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    NTAP
    Earnings call· Jan 2026(Q3 FY26)

    NetApp Q3 FY26 earnings call NTAP

    Feb 26, 2026 Source

    Executive summary

    NetApp Q3 FY26 — Record Profitability Driven by AI and Cloud Momentum

    NetApp delivered a strong Q3 FY26, achieving record operating income and EPS, driven by accelerating growth in AI, all-flash arrays, and public cloud services. The company is strategically navigating memory price inflation through pricing adjustments and portfolio flexibility, positioning itself as a critical data foundation for AI innovation and cloud transformation. Management expects continued momentum into Q4 and remains confident in its strategic plan.

    Highlights

    6

    • Total revenue reached $1.71 billion, an increase of 4% year-over-year (6% excluding the divested Spot business).

    • Non-GAAP earnings per share was $2.12, up 11% year-over-year, exceeding the high end of guidance.

    • Operating income and EPS achieved record highs, with operating margin at 31.1%, up 1.1 percentage points year-over-year.

    • All-flash array revenue grew 11% year-over-year to $1 billion, achieving an annualized run rate of $4.2 billion.

    • Public Cloud Services revenue grew 17% year-over-year (excluding Spot), driven by strong demand for first-party and marketplace services.

    • Keystone, the storage-as-a-service offering, grew approximately 65% year-over-year.

    Concerns

    2

    • Hybrid Cloud product gross margin declined by 4.2 percentage points sequentially to 55.3%, primarily due to an unfavorable revenue mix and market purchases for unexpected demand.

    • Unprecedented inflation in memory prices is affecting the global market, requiring price increases and agile management.

    Guidance & targets

    10
    CategoryTargetConfidence
    Q4 FY26 Revenue
    $1.87 billion, plus or minus $75 million
    high materiality
    High
    Q4 FY26 Gross Margin
    69.5% and 70.5%
    medium materiality
    High
    Q4 FY26 Operating Margin
    30.5% to 31.5%
    medium materiality
    High
    Q4 FY26 EPS
    $2.21 and $2.31
    high materiality
    High
    FY26 Revenue
    $6.772 billion and $6.922 billion
    high materiality
    High
    FY26 Gross Margin
    70.7% to 71.7%
    medium materiality
    High
    FY26 Operating Margin
    29.3% and to 30.3%
    medium materiality
    High
    FY26 Other Income and Expenses
    approximately a $24 million net expense
    low materiality
    High
    FY26 Tax Rate
    20.2% to 21.2%
    low materiality
    High
    FY26 EPS
    $7.92 to $8.02
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Hybrid Cloud
    Revenue was up 5% year-over-year, driven by Product, Support, and Keystone. Hybrid Cloud gross margin was down 1.8 percentage points sequentially. Product gross margin declined by 4.2 percentage points sequentially, primarily due to an unfavorable revenue mix and market purchases for unexpectedly higher demand for certain products. Professional Services gross margin improved 100 basis points sequentially driven by higher Keystone revenue mix.
    Product gross margin: 55.3%Support business gross margin: 92.5%Professional Services gross margin: 31.3%
    		$1.54 billion5%—69.6%
    Public Cloud
    Revenue was in line with last year's third quarter revenue. Excluding the divested Spot business, Public Cloud revenue was up 17% year-over-year, driven by strong demand for first-party and marketplace storage services. Gross margin was up approximately 2 percentage points sequentially and approximately 9 percentage points year-over-year.
    		$174 million0%—85.1%

    Operational metrics

    18
    Total revenue growth excluding Spot
    6%YoY
    Q3 FY26

    Total revenue was $1.71 billion, up 4% YoY, but 6% excluding the divested Spot business.

    Non-GAAP EPS
    $2.12up 11% YoY
    Q3 FY26

    Exceeded the high-end of guidance range.

    Operating income
    $533 millionup 8% YoY
    Q3 FY26

    Achieved record high.

    Operating margin
    31.1%up 1.1 percentage points YoY
    Q3 FY26

    Achieved record high.

    Public Cloud Services revenue growth excluding Spot
    17%YoY
    Q3 FY26

    Driven by first-party and marketplace services.

    First-party and marketplace services growth
    27%YoY
    Q3 FY26

    A powerful driver for new customer acquisition.

    New-to-NetApp customers from cloud
    approximately half
    Q3 FY26

    Approximately half of the revenue driven by new first-party and marketplace customers came from new-to-NetApp customers.

    Deferred revenue
    $4.63 billionup 12% YoY
    Q3 FY26 end

    Balance at the end of the quarter.

    Capital returned to shareholders
    $303 million
    Q3 FY26

    Total capital returned during the quarter.

    Share repurchases
    $200 million
    Q3 FY26

    Amount spent on share repurchases.

    Dividends paid
    $103 million
    Q3 FY26

    Total dividends paid.

    Diluted share count
    200 milliondecreased 4% YoY
    Q3 FY26

    Diluted share count for the quarter.

    Cash and short-term investments
    $3 billion
    Q3 FY26 end

    Balance at the end of the quarter.

    Gross debt outstanding
    $2.5 billion
    Q3 FY26 end

    Balance at the end of the quarter.

    Net cash position
    $522 million
    Q3 FY26 end

    Net cash position at the end of the quarter.

    AI business mix
    60% data prep, 40% production
    Q3 FY26

    Breakdown of AI business activities in the quarter.

    Operating expenses
    $686 milliondown 3% sequentially, up 3% YoY
    Q3 FY26

    Operating expenses for the quarter, with YoY increase partly due to unfavorable FX.

    Gross profit
    $1.22 billionup 5% YoY
    Q3 FY26

    Gross profit for the quarter.

    Industry KPIs

    6
    MetricValueDetails
    Capital return FCF$303 millionUSD
    Gross margin drivers71.2%%
    Services peripheral attach65%%
    Component supply constraintsMemory prices
    Ai server orders revenue backlog~300customers
    Revenue mix by end market segmentHybrid Cloud: $1.54B; Public Cloud: $174MUSD

    Orderbook & backlog

    2
    Remaining Performance Obligations (RPO)$5.11 billionQ3 FY26 end

    14% YoY

    Unbilled RPO$482 millionQ3 FY26 end

    38% YoY

    Key indicator of future Keystone revenue.

    Product announcements

    4
    ProductTypeDetails
    AFXlaunch
    AI Data Engine (AIDE)milestone
    Amazon S3 Access Points for Amazon FSx for NetApp ONTAPupdate
    Object REST API on Azure NetApp Filesupdate

    Deals & partnerships

    6
    Super Bowl LX (Levi's Stadium)Technology deployment

    NetApp technology transformed Levi's Stadium into an interactive data center, managing billions of data points for video boards, real-time inventory, and security operations, demonstrating ability to deliver flawlessly in a demanding environment.

    European financial services companyCompetitive displacement (all-flash systems)

    Selected NetApp all-flash systems to replace multiple competitors for a data center refresh, driven by NetApp's anti-ransomware services, data classification, and Write Once, Read Many snapshots, ensuring business continuity, data protection, and regulatory compliance.

    Insurance technology companyCustomer contract (Keystone)multiyear

    New-to-NetApp customer selected NetApp Keystone as the storage solution for a multiyear cloud migration, enabling a fast and efficient way to eliminate a competitor's storage-as-a-service footprint that lacked a true path to the cloud.

    Multinational insurance companyCustomer contract (Azure NetApp Files)

    Selected Azure NetApp Files for its proven performance, ease of use, and enterprise-grade reliability to overcome legacy infrastructure complexity and improve agility, making ANF the cornerstone of their cloud transformation.

    RetailerCompetitive displacement (AWS FSx for NetApp ONTAP)

    Moved off a competitor's infrastructure to the cloud after a ransomware attack, choosing AWS FSx for NetApp ONTAP for its support of immutable volume copies, providing data protection against cyberattacks. FSxN is now their default storage service in AWS.

    Multinational manufacturing companyCustomer contract (FSxN for AI workloads)

    Selected FSxN as the high-performance data layer for its AI workloads on AWS, leveraging recently introduced S3 support to bring AI to its large, existing file-based datasets without duplicating or re-platforming data.

    Risks & headwinds

    3
    Memory price inflationAnticipated to continue for a period of time

    Unprecedented inflation in memory prices

    Mitigation: Raised pricing; working with customers and channel partners to be more agile; collaborating with multiple suppliers for availability and cost management; leveraging broad portfolio including hybrid flash arrays for price-sensitive workloads.

    Unfavorable revenue mixQ3 FY26

    Hybrid Cloud gross margin down 1.8 percentage points sequentially; product gross margin declined 4.2 percentage points to 55.3%

    Mitigation: Not explicitly stated for this specific mix, but overall strategies include portfolio flexibility and pricing adjustments.

    Unexpectedly higher demand for certain productsQ3 FY26

    Required market purchases to replenish inventories

    Mitigation: Multi-supplier qualification; inventory replenishment; ability to offer alternatives for price-sensitive workloads (hybrid flash, Keystone, Public Cloud).

    Q&A highlights

    7

    What is driving the incremental growth on the product side, and how persistent is it? How is NetApp managing product gross margins given rising component costs, particularly NAND and HDDs?

    George Kurian stated that product growth is driven by large deals that have been in the pipeline for several quarters, with some closing in Q3 and more expected in Q4. Wissam Jabre explained that the company manages gross margins by adjusting prices, working with customers for agility, qualifying multiple suppliers, and offering alternatives like hybrid flash or Keystone. He noted HDD price increases are minor compared to NAND.

    “We have, as we guided from the start of the year, been working on large deals that for many quarters, some of those deals closed in Q3 and a number of them are expected to close in Q4.”

    asked by Paramveer Singh · answered by George Kurian

    2 min read6 chapters

    Detailed Narrative

    01

    AI Data Platform Momentum

    NetApp's enterprise-grade data platform for AI workloads, including AFX and AI Data Engine (AIDE), is gaining significant traction. AFX, a disaggregated storage system purpose-built for AI, secured significant wins across neocloud, financial services, and semiconductor industries in its first quarter of shipment, highlighting its multi-tenant management, container integration, cyber resilience, and replication capabilities. AIDE, designed to simplify AI workflows with integrated data discovery and curation, is in an early access program and will be generally available in Q4 FY26.

    02

    All-Flash Array Strength

    The company reported a record quarter for all-flash array revenue, reaching $1 billion, an 11% year-over-year increase, translating to an annualized run rate of $4.2 billion. This growth is driven by strong customer engagement seeking high performance, density, and power efficiency for data center demands. NetApp's unified and block-optimized all-flash storage portfolio is enabling competitive displacements, such as a European financial services company replacing multiple competitors.

    03

    Public Cloud Services Expansion

    Public Cloud Services revenue, excluding the divested Spot business, grew 17% year-over-year, fueled by first-party and marketplace services which saw 27% growth. These services are a key driver for new customer acquisition, with about half of the new first-party and marketplace revenue coming from new-to-NetApp customers. Recent innovations like Amazon S3 Access Points for FSx for NetApp ONTAP and Object REST API on Azure NetApp Files enhance integration with cloud AI and analytics services, enabling customers to leverage existing datasets for AI workloads without re-platforming.

    04

    Cyber Resilience and Data Management

    NetApp's robust cyber resilience capabilities, including comprehensive ransomware protection, backup, disaster recovery, and data governance, are critical differentiators in an increasingly volatile digital landscape. Embedded protections and the Ransomware Recovery Guarantee help customers confidently withstand sophisticated threats. These capabilities foster trust and enable new customer wins, as demonstrated by a European financial services company selecting NetApp for its anti-ransomware services and data classification.

    05

    Memory Price Inflation Management

    NetApp is actively managing the unprecedented🌐 inflation in memory prices by raising pricing and working with customers and channel partners to be more agile. The company is also collaborating with multiple suppliers to address availability and manage costs, leveraging its broad portfolio, including hybrid flash arrays, to service price-sensitive workloads. Management anticipates pricing and tight supply to continue for a period of time, not expecting it to be a short-term issue.

    06

    Keystone (Storage-as-a-Service) Growth

    Keystone, NetApp's storage-as-a-service offering, continues to perform well, with revenue growing approximately 65% year-over-year from Q3 a year ago. It is enabling customers to navigate infrastructure transitions and cloud migrations, attracting new customers by offering a fast and efficient path to the cloud and displacing competitors. An insurance technology company, new to NetApp, selected Keystone for its multiyear cloud migration, replacing a competitor's storage-as-a-service footprint.

    AI-generated summary of the company’s earnings call. Not investment advice.