequential increase in revenue from Q1 to Q2 and are back at our target operating margin range of around 50%, we’d be close to our original plan going forward.

However, we believe it's too early to make a determination about revenue levels beyond Q1 today, because neither April nor May are necessarily good indicators of our steady state business flow due to the unusual circumstances in both months; namely, all the accelerator incentive in April and the sales kickoff meetings in May. We will discuss future expectations with you on our earnings call in August.

Now, at this point, I'll turn the call over to Dan for his update. Dan?

Dan Warmenhoven

Thank you, Steve. While we're clearly not immune from macroeconomic forces and stretched out our sales cycles in March, it's important to not lose sight of our strong finish to the year and that's the fundamental drivers of metrics for our business demonstrate as underlying health.

With 34% year-over-year growth in Q4 and 36% for the full fiscal year, we did have a great year. Our competitive engagements with EMC increased in the fourth quarter and our win ratio against them remain solid. Our win rates against Hewlett Packard increased in Q4, particularly in SAN engagements, and the strength of our gross margins indicates that we're maintaining our competitive advantage.

Looking into Q1, we have an ample pipeline, and I expect we will see our normal monthly distribution of bookings. What Q1 will lack is the non-deferred backlog from Q4, but that's always been necessary to support revenue growth in Q1 of prior years. We should get a better sense this quarter for whether overall sales velocity has returned to more normal patterns.

In terms of Q4 fundamentals, all the major indicators are positive. The number of large deals, that is deals over $2 million increased this quarter, as we continue to develop our enterprise customer base.

Total storage system units shipped increased 13% sequentially. High-end FAS6000 series units increased 35% from Q3, and our mid-range FAS3000 were up 19% sequentially, and even the low-end FAS200 series was up yet again this quarter by 6% sequentially despite being the oldest product in our storage line up.

In Q1, we expect to begin recognizing revenue from our new low-end, which will have a favorable effect on penetration and lower price points over the next several quarters.

Our petabytes shipped increased 21% sequentially to over 125 petabytes for the quarter. ATA drives accounted for 58% of our total petabytes shipped, up 26% sequentially, and Fibre Channel petabytes were up 14% sequentially to 42% of our total shipped.

This quarter, block-based protocols were included 41% of our storage business, about the same as last quarter. Within this, 31% of our business had a Fibre Channel SAN component and 18% included iSCSI, which we refer to as IP SAN, and there were 8 percentage points of overlap for both Fibre Channel SAN and IP SAN are included on the same purchase order.

Revenue from our application management software family was up 16% sequentially. This includes primary storage software products like SnapManager for Oracle, SnapManager for Exchange, SnapManager for SQL Server, and data protection software revenues up 14% sequentially, which include secondary software like SnapMirror, SnapLock, SnapRestore, and SnapVault.

As we continue to develop new software, we're seeing our software subscriptions grow, which indicates the enterprise customers appreciate these offerings enough to protect their investment for the long-term. And we also benefit by embedding ourselves for several years.

This provides us with the benefit of higher cash flow and visibility from increased deferred revenues. We saw this phenomenon particularly in the last few weeks of Q4, as customers bought and renewed subscriptions at record rates.

ONTAP GX, our scale-out operating system is also making steady progress, both in the market and in development. We've had some prominent competitive wins and we're beginning to sell into companies outside of the high performance computing area.

Results from our emerging products were mixed again this quarter, which is we expected from newer products in emerging markets. The traction and uptick will both be choppier. The Virtual Tape Library pulled back a little after a stellar Q3, but finished with a spike in win rates in April. We like the progress we're seeing in this product line.

The encryption products continue to win technical proofs of concept, but are faced with a persistent lack of buying urgency from customers. Our V-Series will provide NetApp's functionality in front of existing competitors storage duress was up and unit shipped and has gained some terrific prominent reference accounts. Our SMB product is slowly gaining traction with both units shipped and partner recruitment.

And our Topio acquisition is off to a great start with revenues and bookings up significantly from last quarter, albeit, of a very small base. Despite the mixed success, the emerging products group, as a whole did very well for us. Overall Q4 revenue was more than double that of Q4 of last year.

Geographically about 56% of total revenue came from the Americas, up over 15% sequentially. The U.S. Revenue performance doesn't reflect the more challenging booking environment particularly near the end of March, which is more pronounced in the U.S. than overseas.

Europe contributed 34% of revenues up about 6% sequentially over their tremendous Q3 performance, and Asia-Pac was about 10% of total revenue, down just under 4% from Q3.

Our indirect channel was up almost 20% sequentially, accounting for 63% of revenue. Contributions from Arrow and Avnet played a significant part in this sequential increase, generating 14% of total revenue up about 47% from the third quarter.

Both distributors have responded very well to incentives for driving business through new resellers, and many of those partners really began to flourish in the fourth quarter. This quarter is also reaping the benefit of our B-to-B program, which has made buying from distribution far easier and faster than any other method, and IBM was right in line with our expectations.

Our partner ecosystem drives a healthy portion of our growth and we continue to cultivate deeper relationships with the major application vendors. We've also achieved global status in our partnership with VMware, and they are now one of our top five strategic partners along with the outstanding company of Microsoft, Oracle, SAP and Symantec.

In summary, our employees can be proud of the strong growth achieved during fiscal year '07. At the beginning of the year, one of our top five internal goals was grow faster, and the NetApp team accomplished just that, up 6 percentage points over the 29% growth in FY 06.

There's a lot put in place in '06 that paid off, new products, the IBM relationship, emerging products, and a number of other new initiatives. These investments will continue to bare fruit next year and beyond.

In Q4 this year, we had a good balance of business overall, between primary and secondary storage, between NAS and SAN, international and U.S. and direct and indirect. It just took longer to close deals in the second half of the quarter, but our fundamentals remain intact with petabytes up, solid system sales, healthy software contributions, new low-end coming, and a competitive position that is as strong as it ever has been.

So although our pace for the first quarter doesn't have the benefit of typical backlog going in, our pipeline points toward more normal business levels going forward. What remains to be seen whether sales velocity is also returning to more normal patterns.

As long as customers returned and buying at a normal rate, we will get back on track towards our typical growth profile. In the meantime, we appreciate what the NetApp team achieved this year, the same time we're asking them to be more frugal with tighter expense controls and to look for ways to increase productivity across the company, and to work hard to bring our new hires up to speed quickly.

At this point, I'll open the floor to questions. Requesting that you limit yourself to one and then return to the queue, so we may address everyone in the allotted time. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Richard Farmer with Merrill Lynch. Please proceed.

Richard Farmer - Merrill Lynch

Thank you. Dan, I'd just like to ask on the macro environment, I think the question on everyone's mind here is what's driving the outlook and I know you talked about the lack of backlog, but just going to ask you to elaborate a little bit more on the reasons for the outlook and I guess a few different dimensions, partly by geography, I know you mentioned the U.S.

But anything you can do to elaborate there, also industry verticals as well as the timing of the weakness, as you sense that was it just March or was it also April and has that persisted into May so far, and in addition to the degree to which you think that this macro environment is at all reflecting your own business or is it really just purely for the industry that you're seeing out there? Thanks.

Dan Warmenhoven

Hey, Richard, let me see if I can add some more color into this. First let me start with the timing. Maybe that's the way to really look at this. Through the first half of this Q4, it felt very much like Q4 of last year. We were running a little bit behind linearity but nothing real through a major. In fiscal year ’06, we saw the last six or seven weeks of the quarter get really strong and that never happened here until about the last four weeks.

So everything kind of slowed down during the calendar month of March and I know we had a really good bookings activity. I think first time we booked 0.5 billion in the month in April, so it was really strong.

But it wasn't enough to recover the shortfall that occurred in our fiscal month of March. And this slightly up selling with some of the other storage vendors, this is not unique to NetApp, right? The entire industry slowed down if you listen to the calls from some of the companies you follow, they referred to the same kind of thing and their growth rates were significantly lower, right? AMC storage had I think 6%, HP's is around 10, and we conclude at 30, right? So this is not exactly that the bottom fell out.

The way to think about this though is typically our business has a surge in bookings in Q4, which gives us a high backlog level going into Q1, and that converts into revenue during the fiscal Q1.

That backlog level is not there entering this particular quarter as a result of the slower bookings in March. And, therefore, we go back to what's our normal seasonality in bookings? It's down somewhat from fiscal Q4 that's the way the forecast is rolled up now.

And May, I think Steve said in his comments in the conference call. We can't tell a lot about a sales cycles and bookings rates in May. That's a reorganization month for us. We got a lot of new people getting new territories and structures and comp plans and I know we take them out of the field for a week for sales kickoff. So May is always a very difficult month for us to use as a basis for any kind of forecasting.

The pipeline looks very good. We've got plenty of opportunity in there and cover the forecast that we shared with you. It assumes, however, normal conversion rate and assumes that the margins stay good as well. I mean, we see that product gross margins stand in the same kind of zone it has been it's very strong.

So this is truly, March was soft in bookings, therefore, backlog is slower than normal for Q1 entry and that's going to convert the Q1 revenues and everything else with that one exception this is kind of air pocket slowing through the system, but everything else is really very solid.

Richard Farmer - Merrill Lynch

Okay. Thank you.

Operator

Your next question comes from the line of Ben Reitzes with UBS. Please proceed.

Ben Reitzes - UBS

Yeah, Ben Reitzes. Could you talk about, well I'm going to see, I don't know if you gave the numbers by geography, but also with regard to virtualization, there's an emerging negative thesis that NetApp could perhaps be adversely impacted by server virtualization and that, that market is moving to iSCSI, SAN and perhaps you might have been hit by that. Could you talk about as the emergence of server virtualization takes place whether NetApp you are seeing kind of an air pocket in demand potentially because of that?

Dan Warmenhoven

Just the inverse. We are really accelerating our relationship with VMware, because we think we are the best positioned in the industry to take advantage of that. We saw this coming. We bet a lot on iSCSI, and thus far our goals to be the iSCSI leader.

I've argued for some time that the right infrastructure for storage as customers move towards virtualized servers is in fact Ethernet and not only this is part of the strategy, this is unfolding the way we expected. We were thrilled to have the team from VMware at our sales kickoff, and in order to announce that we are a part of their global partners strategy.

I mean this is a marriage made in heaven from our viewpoint and no; it's just the inverse. Not only just did not have a, I mean the double negative here. It does not have a negative impact on our demand. It has a positive impact. It puts us in an incredibly competitive position versus the alternatives. I mean, do you think any of our competitors have size throughout their pushing iSCSI and infrastructure?

Ben Reitzes - UBS

Well, I'm asking you.

Dan Warmenhoven

Because you tell me. I can't say it.

Ben Reitzes - UBS

All right. And just if you can go through the geography numbers again, maybe in another question, I'd appreciate it. Thanks a lot.

Dan Warmenhoven

Steve got it here.

Steve Gomo

I have got it right here. So, Americas represented 56% of our business, this is revenue based, EMEA was about 34%, and APAC was about 10%. Sequentially, the Americas was up about 15%, EMEA was up about 6%, and APAC was up about 4%. Like Dan pointed out that EMEA came off incredibly strong third quarter.

Dan Warmenhoven

Yeah, I mean seasonally they should be down in our fiscal Q4 and Americas should be having a blowout, that's generally the way we see it. I always get the question what happened to EMEA in the fourth quarter, and even Americas grew at 15% sequentially, it wasn't enough to make up the plan.

Ben Reitzes - UBS

Thanks a lot.

Operator

Your next question comes from the line of Harry Blount with Lehman Brothers. Please proceed.

Harry Blount - Lehman Brothers

Hi, guys. I do clearly think the most important question here is the long-term growth rate. I think that has a big impact on your stock, so with that as a back drop, I want to come back to the question of trying to narrow in, specifically on what happened and I've heard you pretty clearly it was principally U.S., I heard you pretty clearly that it was March quarter.

What I'm wondering about is that you indicated that the tempo of the pipeline still looks pretty good and I'm trying to get a sense of if there was a certain competitor that you saw, a specific lengthening of the closed cycle that is now improved.

And if the backlog for the IBM business specifically, which you said met expectations, if the outlook for that business remains intact in the past, you've given some kind of perspective on what you thought IBM would count for as a percent of revenue?

Dan Warmenhoven

I'll tell you what I believe. It had nothing to do with any competitor. It had nothing to do with anybody like IBM. This is strictly macroeconomic. Our win rates, as I pointed out, stayed high. In fact, our frequency of engagement against the EMC was up and our percentage of wins stayed fixed.

Our win rate against Hewlett-Packard went up. Everybody performed as expected, except everything came in under a normal close rate. Our conversion rate of the pipeline during the fiscal month of March was lower than normal and we have no experience since March, on which we can base solid forecasts going forward.

April was a huge month, but like Steve said, there are a lot of incentives that work in April and it's very difficult to determine what a normal pace would be. May is a slow month, it always is and it's very difficult to determine whether that would be a representative pace for the quarter. We believe that would not.

So we believe that assuming a normal conversion rate of the current pipeline, we have plenty of opportunity to cover the forecast we gave you, and that if that is the case, we'll return to a normal model probably in Q2, but you're asking us to speculate on things that we don't have a good basis for at the moment.

I can guarantee to you it was not competitive. I can guarantee to you it was not channels or partners, or any other kind of competitive forces in the marketplace, nor was it in any way related to IBM. All of those things were tracking right to the norm.

What happened here was the conversion rate from opportunity to booking took longer, and therefore, everything slowed down and the translated right to the system into not enough backlog coming into Q1.

Harry Blount - Lehman Brothers

Dan, the question still is out there though, in terms of the long-term growth rate and I know you guys say you're not going to give that long-term perspective, but I guess just to provide a bit more color around your guidance on this quarter. Any additional color around your assumptions for IBM and the new product launches for the July quarter guidance would be helpful? Thanks.

Dan Warmenhoven

No, there is not a particular materials and forecast going forward. It's strictly break to the pipeline and velocity of closure. It's sales cycles and that's it. Everything else is not particularly material in this outcome. Right through the pipeline and conversion rate of that pipeline to solid bookings is the key. That's a definitely sales cycle rate and we believe that's tied right back to macroeconomic conditions.

Hopefully everybody feels better about the economy now, if the stock market is an indication of that they've certainly recovered from the March periods, but if you'll recall a period of March, every vendor was seeing a slowdown, Greenspan was on the stage talking about probably a recession in the U.S. economy in the second half of the year and everybody was nervous about the impact to the consumer spending of the blow-up in the housing market, etcetera, and it's very clear that the U.S. enterprise accounts got very cautious.

I believe that caution is largely behind this but I don't have enough metrics to look at to ascertain that. And certainly in my recollection, I mentioned that EMC saw the slowdown but I think also it was referenced by IBM, Cisco, Seagate, and they also saw the same thing. And this was not unique to NetApp. This will happen at all our fiscal slowdown that occurred, the economic slowdown occurred in March, it's our fiscal fourth quarter, which has got so many other effects going on. This really a spillover case.

Harry Blount - Lehman Brothers

Okay, thanks.

Operator

Your next question comes from the line of Bill Shope with J.P. Morgan. Please proceed.

Bill Shope - J.P. Morgan

Okay, great. Thanks. Obviously it's pretty clear this is just U.S. centric but did you see any signs throughout the quarter that there was any weakness spreading all into the international markets and just to give us comfort can you give us some color on the conversion activity you saw in the international markets throughout the quarter?

Steve Gomo

No, internationally especially Europe was strong again. It met our expectations but as Dan said the quarter before they had explosive growth but once again this quarter we are very, very pleased specifically in Germany and the U.K. had great quarters. So they came through exactly as we expected and APAC was what we expected. The difficulty that we ran into was short-term in North America and as it came on at the end, in the way it converted it just didn't happen in time.

Bill Shope - J.P. Morgan

Okay, thank you.

Operator

Your next question comes from the line of Aaron Rakers with A.G. Edwards. Please proceed.

Aaron Rakers - A.G. Edwards

Thanks, guys. I apologize for beating a dead horse here, but I guess I'm a little bit confused because if I look at the numbers for North America, it looks like your growth is actually the strongest in that region this last quarter and I'm trying just to understand where the contradiction is in terms of your discussion around March being very much weak in the month of March and the fact that actually North America looks to be relatively healthy, and maybe again just to go back on the context of EMC competitive win rates that increased and just for that maybe a little bit more color on what you're seeing from those specifically, the new products, what is it that's causing that dynamic? Thanks.

Dan Warmenhoven

I'll give you two answers to the first half of the question and that is that what you look at is revenue, we reference as bookings and backlog. You realize those two are not the same at a given period and the mix does vary period-to-period, and so the other half of the answer is America had to be stronger.

If you look at our seasonality, which is what I pointed out, go back to fiscal year ’06 and take a look at sequential growth rates and things like that. The Americas was the driver for very strong fourth quarter on very strong sequential growth rates, and 15%. The Americas last year, it was 57% of the mix one year ago and that's the kind of number they had to put up and that wasn't there this year.

So, and furthermore what you see is a decline in backlog of a fairly significant percentage, which is primarily going to show up next quarter and softness in America's revenue. You can't correlate directly in a given quarter bookings and revenue. They don't match. They don't line-up. That's the idea of backlog.

Aaron Rakers - A.G. Edwards

That's helpful. Thank you. And to the second question on EMC needs, wonder if there's any additional color you can provide there in terms of what specifically you're seeing from them now?

Tom Mendoza

I don't think that Dan was saying we're seeing so much from them as witnessed by the margins staying very, very high. Obviously, they determined they were going to drop the pricing level against us two or three years ago.

There's no change in behavior but the fact of the matter is we're attacking them on many of their home courts and we have to and we have to keep taking share from them and those engagements are going to take longer because you're ripping something away from somebody. And in fact, I was in U.K. recently and I got told by four major banks that we used to say we had a primary and secondary supplier and now we think we have two suppliers who want you to compete for everything.

And we are finding ourselves up against them in very much their strong holds and putting them on the defense a lot and those are tough battles but the fact of the matter is this is what we have been doing for the last year. So we need the competitive engagement to continue to grow to keep our growth rate going, growing against them, and growing against HP, but if the win rates stay solid and you keep engaging, things should work out the way they always have.

Dan Warmenhoven

We're getting invited into more large enterprise deals. That was the point. And guess who the incumbent is typically in those deals? If it's a $2 million opportunity I guarantee you the big guys are there and those are the ones we're getting more access to. And as for my view I am with Tom's.

Tom Mendoza

This is all good news.

Aaron Rakers - A.G. Edwards

Thank you.

Operator

Your next question comes from the line of Tom Curlin with RBC Capital Markets. Please proceed.

Tom Curlin - RBC Capital Markets

Good afternoon. Can you hear me?

Dan Warmenhoven

Yes.

Tom Curlin - RBC Capital Markets

Can you, obviously visibility is sort of a key question here, so are you saying you have essentially no shippable backlog going into the July quarter?

Dan Warmenhoven

No, I did not say that.

Tom Curlin - RBC Capital Markets

Okay. Can you.

Dan Warmenhoven

I would like to make sure it's very clear to the rest of the world that that is a fairly inflammatory statement. I appreciate you asked the question in a much more balanced way. I did not say that. We didn't come close to inferring that. I'm not sure where you conceded that unless it was to try to put a negative spin out there.

Tom Curlin - RBC Capital Markets

No. And that’s why, what I am trying to get to is, so let's look at it this way. Is that level higher than if you go back two years going into the July 05 quarter?

Dan Warmenhoven

Let me help you here. Let me give you some kind of quantitative metrics. Typically going into the quarter we would have somewhere and let's say the high teens of that total monthly or quarterly build plan in our backlog, but in going into Q1 we typically see it approaching the high 20s for some of the quarter.

Tom Curlin - RBC Capital Markets

Right.

Dan Warmenhoven

Roughly 10% is the differential. We are in the high teens; we are not in the high 20s.

Tom Curlin - RBC Capital Markets

Okay, so that sounds, that still sounds like if you go back to two years ago the July ‘05 quarter going into that quarter do you feel like you have more shippable backlog?

Dan Warmenhoven

We went into that quarter with a normal Q1 load and then we kind of had a self-inflicted wound associated with the conversion of our product line, the introduction of the 3,000 that caused the sales cycles to really stretch. That was a similar kind of case we saw in Q4.

Sales cycles stretched out. We couldn't book all the new business we had to have, but that was strictly caused by us. This one wasn't anywhere caused by Network Appliance this was caused I believe by macroeconomic conditions.

Tom Georgens

Dan's point, just to be more quantitative, in the three prior years, we've been somewhere between 30% and 27% of the next quarter, or either first quarters revenue requirements in our deferred backlog. This quarter to Dan's point we're in the high teens.

Tom Curlin - RBC Capital Markets

And when you say that's shippable plus scheduled backlog or just shippable?

Dan Warmenhoven

That is factory load. That means that is the product, which is scheduled to be shipped in this upcoming quarter. It does not include deferred.

Tom Georgens

Right. Deferred is a totally separate category.

Dan Warmenhoven

And I should point out too, that means we don't have to rebuild any backlog in Q1. You understand what I just said? Normally we see it surge up coming into Q1 and it drains down going to a normal high teens level in Q2. We are in the high teens right now.

Tom Curlin - RBC Capital Markets

Okay. And I think I follow that. So you're saying you have more backlog I mean I thought you said you had less backlog going into Q1 and relative to the plan than normal?

Dan Warmenhoven

That's what I said. That is correct. Next question, please?

Tom Curlin - RBC Capital Markets

All right. Thank you.

Operator

Your next question comes from the line of Dan Renouard with Robert W. Baird. Please proceed.

Dan Renouard - Robert W. Baird

Hi, thank you. Just following on your comments, Steve, and Dan, about if you have a normal progression in Q2, you have talked historically if your growth rate slows, you'd be willing and proactively looking to slow your investment such that you get your operating margins up.

Are we reading into that? It sounds sort of like you're saying you're not planning on that today, but is it fair to assume that you would do that, coming into Q2 if the growth rate didn't bounce back like you're hoping it will?

Dan Warmenhoven

We do not believe that the opportunity has gone away for us to sustain essentially the 30% range year-over-year growth rate. We think we had a temporary problem that passed in March, and therefore, as soon as we get back to our target business model of 15.8 to 16.4 operating, we would expect to grow the expenses to continue to invest to drive the top line growth.

Dan Renouard - Robert W. Baird

Okay. Thanks.

Operator

Your next question comes from the line of Kevin Hunt with Thomas Weisel Partners. Please proceed.

Kevin Hunt - Thomas Weisel Partners

Hi, thank you, a couple of things. I don't know if you, I think I might have missed you said the IBM percent in the quarter and then my question really was can you give a breakdown of what’s drove that deferred revenue strength? Can you kind on help on that, why that was up so much?

Dan Warmenhoven

Well, we've decided we're not going to continue to give specific numbers of IBM or individual product lines on EPG. Individually, they are each too small to really worry about.

You got to keep in mind; IBM is like the fourth or fifth largest reseller we have after have, after real Abnet (ph) Fujitsu Siemens and Fujitsu. So, let's not get too focused on the IBM number.

Tom Georgens

So as far as the deferred are concerned, we typically experience fairly strong deferred growth as we've seen over our past numerous quarters type of thing.

This quarter we saw an increase in the mix of deferred and particularly during the last couple of weeks and Dan, alluded to it in his commentary when he talked about the strong rate of growth we saw in the software subscription, and it was indeed software subscriptions that was the difference here and so all of that deferred backlog, all of that deferred bookings to the extent that we were able to ship it or they were renewals or whatever the case may be, we recognize only a portion of that in the current period and as you know we recognize that wrap that revenue ratably over the period.

Kevin Hunt - Thomas Weisel Partners

Okay. Thank you.

Operator

Your next question comes from the line of Chris Whitmore with Deutsche Bank. Please proceed.

Chris Whitmore - Deutsche Bank

Thanks. Hoping to get any color on vertical Markets that were particularly weak during the course of the quarter. And secondly, can you talk on competitive response on a pricing standpoint to the software conditions last quarter? Thanks.

Dan Warmenhoven

In the vertical mix it looked very much like a typical quarter. I mean I take led it was about 20%, financial services right there on the 18% to 20% range, governments around 12, Telco's around 11 or 12, energy at 8 or 9, I mean it was a typical quarter in every single way from a vertical perspective.

On the software pieces, I mentioned there's been tremendous demand for software of two forms. I think of our software, it is basically providing two classes of capability. One is integration with the applications, SnapManager for Exchange, Oracle, SAP, and that was very strong and then the other one is the kind of the replication technology and all of the Data protection and Data recovery kinds of capabilities, snap lock, snap restore and so on and that was very strong.

So I'm not sure I understand the question, but demand for the software is what I believe drove the consumption of the storage.

Chris Whitmore - Deutsche Bank

In terms of the competitive response, did you see increased pricing by your competitors during the course of the quarter? And secondly can you provide any color on cash flow expectations for Q1? Thanks.

Dan Warmenhoven

I’ll talk about the competitive environment. I finished a ten-week trip right before our kickoff and I didn't see the competitive environment changing at all. I see us involved in many, many more engagements at high levels than we ever have been before.

It would be different if we were losing deals, and we found that the competitors are doing something taking away deals we thought we would have. That's not what we saw. What we saw is, in some cases stretched out to April and some cases stretched out a little longer, but in each case we're engaged in competing and our pricing strategy hasn't changed at all. We didn't do anything different than we've done before nor do we think we have need to nor do I think it would have changed a result.

As far as cash flow is concerned in the first quarter we typically don't provide guidance on that. I will tell you this. If you look at our accounts receivable and you look at the 57 days, remember that every day of receivables is $8 million in cash, in fact some of $9 million in cash, so even if we just took it down to 60 days, we're going to be generating a bunch of cash out of that current asset.

Operator

Your next question comes from the line of Bill Fearnley with FTN Midwest. Please proceed.

Bill Fearnley - FTN Midwest

Good afternoon. Switching gears a little bit here. Wanted to ask two questions for you, first if you could give additional commentary on the Decru business and then also, if you could give more color on why the sharp increase in R&D this quarter, should we be looking at new products, new technologies in the near term, longer term or a balance of both? Thanks.

Dan Warmenhoven

The Decru business really suffers from I think two things. One is that the question of data securities seems to have moved in many buyers' minds from one of protecting data in the data center to protecting data leakage or data on laptops that walks out of the building.

Probably the thing that hit the demand for the data port product the most was the VA episode where they lost 28.5 million records off of a laptop, and that kind of caused everybody to change their focus a little bit.

The other factor is that inside the data center, I think many customers are considering some variety of new alternatives including the encryption integrated into the LTO-4 tape drives are starting to come to market.

I believe they are going to conclude the issues on encryption. The issue is key management and those solutions don't have a very robust key management scheme, I think they will come back to the Decru model.

But at this point in time I'd say the sense of urgency around buying has diminished and the alternatives and finally customers has increased, so we're just seeing a lot of tire kicking, we're seeing a lot of demos, but we're not seeing a lot of order conversions nor are we seeing losses.

That's the other thing. These deals are turning into losses. The customers are now just taking longer for evaluation and are much slower to make architectural commitment.

Bill Fearnley - FTN Midwest

And could you comment on the R&D spending as well?

Steve Gomo

Sure. Steve here.

Bill Fearnley - FTN Midwest

Thank you.

Steve Gomo

The engineering spending was up about just over $11 million, about $11.5 million for the quarter-over-quarter. That is virtually planned entirely planned. The bulk of that about 60% of it was headcount related.

That has to deal with the timing of the heads that we added in the third quarter as well as timing of all of the folks that joined us in the fourth. The other probably unusual things to defend, if there's anything unusual about this, is that we did have quite a bit of development project expense and equipment related expense, about $3.5 million there.

We were only expecting about maybe $3 million, so we spent a little bit more in project material and I'm sure it has to do with the cycle of product development.

Bill Fearnley - FTN Midwest

Thanks.

Operator

Your next question comes from the line of Brent Bracelin with Pacific Crest Securities. Please proceed.

Brent Bracelin - Pacific Crest Securities

Thank you. I had a follow-up question on your philosophy around hiring, two months ago at the Analyst day I think you articulated this large opportunity in the enterprise data center with architectural changes taking place.

Your desire to increase kind of the pace of hiring, now as you sit today with more questions on the macroeconomic environment, are you going to take a more balanced approach to hiring in fiscal 2008? How do you really think and how should we think about kind of hiring this year relative to kind of macroeconomic trends?

Dan Warmenhoven

Our primary metric that we’re driving for is to manage the business to a 15.8 to 16.4 operating income and we believe that gives us the opportunity to both not only return growth and earnings to shareholders of scale to revenue but also drive the revenue at the maximum growth rate possible.

In the near term, we’re obviously going to slowdown the hiring to get back to that level. I’d estimate that we’re going to hire somewhere around 200-250 people this quarter and the philosophy there is many of those people had outstanding commitments, some are new college graduates, etc.

We are not going to remake on those commitments and we’re going to continue. Some of them will also be conversions from contractors and all the temporary employees are already on the expense structure so we’ll not proceed down that path.

But we are going to limit the new hiring and until we get the expense level back in line with that number, which produces a 16% roughly operating income, and that's the next major objective, so we always push the top line up until we’re back in balance and then take an assessment move from there.

Brent Bracelin - Pacific Crest Securities

Thank you.

Operator

Your next question comes from the line of Kathy Huberty with Morgan Stanley. Please proceed.

Kathy Huberty - Morgan Stanley

Can you go back to the iSCSI market and compare and contrast the competitive landscape between NAS and iSCSI Markets and then touch on whether you think you with garner your typical NAS market share in the new iSCSI SAN segment?

Tom Mendoza

Well, this is Tom. A couple things about the iSCSI market; one of them is network-based storage is the strength of the company and we’ve got some skills and capabilities there that our competitors don’t have. So what we see going back to the previous question on server virtualization is their technologies that lend themselves to iSCSI as apposed to NAS and Fibre Channel and we are positioning ourselves and we’ve been aggregated by SCSI for a long time to go after that.

So I look at VM wear and server virtualization application mobility, the ability to connect over an IP connection whether it be NAS or SAN, or IP SAN, is a compelling advantage that we have that nobody else has. So when we think about how we partner with VM wear and other environments that are similar, Microsoft Exchange.

We're seeing more and more Microsoft Exchange environments go iSCSI as well. We’re doing one of many hundreds of thousands of seats in Europe right now that’s all being implemented in iSCSI. So I think some of the early adopters had to be driven by the applications themselves, whether it be Microsoft acceptance whether it be VM wear’s acceptance but from a technology perspective, I think we feel really good not only about our current product offering but how it plays to our strength.

Network expertise is one of the core competencies of the company and any movement towards IP based storage I think only really clays to what NetApp does better than anybody else. That's the technology we want to see grow and prosper.

Dan Warmenhoven

You sounds to understand our forecast for the iSCSI market and how it grows don't match that of some of the industry analysts. They would argue that the iSCSI’s adoption is going to be very heavily concentrated in the low end price points, basically price points under 25 K, and while we do see adoption there, we believe it also has a very rapid adoption at the enterprise level alternative to Fibre Channel SAN’s, we're selling already 10 gigabit Ethernet iSCSI infrastructure deployments as Tom said the lot of enterprise deployments going into the Exchange Environment are on iSCSI, and we seen this kind of bifurcated market.

Now if you compare that to the NAS market, there was no NAS market under 25 K. If you didn't have a significant amount of data, you didn't need a NAS solution, just go use a Microsoft or Unix windows file server. And so the under 25 K market didn't become if you will, an interesting NAS market for the long time after NAS was developed as an appliance.

And if you look historically you saw a number of appliance vendors like Snap and so on try to build a market there unsuccessfully, so it's got a very different structure than there is NAS. iSCSI is I think on appeal there because there's a number of applications at the small and medium business levels SQL server base, Exchange base, whatever that iSCSI can be a very attractive solution and the core of that does not exist in NAS or did not exist.

And at the enterprise, NAS was slow to get into the great big enterprise environments and iSCSI has going to get attracts very quickly.

Tom Mendoza

Just two trends I think, just the Exchange 2000 and the proliferation of VMWare, both lend themselves really well to iSCSI and I think it's causing customers to reevaluate and re-implement a lot of infrastructure they may have put in place five years ago. And as a result that plays directly into our hands, so in terms of our market share in iSCSI, our expectation is that we are going to be in the market and we already are, we intend to remain the market share leader in that space.

Kathy Huberty - Morgan Stanley

Great. Thanks.

Operator

Your next question comes from the line Shebly Seyrafi with Caris. Please proceed.

Shebly Seyrafi - Caris

Thank you very much. So I'm trying to figure out how much of the near term guidance is due to March, the month of March itself. For example, if March came in as expected and April and May came in as occurred, would you have guided your normal like low single growth sequentially? And maybe you can also touch on to what extent is this guidance impacted by the product transition to the low end, because your FAS 200 grew 6%…

Steve Gomo

Right.

Shebly Seyrafi - Caris

So, that much lower than your 3,000 and 6,000 line?

Steve Gomo

That's a non-factor. That has absolutely no weighting in this analysis whatsoever. It's a non-factor. Let's recap here. Our backlog is low by about roughly 10% of what the product revenue have to be or factory revenue have to be.

So it's roughly less $70 million. If that was there, we would have guided a sequential increase in revenues in that amount. All right? So instead of being 750, we were would kind of guided you to its about 820 and it would have been right back on the plan.

Shebly Seyrafi - Caris

But to be clear, if March came in as planned…

Steve Gomo

That's what I just said.

Shebly Seyrafi - Caris

Yeah. Then you would have guided up, okay. Thank you very much?

Steve Gomo

If the quarter came in as planned.

Shebly Seyrafi - Caris

Just for the month of March?

Steve Gomo

Okay. If March was on plan and April was on plan.

Shebly Seyrafi - Caris

But April as occurred is what I said?

Steve Gomo

Well then that's like saying if the waves weren't there, the water would be flat.

Shebly Seyrafi - Caris

All I'm saying is it a one month issue versus a two or three-month issue?

Steve Gomo

We made up ground in April. Product ground we made up in April is because deals went out of March, so you can't say March was on plan and April was under performed. Because part of the April business was thought to slip out of March. If we made the quarter we would have would have another 70 million in the backlog.

Shebly Seyrafi - Caris

One last point; I'm getting that U.S. Enterprise did pick up recently in the last few months, two months, and are you sensing that as well?

Dan Warmenhoven

It's very difficult for us to tell with the macroeconomic back drop is, because we have so many effects going on in the months of April and May. We had a very strong April. Americas had a very strong April.

But you know, they are already behind and I going to tell you, I had a very, very driven sales team, and they are on all kinds of escalators and things like that to finish the fiscal year, go to club, make their goal.

I mean, they are going to do in their power to close business during the month of April. That is not the way of us being able to interpret, what was going on in a macroeconomic environment? I'll leave that in your hands. I means that's an area that I think you probably have better visibility to.

I could tell you the sales team killed it in April, but they would have done that if we were headed towards a depression.

Shebly Seyrafi - Caris

Thanks.

Operator

Your next question comes from the line of Brian Freed with Morgan Keegan. Please proceed.

Brian Freed - Morgan Keegan

Hi, guys. I think you already implied this in your comments, but when you look at NetApp over the last several years, you've consistently delivered growth in the range of 3 to 4 times the overall storage market.

And while you can't forecast the long-term kind of macroeconomic, do you feel confident that within the context of relative growth versus the storage market you can maintain kind of the current trajectory relative to your peers?

Dan Warmenhoven

I do. I believe that absolutely and I think everyone accompanied those too, that probably saw a slowdown in terms of total storage spend in the industry, but we got more than our fair share in many ways.

And I look at some of the competitors, right? And their growth rates. We are more than three times the EMC's and that's not bad.

Brian Freed - Morgan Keegan

Okay. Thanks, guys.

Operator

Your next question comes from the line of Laura Conigliaro with Goldman Sachs. Please proceed.

Laura Conigliaro - Goldman Sachs

Great. Just a few questions. Did you give any thought, as you were watching March develop to slowing down your hiring somewhat or was your hiring very front end loaded?

Also, you mentioned macro effects of course many companies saw macro effects in the U.S. As you did as well, but it seems like the impact proportionately was a little bit larger, at least that you saw, any thoughts about that? And then just another question after that?

Dan Warmenhoven

Actually, I think all of us felt like even though March was slow, we still had a good chance of making it up in April. And I think we actually kind of came close. I mean, now we're off by roughly with 70 million or something like that in the backlog to add some, actually the bookings came in even stronger as Steve said.

I mean, we made up more in a bookings sense and this turn have still have in the mix was heavily shifted towards deferred revenues at the end. So in the hiring question, yeah, the hiring process is one that takes us about two or three months to crank up and two or three months to shut down.

I just mentioned we're going to hire 200 people this quarter even though we kind of shut off the hiring spirit because there lot of commits in and so the hiring is committed well in advance and but we didn't even try to shut it down until basically the first of May.

We really thought we were pretty much on plan. It was really only the last two weeks I think I concluded this, we weren't going to have enough backlog coming in.

Laura Conigliaro - Goldman Sachs

Okay. And one more question. I think Tom mentioned that Europe met expectations. Did it actually meet your expectations in constant currency since the dollar weakened over the course of the quarter?

Tom Mendoza

Absolutely. I mean the European win rates against all of our competitors have gone up. We're just on fire in Europe and they are killing it.

Laura Conigliaro - Goldman Sachs

Thank you.

Operator

And your final question comes from the line of Glenn Hanus with Needham & Company. Please proceed.

Glenn Hanus - Needham & Company

Just to shift gears. Could you update us or refresh me on when to anticipate updates to the high end and the mid range? Hitachi just upgraded their high end. Can you give us what's the cycle their look like now?

Steve Gomo

Well, I don't think we are going to preannounce any products, but as far as the mid range goes, the 30-70 and 30-40 have both been introduced in the last six months, one in November and one in February.

And in fact, if you look at our overall product line, the 6,000 was actually introduced in May of last year, and the midrange of 30-40 and 30-70 were introduced around the turned of the year.

And as we said our prior calls and Dan reiterate we are going to introduce the low end in this current quarter. So, we actually be sitting here in this quarter with the entire product line at least from a platform perspective less than a year old.

And I would say that in the entire history of Network Appliance we probably didn't have three separate product lines all less than a year old at the same time. So actually feel good about our current product lines.

As far as when we're going to upgrade the high end, I’d say trying to get pass given any expectation on that except to say that we're going to keep it current, we’re going keep it competitive, but I don't see any sign we are running out of gas. We actually just saw a 35% sequential increase in the FAS6000 sales just a Q4 alone, so…

Tom Georgens

As far as the hardware platform, I actually feel really good about our positioning.

Dan Warmenhoven

But they are very high end. Our customers tell us they don't want us to turn it over that frequently. It takes them awhile to kind of certify it, getting production, do all of those other things and they would like to have a longer life, if you will have, all that work too. And may prefer we move to a two to three year cycle, so you shouldn't expect any near term on high end.

Glenn Hanus - Needham & Company

Thank you.

Operator

Ladies and gentlemen, at this point, our time is up. I would now like to turn the call back over to Dan Warmenhoven for closing remarks.

Dan Warmenhoven

Thank you all for joining us today on the conference call. We'll look forward to speaking with you in 91 days from now. Thank you everybody. Bye-bye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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Source: Network Appliance F4Q07 (Qtr End 4/30/07) Earnings Call Transcript
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