NetApp's Q2 FY2026 earnings call is now underway with participants in listen-only mode. Assistance is available by pressing star then zero. Following the presentation, there will be a Q&A session, and the event is being recorded.

NetApp reported a strong Q3 with $1.71 billion in revenue, driven by growth in all-flash and public cloud services. The company highlighted its AI solutions, cloud storage, and all-flash offerings, achieving record gross margins and surpassing profitability expectations. Key innovations included the launch of Afx, an AI-powered storage platform, and the Nara AI data engine, simplifying AI data pipelines and enhancing cyber resilience. These advancements, alongside successful AI infrastructure deals, underscore NetApp's commitment to innovation and operational efficiency, supporting its success in the evolving data landscape.

NetApp's hybrid multi-cloud data platform and advanced AI capabilities enable enterprises to securely manage and leverage vast data sets across on-premises and cloud environments, enhancing AI workloads and data security. The company's recent innovations, including enhanced cyber resilience services and expanded cloud storage support, have driven significant revenue growth and customer acquisition, positioning NetApp as a leader in intelligent data infrastructure.

In the fiscal second quarter, the company achieved strong results with total revenue exceeding guidance, driven by hybrid cloud and public cloud growth. Gross margins improved, operating expenses remained flat, and earnings per share surpassed the high end of guidance. The company returned $353 million to shareholders and ended the quarter with a net cash position of $528 million.

Discussed Q1 revenue of $1.69B, gross margin of 70.3%-73.3%, and operating margin of 30.0%-30.5%, projecting fiscal year 26 revenue between $6.625B-$6.875B, with revised gross and operating margins and raised EPS range to $7.75-$8.05.

Discussed strategies for managing component pricing volatility, emphasizing proactive measures, supply chain efficiency, and potential pricing adjustments to mitigate impacts, while highlighting growth in cloud and Keystone services to offset commodity cost increases.

A discussion on the factors influencing current product gross margins, including mix, pricing, and cost stability, with insights on the sustainability and potential expansion of margins in the future, emphasizing long-term targets and operational discipline.

Discussed acceleration in AI-related transactions, stable mix of data prep, training, and inference, strong early interest in Afx platform, pending customer qualifications, and anticipated impact on future deals.

The dialogue discusses the factors contributing to a below-average Q3 revenue growth, attributing it to macroeconomic dynamics and headwinds in the public sector, particularly the impact of a recent government shutdown, which is expected to be temporary.

Discusses aligning inventory and purchase commitments with anticipated demand growth, emphasizing acceleration in non-US public sectors and AI-related spending, while ensuring supply security for future fiscal health.

The dialogue emphasizes the importance of a dynamic approach to purchasing decisions and supply chain management, highlighting the company's readiness to act swiftly to secure favorable prices and protect supply chains. The speaker reassures of a robust balance sheet and a proactive strategy to navigate market conditions effectively.

Discussed the variability in AI deal sizes, emphasizing the importance of data preparation and fine-tuning in AI adoption. Highlighted strong growth in first-party hyperscale services, noting a 32% year-on-year increase, and explored industry-specific AI adoption trends, particularly in life sciences and financial services, with a focus on advanced use cases and future projections to 2026.

A discussion on securing supply commitments and pricing through the fiscal year, emphasizing actions to ensure supply availability and mitigate risks of shortages impacting demand.

Discusses the industry's historic pattern of sharing price increases with customers due to rising component and commodity prices, emphasizing the importance of a broad supplier ecosystem and experience in managing price points to maintain market sustainability.

The dialogue discusses the impact of QLC and hybrid technologies on HDD demand, emphasizing the coexistence of different storage solutions. It also highlights the strong growth in cloud revenues, driven by new offerings and the focus on scaling AI and data-intensive workloads, with a target to maintain a high teens growth rate.

Discussion focused on strategic opportunities with sovereign and Neo Clouds, emphasizing AI solutions and security advantages, with upcoming innovations and momentum from Afx solution introduction.

A discussion on achieving a significant quarterly earnings beat, with a focus on large deals offsetting declines in the U.S. public sector. Guidance for the second half indicates year-over-year acceleration, tempered by uncertainty in public sector recovery. Supply chain concerns are not factored into current guidance, with emphasis on cautious outlook due to delayed government procurement and spending.

The dialogue discusses the increasing strength and maturity of the storage as a service model, highlighting its growth driven by both the offerings' maturity and customers' familiarity with consumption-based models. It predicts that this trend will continue to expand within the enterprise infrastructure market, albeit not overnight, but at a faster pace than the rest of the market.

The dialogue covers emerging trends in video and unstructured data analysis using AI, highlighting applications in content production and multimodal analytics. It also discusses customer demand for higher aerial density in hard drives and the delayed impact of AI on storage growth compared to compute and network. Insights on enterprise AI adoption by sector and the role of data lakes in AI infrastructure are also shared.

Discussion covered strategies for capturing market share through pricing flexibility and advanced data management. Cloud gross margin range and cash flow concerns were addressed, highlighting seasonal impacts and tax-related payments.

Discusses AI differentiation in winning new and existing customers, emphasizing unified data management, hybrid cloud, and compliance solutions. Highlights the impact of AI inferencing workloads, Keystone acceleration, and increasing public cloud mix on revenue growth.

Discussion highlights the increasing contribution of Cloud Keystone, AI, and All Flash to business growth, predicting acceleration as these components become more significant. The speaker expresses gratitude for the insights and guidance provided.

The dialogue discusses the factors behind an increase in large deal activity, attributing it to effective execution rather than supply chain issues. It also addresses Opex trends, noting a year-over-year decrease due to timing, with expectations for slight increases in the second half to support business growth.

A company discussed its Q2 financial performance, attributing growth to AI and portfolio refreshes, while guiding on future growth in public cloud and margins, emphasizing AI, all-flash, and cloud strategies for sustained market outperformance.