Tom Georgens - CEO Nick Noviello - CFO Kris Newton - VP of IR

Keith Bachman - Bank of Montreal Nehal Chokshi - Maxim Group Sherri Scribner - Deutsche Bank Bill Shope - Goldman Sachs James Kisner - Jefferies & Co. Steven Fox - Cross Research Joe Wittine - Longbow Research Ben Reitzes - Barclays Capital Maynard Um - Wells Fargo Katy Huberty - Morgan Stanley Andrew Nowinski - Piper Jaffray Brian Alexander - Raymond James Mitch Steves - RBC Capital Markets Jim Suva - Citigroup

Good day, ladies and gentlemen, and welcome to the NetApp's Second Quarter Fiscal Year 2015 Financial Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. I would like to turn the call over to your host, Kris Newton, Vice President of Investor Relations. Please go ahead.

Hello, and thank you for joining us on our Q2 fiscal year 2015 earnings call. With me today are CEO, Tom Georgens; and CFO, Nick Noviello. This call is being webcast live and will be available for replay on our Web site at netapp.com along with the earnings release, our financial tables, a historical supplemental data table and the non-GAAP to GAAP reconciliation. As a reminder, during today's call, we will make forward-looking statements and projections with respect to our financial outlook and future prospects, such as our guidance for the third quarter and full fiscal year 2015, all of which involve risk and uncertainty. Such statements reflect our best judgment based on factors currently known to us and are being made as of today. We disclaim any obligation to update our forward-looking statements and projections. Actual results may differ materially from our statements and projections for a variety of reasons. We described some of these reasons in our accompanying press release, which we have furnished to the SEC on a Form 8-K. Please refer to the documents we file from time-to-time with the SEC, specifically our Form 10-K for fiscal year 2014, subsequent Form 10-Q quarterly reports and our current reports on Form 8-K also on file with the SEC and available on our Web site. During the call, we will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of our GAAP and non-GAAP results is provided in today's press release and on our Web site. I'll now turn the call over to Tom for his commentary on the quarter.

Thanks, Kris. Good afternoon, everyone, and thank you for joining us. I am pleased with our performance in Q2. Revenue and non-GAAP EPS were both above the midpoint of our prior guidance range and we had another strong quarter of gross margin performance. The growth of large deals we saw in Q1 continued into Q2, helped by our U.S. public sector business. The rapid adoption of Clustered Data ONTAP, the industry’s number one storage operating system continued in Q2 with shipments of Clustered nodes more than tripling year-over-year. The attach rate of Clustered ONTAP again increased across all of our product lines. The attach rate to our high-end platforms was 65%. For the midrange, it was 50% and we are seeing acceleration in the low-end with attach rates more than doubling from Q1. Total system unit shipped increased 6% from Q2 last year. We saw notable strength in E-Series branded and all-flash FAS. FlexPod, our converged architecture solution also continues to perform well with shipments up 50% from last year. We continue to see momentum with our broad portfolio of flash solutions as well. In Q2, our flash capacity shipped more than doubled year-over-year and we shipped FlashRay, our newest all-flash array to select customers. Before I talk more about our strategy and provide some insights into how it is resonating with customers, I’ll pass it over to Nick to provide details on our Q2 results. Nick?

Thank you, Tom. Good afternoon, everyone, and thanks for joining us. NetApp delivered another quarter of solid financial performance. As Tom highlighted, we achieved net revenues and EPS above the midpoint of our prior guidance ranges and are pleased with the adoption and momentum of NetApp’s portfolio of innovations. Fiscal Q2 net revenues were $1.54 billion, up 4% sequentially and roughly flat on a year-over-year basis. Product revenue of $929 million was down 3% year-over-year while the combination of software entitlements and maintenance and services revenues of $613 million was up 3% year-over-year. NetApp branded revenue was 92% of net revenues for Q2 and at $1.42 billion was up 5% sequentially and up 2% year-over-year. OEM revenue of $119 million declined 8% sequentially and 22% from Q2 last year. Indirect revenue through the channels and OEMs accounted for 80% of Q2 net revenues and was down from Q2 last year, due to declines in OEM business. Excluding OEM, indirect revenue was roughly flat year-over-year. Arrow and Avent contributed 24% and 17% of net revenues, respectively. Geographic performance came in largely as expected and included a 51% sequential and 8% year-over-year increase in U.S. public sector revenues corresponding to the fiscal year end of the U.S. government. Non-GAAP gross margin of 65% was up 1.4 points from Q2 last year and above our prior guidance range. Non-GAAP product gross margin of 58.4% was up more than a point year-over-year benefiting from a combination of supply chain savings, favorable product mix and lower warranty costs. Service gross margin of 62.7% was slightly higher than anticipated due to a combination of higher support revenues and lower than expected spending on support infrastructure. Non-GAAP operating margin for the second quarter was 17.8% in line with our previous guidance. We continue to invest selectively across the business to bring our innovative data management solutions for the hybrid cloud to customers. Consistent with our expectations, our non-GAAP effective tax rate for the second quarter was 16.5%. Q2 weighted average diluted share count of 323 million shares was below our prior guidance, down 6 million shares sequentially and down 26 million shares or 7% from Q2 last year, due to continued stock repurchase activity. Non-GAAP EPS of $0.70 was in line with our prior guidance range. Now turning to the balance sheet. We ended the quarter with approximately $5.3 billion in cash and investments, 16% of which is onshore. The sequential decrease in onshore cash was predominately due to shares repurchased in the quarter. Inventory turns were at 20 and days sales outstanding were 37. Deferred revenue of $3 billion was up $115 million from Q2 last year. Q2 cash from operations was $381 million versus $363 million in Q2 FY '14. Free cash flow was 21% of revenue in Q2 consistent with last year. In Q2, we returned $652 million to shareholders, $600 million in share repurchases and $52 million in cash dividends. Consistent with the guidance we provided this past May, we remain on track to complete our share repurchase program by the end of May 2015. Today, we also announced our next cash dividend of $0.165 per share of the company’s stock to be paid on January 22, 2015. Now to guidance. We remain pleased with the momentum we see building in the business, but must remain conscious of the macro and industry dynamics as we continue to operate in a challenging environment. In Q3, we expect to bear the impact of unfavorable foreign exchange particularly the euro, which will have a negative impact on both sequential and year-over-year growth of about a point. As a result, our target revenue range for fiscal Q3 is $1.56 billion to $1.66 billion, which at the midpoint implies about 4% sequential growth and roughly flat revenue year-over-year. We expect fiscal Q3 non-GAAP gross margins to range from approximately 64% to 64.5% and non-GAAP operating margins to range from approximately 18% to 18.5%. Diluted share count for the quarter is expected to be approximately 320 million shares based on share repurchase activity in Q2 and in the first 10 days of Q3. We expect non-GAAP earnings per share for Q3 to range from approximately $0.74 to $0.79 per share. Our guidance reflects just over $0.02 of dilution from the combination of unfavorable foreign exchange as well as the net operating expenses related to the SteelStore product line acquisition, which closed at the beginning of Q3. As we move into the second half of the year, our overall fiscal 2015 revenue and EPS expectations remain unchanged. However, given the industry transition we continue to navigate through, we do expect some shift in the revenue mix with branded revenue growth for the year to be slightly lower than and a decline in OEM revenue to be less than our original expectations. Though ultimately dependent on revenue mix and growth, we expect non-GAAP gross margin just about 64% and non-GAAP operating margin of approximately 18% for fiscal 2015. We continue to expect our non-GAAP effective tax rate for the year to be about 16.5%. Full year non-GAAP EPS will reflect the net impact of foreign exchange for at least Q3, as well as about $0.03 of dilution from the SteelStore product line acquisition in the second half. Finally, we expect to continue to generate strong cash flow and as I indicated earlier remain on track to complete our existing share repurchase plan by the end of May 2015. In closing, we remain confident in our execution, our plans for the remainder of FY '15 and our long-term strategy. Our strong portfolio of solutions is well aligned with the evolving priorities of our customers. NetApp is uniquely positioned to help customers as they navigate the transformation of their IT deployments by providing a bridge from the choices of today to their requirements for the future. Now, I would like to turn the call back to Tom for some additional thoughts on our vision and how it aligns to customer priorities. Tom?

Thanks, Nick. Two weeks ago, we held one of my favorite events, our annual technical conference, NetApp Insight. The energy level is always very high and in recent years, Insight has more turning points in the acceleration of products like Clustered ONTAP, branded E-Series and OnCommand Insight. This year for the first time, we invited customers. The excitement and endorsement of our technology and vision was remarkable. We highlighted our differentiated vision for the hybrid cloud as well as new software services and partnerships that support this vision. In just the past 90 days, we have introduced a significant number of new product offerings, including Data ONTAP 8.3, Cloud ONTAP, FlashRay, StorageGRID Webscale, expanded partnerships from NetApp private storage and the SteelStore product line acquisition. Many of these are the culminations of years of effort all coming together at the same time. We have never had a stronger portfolio of innovative solutions and never have been more impactful in creating great outcomes for our customers’ businesses. We are pleased with our competitive position and performance in the first half of the year, but as Nick noted earlier, it’s important to recognize that we continue to operate in a challenging environment. We have all seen the headlines of macroeconomic uncertainties; Russia, the European economy, FX headwinds, but more fundamentally our industry is in transition. Enterprises must manage their existing infrastructure and meet the growing demands of the business while at the same time adopting new technologies and delivery options. Cloud plays a key role in creating value for enterprise customers and we want to accelerate their ability to realize that value. There are compelling used cases for the cloud and there are workloads where our own infrastructure will be the preferred choice. Because of this, hybrid cloud will be the ultimate model with enterprise as having some element of traditional cloud, hyperscale cloud and on-premises computing in their IT environments. A hybrid model means that the cloud cannot be an island separate from everything else. The true value of the cloud can only be realized as a seamless extension of on-premises computing where two technologies integrate with the existing, mature, proven and compliance systems. Data is at the center of the hybrid cloud. It has a lifecycle that needs to be shared and integrated to deliver business value. Unfortunately, there is not one cloud. Today’s clouds are a range of isolated, incompatible silos. To truly operationalize the cloud, customers need a way to converge the different data management environments between their clouds and their on-premise infrastructure. Our NetApp data fabric vision provides customers with the only consistent way to manage, secure and protect their data regardless of where they chose to put it. The NetApp data fabric weaves together to disparate data elements of the hybrid cloud into a single architecture giving customers control and choice with the flexibility, elasticity and ubiquity of cloud resources. Data ONTAP is the foundation of the NetApp data fabric. Clustered Data ONTAP delivers true software-defined functionality with a set of enterprise-wide data management capabilities independent of the underlying hardware. Clustered ONTAP enables customers to grow incrementally and non-disruptively with the flexibility of a wide range of deployment options; from converged and integrated systems to third-party arrays as well as software only and cloud options. With the latest major upgrade of Clustered ONTAP, we have made huge improvements across virtually everything criteria on which customers evaluate store solutions; performance, scalability, availability and efficiency. We dramatically increased our performance for flash getting all-flash FAS arrays performance levels ahead of our new entrants. We enhanced availability with the introduction of Metrocluster. We improved efficiency with in line pattern removal and advanced drive partitioning techniques, and we continue to simplify the customer experience of migration from both legacy NetApp and competing environments. By combining the elasticity and flexibility of cloud computing with the data management capabilities of Clustered ONTAP, the NetApp private storage solution set enables enterprises to take advantage of the cloud while minimizing risk. Customers can realize the flexibility and economic benefits of multi-cloud solutions without the risk and regulatory concerns associated with relinquishing data stewardship. The NetApp private storage solution ecosystem includes Amazon Web Services, Microsoft Azure and our latest addition, IBM SoftLayer. Enterprises now really have a choice of cloud providers and the ability to select based on costs, performance and service levels. Cloud ONTAP extends the value of Clustered ONTAP into the cloud. Cloud ONTAP uses patented NetApp technologies for non-disruptive operations, seamless scalability and efficiency combining them with on-demand computing benefits of cloud services in a pay-as-you-go model. The initial release combines the world’s leading storage operating system ONTAP with the world’s leading public cloud Amazon Web Services. We have been in beta for several months with installed base customers and today announced its general availability. NetApp private storage and Cloud ONTAP demonstrate our commitment to enable customers to fully realize the flexibility and economics of hyperscale clouds and to do so as a seamless extension of their on-premises environment. NetApp creates the ability to leverage the instant scale of the cloud to accelerate time to deployment of new applications, to reduce the risk in investment for temporary or speculative workloads and to transfer high activity workloads back to owned infrastructure for better economics. Hybrid cloud done correctly means better speed, innovation and economics with greater responsiveness to the needs of the business. Cloud also makes sense to low utilization workloads like backup and archiving. Enterprises are looking for more cost effective ways to manage this data and are considering cloud storage as an option. To that end, we recently acquired the SteelStore product line from Riverbed, which enables customers to extend their existing data protection infrastructure into the cloud. Customers are able to reduce the complexity of disc-to-disc and tape-based backup while reducing storage costs with in-line deduplication and compression. Today, we announced the availability of the SteelStore product as well as an Amazon machine image option, which will be available later this quarter. To help customers manage large scale data repositories, we recently introduced StorageGRID Webscale which automatically stores and manages repositories of billions of objects globally across multiple data centers, clouds and cost tiers. Customers can define policies that automate how and where data is stored and protected based on cost, performance, accessibility and durability needs. Additionally, because StorageGRID Webscale is built for the hybrid cloud, organizations can store data in the right place, at the right time and take advantage of on-premises or public cloud environments as need dictate with the ability to move back and forth dynamically. All of these innovations support our vision of a fully operationalized hybrid cloud. Unlike the positioning of other suppliers, we are not diminishing the potential of a hyperscale cloud nor are we steering customers to a proprietary cloud. We are unambiguously stating that for important subset of workloads the hyperscale cloud will deliver value to our customers. Our strategy is to enable customers to realize that value by making hyperscale integration to existing environments as seamless and operationally secure as possible. Our portfolio of data management solutions improves the economics, flexibility and business impact of customers existing infrastructure while giving them confidence in our ability to help them navigate the hybrid cloud future. In the last few months, we have dramatically expanded the NetApp portfolio at a pace unprecedented in our history. We introduced Data ONTAP 8.3, Cloud ONTAP, FlashRay, StorageGRID Webscale, expanded NetApp private storage and FlexPod solution ecosystems and acquired the SteelStore product line. We expect each of these products to lead in their categories prevailing over competitors both large and small. Our best of breed solutions are compelling for existing requirements and are integrated to a much broader vision of the hybrid cloud that only NetApp can deliver. The integration of the public cloud is driving a fundamental transformation of IT creating more opportunities for IT to deliver competitive advantage for the businesses than ever before. But these opportunities come with risk. Our vision supported by products that are available now is fueling our participation and leadership in this transition. Only NetApp has a strategy that gives customers a seamless path to the hybrid cloud and the ability to manage their data across clouds and on-premises environments. Before opening the call for Q&A, I would like to express my sincere appreciation to the over 12,000 employees of NetApp for all their work and dedication. We, again, received strong placement in the World’s Best Multinational Workplaces list by the Great Place to Work Institute. NetApp’s unique culture is a differentiator that helps us produce great results for NetApp customers and partners. We will now open up the call for Q&A. As always, I ask you to be respectful of your peers on the call and limit yourself to one question, so we can address as many people as possible. Thank you. Operator?

(Operator Instructions). Our first question comes from Keith Bachman with Bank of Montreal. Your line is open. Keith Bachman - Bank of Montreal: Yes. Thank you. Tom, I wanted to go with you, if I could, and if you could just talk a little bit about the branded product revenue and that if I impute what you’re guiding to, it looks like you’re guiding to about mid single digit branded product revenue, which is the first time that you would reach mid single digits in I think 10 or 12 quarters than kind of plus or minus zero. And yet it sounds like, to be fair, you’re down taking a little bit on your expectations associated with branded product revenue and I was hoping you could just talk a little bit about why you think your growth potential is lower than what you had previously expected?

Yes. I think all things considered, I think things are more or less in line of what we expected. I’d say the thing that’s probably a variance certainly going into this quarter is really the impact of FX. And the FX impact is overwhelmingly on the branded side as opposed to the OEM side given the nature of that business. So I think the trajectory that we talked about for the branded business I think is very, very much intact. It’s certainly modulated by the FX component, so I don’t feel like we’re communicating anything different than what we’ve been saying all along. I think the momentum is there. Certainly the portfolio build just in the last 90 days, you think about the products we just brought to market, literally it will take time to ramp but if I look at the trajectory that we’re on, it’s substantially unchanged. I really don’t have anything to add to the equation expect for the FX impact, which is overwhelmingly on branded. Keith Bachman - Bank of Montreal: Okay. So literally, it was just FX then.

Yes. A point is a real number in a low growth market, so for us if we had that point back, I don’t think we’d be having this discussion. Keith Bachman - Bank of Montreal: Okay.

Keith, I’m going to add in on that just for everybody else as well. In terms of the Q3 guidance, it is that point of FX that is really from a revenue perspective and we both had calls earlier certainly on the press side of the fence and really on Q3, it’s FX. That’s it in terms of any difference from what we would have expected earlier. And then on the EPS line, you need to think about the SteelStore acquisition and the combination of those two on the EPS line is about $0.02. Keith Bachman - Bank of Montreal: All right, fair enough, because you’re certainly not the only company experiencing FX challenges.

Correct. Keith Bachman - Bank of Montreal: If I could just sneak in why the corresponding question and as my follow up is you mentioned the OEM business is a little bit better. Should we be thinking about the same longer term considerations for the FX as a percent of total revenues or product revenues? Is this a temporary little bit better or do you think there are some larger opportunities here associated with the OEM business? That’s it from me. Thank you.

Yes, so let me start on that and hopefully we’ll be able to keep the one question thing. But on the OEM side of the fence, most of that business is conducted in U.S. dollars. So we don’t have too much of an FX impact there to think about. It’s mostly on the branded side, as Tom indicated. And we said that the OEM business could be off up to 40% this year. It’s obviously not at that point so far for the first half. This is dynamic as business declines and in certain areas business is declining substantially and significantly and you can think about the N series business as the perfect example of that. There’s other businesses that we expected some pretty substantial declines on and are a little bit lumpy on the way down. So those are all things we have to think about. And so as we modulate these branded and OEM numbers just a little bit, we’re being conscious of those things. Keith Bachman - Bank of Montreal: Many thanks.

Our next question comes from Nehal Chokshi with Maxim Group. Your line is open. Nehal Chokshi - Maxim Group: I’d like to dig more into Cloud ONTAP. You spent a lot of time on that, I appreciate that. But the realization of cloud bursting, I want to be clear. Is that something that is enabled within this current version of general availability or is that something that will become available? And I have a follow up based on that answer.

We want to keep to one, so – one question. I think Cloud ONTAP is ONTAP and so depending on your definition of cloud bursting, effectively what it’s going to look like is another instantiation of an ONTAP system. So all of the way that you would manage a system that was on-premise running ONTAP, this would just look like an actual extension of that. So all the SnapMirror technology, all the data moving technology, the multiprotocol, all of those are built into this application. So if cloud bursting is can I run an application here and then can I run instantiation on it in the cloud and can I move my data over with SnapMirror, the answer to that is yes. Nehal Chokshi - Maxim Group: Okay. What I’m precisely talking about is that say you have a highly variable workload and you don’t want to buy physical resources on-premise for the baseline and that you want to burst it into the public cloud for the peak workloads. Can you do that?

The answer to that is yes. However, in general you’re going to want the applications in relatively close proximity to the data. So if you had two copies of that data that would be viable, or if you had an application that run for a long time and you can move the data and then run the application. Probably a better alternative to that is actually NetApp private storage. What NetApp private storage is, is you basically have the data on your network and you connect to the high bandwidth pipes to Amazon and Microsoft and now SoftLayer. So effectively you can have one copy of the data and execute on it with your internal computing capabilities and if you need extra compute capabilities on that same piece of data on your network, you can have access to the elastic compute of Amazon, Microsoft or SoftLayer. So in that latter situation, I think that’s a better match for the used case that you decide. There are other used cases for Cloud ONTAP like backup and DR and things of that nature. So I’d say that we have all of those used cases covered in a very, very unique and differentiated way and that’s why there’s so much momentum around this cloud story and a lot of response from the Insight that we just did last week. Nehal Chokshi - Maxim Group: Right. Great. Thank you very much.

Our next question comes from Sherri Scribner with Deutsche Bank. Your line is open. Sherri Scribner - Deutsche Bank: Hi. Thanks. Nick, I was hoping you could provide a little detail about what you’re thinking about gross margins longer term? They were a bit better than expected and I know that you called out supply chain savings and some favorable mix. In this quarter, guidance looks a little bit lower in terms of gross margin expectations. Just wanted to get more detail on how we should think about it longer term?

Sure, Sherri. I think that in terms of longer term being the year, first, we took that up a bit and you probably noticed that in the text this time versus last time around. In terms of the three-year, the gross margin guidance is really unchanged. We’re getting benefit from a variety of things we’re doing. We’re getting benefit from mix of business, mix of revenue in the business. So as we have higher margin, pieces of our services businesses higher margin that rolling through that’s going to benefit us. OEM mix will change things as well. But as we’ve talked about in prior quarters, we have done a substantial amount of work that we feel good about around the supply chain side of the fence. We’re also seeing the benefit of warranty that’s speaking to other things that we have worked very hard on over time. So I think that this all comes together and is consistent. We in essence brought up the year a little bit in the gross margin side, so FY '15, so you should expect to see that in the second half here. But the overall guidance and the overall expectations of strong gross margins based on that value proposition of what we’re selling is consistent.

One thing I’d add is certainly I’d echo Nick’s comments. I think the execution intensity of the company on many fronts, including this one in terms of gross margin generation and likewise engineering and delivery I think had ratchet up dramatically over the course of the last couple of years. But the other thing in terms of long-term guidance on gross margin is, we reserve the right to use that as a competitive knob. We certainly see aging infrastructures of our competitors out there that are not really being refreshed and not really seeing any innovation. And the opportunity to attack them aggressively with now a refreshed Clustered ONTAP and the new offerings that we have and generally a lot of those attacks are not our highest margin transactions on day one. So the ability to use the gross margin strength of the company as a competitive weapon to attack aging infrastructures of our competition is something that we’re going to reserve the right to do. So as we think about our long-term gross margin, not only is it the operational excellence that Nick and the team are driving but it’s also the competitive choices that we’re going to make. Sherri Scribner - Deutsche Bank: Thank you, Tom. And can I just ask a follow up in terms of the…

This is the third follow up. I think we probably need to keep it fair, otherwise we won’t get to the entire list. I’m sorry. Sherri Scribner - Deutsche Bank: Okay.

Our next question comes from Bill Shope with Goldman Sachs. Your line is open. Bill Shope - Goldman Sachs: Thank you. How are you thinking about federal trends now as we head into the January quarter after obviously a nice rebound this quarter? Should it be normal seasonal declines? And I guess related to that, do you think your visibility here is now improving to normal levels or is it still a bit lumpy?

Yes. So why don’t I start on the seasonal decline. So, yes, we expect seasonal declines and in fact they are substantial. In many years we’ve had a Q2 to Q3 sequential decline in federal revenues in the 40% range plus. So we would expect that same thing again. And that doesn’t mean we feel good, better and different. It’s just the seasonality of the business. I think that we have seen stabilization out there, that’s good. I think our position – and Tom can speak to it better than I, our position continues to be very strong on the federal side of the fence.

Certainly a year ago we were facing sequestration at the end of the government’s fiscal year and then a shutdown in the month of October when trying to close a quarter. So obviously compared to that, it was a lot more pleasant but frankly it was – I think the team did a really good job there. I would say that federal spending wasn’t massively robust but nonetheless it was much more predictable and much more understandable. And with the 8% year-over-year growth better than on the booking side, I think there’s no doubt that we gained share in that segment. The team continues to execute well. I think going forward, I think that traditional seasonality from quarter-to-quarter is what we would expect. Obviously a change in Congress may have some impact on the funding side but absent that, I think that the federal business pretty much operated on its normal cadence through most of the last year, and I think we got our disproportionate share of it. Bill Shope - Goldman Sachs: Okay. Thank you.

Our next question comes from James Kisner with Jefferies. Your line is open. James Kisner - Jefferies & Co.: Hi. Thank you for taking my question. I’ll keep it to one. So, we’ve been hearing about some layoffs in VCE post the consolidation of ownership there. I’m just wondering do you guys see any incremental opportunities as a result of that? Thank you.

The short answer to that is yes. I think clearly the trajectory of the business and the underlying relationship there has been problematic for some time. And certainly while this is the latest news, we’ve certainly seen deeper and deeper engagement with Cisco with NetApp around more and more strategic matters going forward around products and co-development and co-marketing, including a lot of joint appearances and a lot of joint events with executives. So, from our perspective, this is just the latest in the news but the trajectory over the last year clearly has been lots more engagement not just on a product side – I should say not just on a sales side but from a product and strategy side going forward and we’re very, very, very closely aligned with Cisco’s strategic initiatives going forward. So I think the answer to that question is yes, but I’d say that that didn’t just start last month with the announcement. I think the announcement was a culmination of a broader transition and we’ve seen that activity over the last year and the results of which you’ll see in the market next year. James Kisner - Jefferies & Co.: Great. Thank you.

Our next question comes from Steven Fox with Cross Research. Your line is open. Steven Fox - Cross Research: Just one question from me. Tom, you highlighted a very robust product roadmap that’s coming to market now. Is there any way you can put a little color on how it impacts revenues over time? When you would think we’d see something show up in the financials that maybe is different from the trends you’re talking about and whether there’s any customer application trends that maybe could drive it faster in the near future? Thanks a lot.

Well, I think the revenue impact is expected to be up and I think as far as the trend goes, I think they’re on a bunch of different fronts. I think as far as the Clustered ONTAP announcements of 8.3, in a lot of ways that a culmination release of really the last of the major features that have been holding back some of our customers on the transition front, which is particularly Metrocluster. Certain segments of our market have used that to compete and compete effective and have turned it into almost in every unit item and waiting for that has been an important component of that. So I think there’s some pent-up demand there clearly around people have been waiting for that technology as a precondition to consider transition. Now they will transition as equipment ages and equipment comes to end of its usable life, so won’t happen overnight. But I still see that 8.3 will generate the next and last major tranche of people that will begin the transition process. As far as StorageGRID, clearly the opportunity to do Webscale storage is a conversation that we have with a lot of customers, a lot of our service providers both in the U.S. and international. And I think that’s a segment of the market where we had not been able to participate in the past, so I think that opens up new segments to us. FlashRay continuing on the evolution of flash adding to the portfolio EF and all-flash FAS and now FlashRay, so I think that lays out our portfolio there which I think is bigger and broader than anybody’s in the industries. So I think all of that is couched against a challenging economic backdrop. So from our point of view is we’re not going to forecast the macro. Certainly none of the guidance that Nick and I gave you is anticipating any fundamental change in the macro backdrop, but I believe that our competitiveness today in terms of a refresh of our core technology and additions to the portfolio on top of that not to mention the SteelStore acquisition, I think we have a lot more to sell today than we had six months ago even. So I think that bodes well. The rate of the turnaround, clearly there are other factors that we can’t control. All we can control is our pace of innovation, our ability to sell and service customers and I feel really good about that. Steven Fox - Cross Research: Great. That’s very helpful. Thanks again.

Our next question comes from Joe Wittine with Longbow Research. Your line is open. Joe Wittine - Longbow Research: Hi. Thanks. Maybe I’ll shift over to cash deployments. So it seems like you pulled in some of the buyback, at least from a linear perspective, and the vast majority is now complete. Nick, I understand you won’t put out any numbers today but can you at least help investors understand whether NetApp, the Board, et cetera, has the appetite to continue cash returns in excess of free cash flow into '15 or is it more likely you revert back to kind of a steady state that is below free cash flow, let’s say?

Hi, Joe. So first of all, we have on the original plan for this year we have 400 million in change to go as of the end of the second quarter. So we’ve got a good chunk remaining ahead of us and the plan was that through May of 2015, we will deploy the rest of that. And we talk about the capital allocation at every Board meeting. Our Board is very sensitive to their share repurchase, dividends and the overall philosophy there. And I think in terms of the guidance we gave that guidance is consistent. So at this point in time, we will look at all of those pieces on a going forward basis both repurchases and dividends. We will finish out this current authorization by May of 2015. The Board is having that kind of a conversation around the next authorization and all of those pieces, and we’ll announce more as it makes sense to announce more on those things. The strategy and the things that I laid out at our financial Analyst Day in May are consistent until we say something else, frankly.

Our next question comes from Ben Reitzes with Barclays. Your line is open. Ben Reitzes - Barclays Capital: Hi. Thanks. Tom, can you discuss Cloud ONTAP a little more? And what percent of your customer base do you think that will appeal to? And do you think it will have a cannibalistic effect on revenues or a more synergistic effect? And then I just want to sneak this in, if you could just clarify whether – material revenue contribution from SteelStore is in your guidance? Thanks.

The latter question is no; no material contribution of SteelStore. We need to get up at that in going and we need to – obviously we need to scrub the pipeline and we need to get first-hand knowledge there. So I don’t think we’re going to bake that in at this point. Ben Reitzes - Barclays Capital: Thanks.

The broader question on Clustered ONTAP is I think you need to think about Clustered ONTAP in the big picture and not a standalone product. The goal here for NetApp is while lots of people talk about the cloud in the context of it’s a jungle, it’s dangerous, it’s risky and those are awfully euphemisms for we hope it doesn’t happen. I also see a lot of the cloud conversations around steering people to proprietary clouds and our view is that Amazon is going to make a big investment, as is Microsoft and SoftLayer. They are going to create a set of capabilities whether it be around flexibility, around certain workloads and cost around certain workloads that are going to be compelling to the enterprise. And our task and our goal and our strategy is to make it possible for them to bring the hyperscale cloud in and make it look like a seamless extension of what they do on-premise. So there’s no ambiguity about our position on the public cloud. It’s going to make sense for a set of workloads, our job is to operationalize it. So the broader question isn’t so much about Cloud ONTAP as a point product, it’s about Cloud ONTAP as a completion of a strategy. I can run ONTAP on my hardware, I can run ONTAP on other people’s hardware, I can run ONTAP in the virtual machine on-premise, I can do NetApp private storage where you can keep your storage but use the compute form of Amazon and I can run in Amazon. So all those options are now available to the customer with one set of tools, one set of processes, one set of software, and that’s my definition of software-defined stores is basically a set of common functionality across all instantiations at all locations of data. That’s the big picture. Now as far as Clustered ONTAP, we’re not viewing it as a point product. We’re viewing it as an essential part of a strategy that’s going to enable NetApp to become the enterprise data management standard. So, yes, we’ll cannibalize some business, it will also allow us to monetize data to the cloud. More importantly, as we can become more ubiquitous as the enterprise data management standard, we can bring more of the data management both in the cloud and on-premise over time and that’s the real push on this technology. So Cloud ONTAP is not a point product. Certainly it can be bought and procured that way, but it’s part of a much broader strategy to ultimately create seamless data management across the entire enterprise, across all media. That’s what we want to do. Ben Reitzes - Barclays Capital: Okay. Thanks.

Our next question comes from Maynard Um with Wells Fargo. Your line is open. Maynard Um - Wells Fargo: Hi. Thank you. Can you talk a little bit about your channel? And if with the new opportunities, you think there have to be shifts, because I think one thing that came out of Insight was that NetApp’s professional services team is now available to channel partners and I’m wondering if that suggest greater complexity in the sales process or suggest the potential for higher costs. I was just hoping if you could just share a little bit of color around your thoughts on channel in general in context of the changes in the industry. Thanks.

Well, I think we want to get crisper about our channel positioning over time that professional – to separate these two points. Professional services is an essential part of customer success with our technology. And there’s a need for that in our enterprise accounts and there’s a need for that with our channel partners. We want to focus our professional services around accounts that either expect or demand that that service comes directly from us around very, very complex services or around things only NetApp can do, which would mean things that usually have an engineering modification component. The rest of the business for the purpose of velocity, we want to have our channel partners do. It’s a big business opportunity for them. We don’t want to be competing with them for it. So in general, not just around professional services but even around go-to-market, we’re looking for our channel partners to become more self-sufficient, more capable both on the pre-sell side and the post-sell side. So they can basically drive more of our business in the midsized business and NetApp can focus its dedicated resources in the enterprise. So over time, I think we want to be much, much clearer about our delineation of our staff between our support of the midsized business, which is mostly through channel partners, which means a significant investment on our part to get them up to speed and capable and competent. It also means that we’re not competing with them for business. So they are at a position to make a much bigger commitment to NetApp because our objectives are quite clear. And likewise, as we see a rebound and strength in growth of large deals, those are things that we want to capture and we want to cultivate and we want to have more of our NetApp direct resources working in our largest enterprise accounts driving big opportunities and big business for us. So over time, we want to be very clear about our delineation of our skills and where we’re going to deploy our resources. We want our best channel partners to be more capable and more competent and we will steer more business their way and we will give them the support that they need and we want to focus our direct resources on the big accounts and the big opportunities. And we talked about that at financial Analyst Day in terms of the segments that matter to us and I think we’re six months into transition now and so far so good.

Our next question comes from Katy Huberty with Morgan Stanley. Your line is open. Katy Huberty - Morgan Stanley: Yes. Thanks. The midpoint of January guidance assumes the same 4% sequential growth as you reported a year ago even though you have a tougher U.S. public comp from the October quarter this time around, you have the FX headwind and you’ve talked about some mixed macro. So is there something that’s driving more confidence around the January quarter versus the last few and especially relative to the year ago?

I think all those data points are true. I think we have more things to sell and I think that our story in terms of the cloud and Insight and hopefully the catalyst that that will provide. We did our Las Vegas event last week. We’re doing our European event next week. So if I look going forward, I certainly wouldn’t consider the forecast euphoric. As you point out we certainly have FX headwinds and other things. On the other hand, I think our competitive position only gets better. We really don’t have any aging products. Just about everything of substance is either brand new or it has just been updated and I just feel that our competitive position is stronger than it’s been in some time. And at the end of the day, 4% isn’t 15% either. So I want to be pushing hard, I want to set high goals, I want to be cognizant of the world around us. But the simple fact of the matter is I think our competitive position today is better than it was six months or a year ago.

Our next question comes from Andrew Nowinski with Piper Jaffray. Your line is open. Andrew Nowinski - Piper Jaffray: Thank you. Maybe just from a geographic perspective, I know you said that the regions came in largely as expected, but the 2.9% decline in Europe looks like it’s the worst it’s been since Q1 of 2012. So do you think you could see any sort of market share loss in that region or was it more related to disruption in Ukraine and the overall macro? Thanks.

On those numbers, there’s also the OEM business that’s wrapped into that. If I think about bookings, which is probably a more indicative of the current state of the business, they continue to be quite strong and they were definitely in positive territory. There is no doubt that the Russian sanctions had some complexity in terms of who we can sell to and the velocity of fulfillment and that certainly had some impact on the business but not enough to talk about. So we certainly see the Russian and Ukraine influence and I think that that’s – it’s not zero but not material. It’s a few million dollars. But at the end of the day, I think in light of all of these headlines around Europe in general and Germany in particular, those teams continue to execute well. So when I look from a booking perspective, I would say that looking at bookings I don’t see our performance commensurate with the headlines and we certainly hope that that continues. But right now FX is a bigger concern than the overall economic condition in terms of impacting our Germany business in particular.

Yes, I would also add to that that our European business in the second quarter at 28% or 29% of overall revenue is right in line with what we’ve seen over the last several years. Andrew Nowinski - Piper Jaffray: Thank you.

Our next question comes from Brian Alexander with Raymond James. Your line is open. Brian Alexander - Raymond James: All right. Thank you. Nick, if I look at the deferred revenue, long-term deferred hasn’t really grown year-over-year in the last four quarter but your short-term deferred is up about 6% to 8% over that same timeframe. So I realize product revenue growth has been a bit lackluster and that’s a major factor here, and maybe customers are renewing maintenance on a shorter term basis as they prolong their product refresh activity. Is there anything else driving the wedge between short-term and long-term deferred and is there anything we should take away from either maintenance attach rates or maintenance pricing that’s driving that gap? Thanks.

I think your point around what customers do on the renewal side, what they do as they understand more and more about what Clustered ONTAP can do to them but they want to make those transitions when it makes sense from an operational perspective, when it makes sense from a financial perspective and all those pieces, I think that’s really the key here. There’s nothing outside of the renewal cycle and what’s going on with that that would really be driving this. Remember, every one of those contracts with customers have their own term to them, their own value in the overall contract to them. Sometimes those are standalone type of transactions, sometimes they are tied up with other product sales, but there is nothing overall or an umbrella concept that I would say would be changing things here. But this point about renewing for shorter periods of time while customers are getting ready for a Clustered ONTAP transition, that absolutely makes sense. Brian Alexander - Raymond James: I was just going to follow up and say, you would still say the change in deferred going forward should be a positive contributor to cash flow.

Deferred revenue is absolutely a positive contributor. Brian Alexander - Raymond James: Okay.

And I will echo Nick’s comments. I think one of them clearly a short-term renewals on equipment, whether it’s because budgets can’t support a tech refresh at this time whether it’s because they’re waiting to do a Clustered ONTAP transition, whether they’re waiting for 8.3, I think all of those are factors that would be indicative of a lot of equipment that is getting closer and closer to its need for tech refresh. When that actual transition occurs, obviously it’s going to be a function to budget. But I think the general case of as we go through and we talked about revenue growth, we should not also lose sight of the fact that we had over $100 million of year-over-year growth in the deferred revenue balance. So once again, indicative of the growth of the business, a fair amount of our transactions have a current revenue component and a deferred component and that’s an important indicator of our overall business levels as well just as important as the revenue. Brian Alexander - Raymond James: Thank you.

Our next question comes from Amit Daryanani with RBC Capital Markets. Your line is open. Mitch Steves - RBC Capital Markets: Hi. This is Mitch Steves filling in for Amit. One quick question on FlashRay. Do you guys expect that to be a material driver for branded growth? And how should we think about that product relative to the EF540 array?

It is going to be a branded product, so all the FlashRay product will be in the branded category. In terms of the overall portfolio, I think that there’s several points. The EF product is optimized for just raw performance and the classic workload that we see there is database acceleration, the data migration and the data placement is managed by the application itself typically Oracle and ASM. And the key differentiator there is high availability, because a lot of those environments have very, very high availability requirements, they tend to be very, very mission-critical, high-performance applications. So the maturity of the EF family which has been doing high availability longer than NetApp in fact allows us to compete for that very, very high performance with high availability. And the high availability requirement disqualifies a lot of the start-ups. As far as FlashRay, it’s less around raw brute performance although obviously it’s a flash array and performance is an important characteristic, but it’s really that married with data management and married with storage efficiency. So the ability to deliver performance and with compelling always on storage efficiency and very, very compelling ease of use is really the positioning for FlashRay. All-flash FAS is also a critical part of this story, but I think you should think about that as we certainly sell it certainly today as a point all-flash product competing against some of the other products and particularly with 8.3, the performance characteristics were remarkable; in fact clearly outperforming the biggest competitors in that space including the newly architected designs. But the way to think about all-flash FAS beyond just a point product is imagine all-flash FAS not as a standalone all-flash array but as a node in the cluster. And you can have an all-flash FAS and a cluster as a high performance device and then next to it you can have a machine that’s got 2,000 disc drives that’s optimized for capacity and you can use all of our transparent volume migration that’s already part of Clustered ONTAP to do the data migrations, the data ages so you’ll always have fresh space for your high-performance data in the flash. Or you could basically distribute the flash to the entire cluster and use all of our scale-out capabilities to do that. So from our point of view whether it’s the raw performance used case, whether it’s the general purpose efficient used case like a FlashRay or whether it’s the business critical and traditional business app worst case as part of a clustered solution with all-flash FAS, that’s a pretty broad landscape and nobody else can match that. So from our perspective, I think we feel great about the portfolio. I think we see FlashRay in customers’ hands getting great feedback on the performance and the ease of use and the efficiency, getting a bigger and bigger role. So simply put, EF all about performance; FlashRay around performance with efficiency and all-flash FAS around network stores for business applications using all of the premium features that’s available in ONTAP but with the speed of flash.

Our last question comes from Jim Suva with Citigroup. Your line is open. Jim Suva - Citigroup: Thanks very much. Just kind of looking at the big picture and strategy, you guys have also gone through some restructuring recently. If I remember correctly, a lot of indications show that you’re redeploying some of those restructurings into reinvesting into the business. Can you confirm kind of if that’s true and are we seeing the fruit of that reinvestment happening now or when should we see it? Because you got to kind of scratch your head a little bit when you see that year-over-year it looks like net income is not growing and maybe it simply just takes some time to harvest some of the reinvestments and when should we see it happen? Thank you.

Jim, let me start with this but yes, when we talked about the work we did last year, this is really about repositioning. This is really about setting our portfolio for the go forward, right, and a point that we were going to reinvest in the business in those areas where we were going to see or we believe we were going to get the biggest return in the future. That ramps up. So the investment comes in over a period of time and I think largely the investment is in now. And then that investment gets on to those productive activities to yield returns. So those are all part of the plan, those are all things we are doing, we’ve invested in and we’re doing going forward.

Yes. One thing I’d point out is that there’s actually been two restructurings. One last year and the year before and a key component of those restructurings was to reposition resources against high priority activities for us. And if you look at what we’ve just announced since we last met on this call, we’ve announced FlashRay, we’ve announced StorageGRID Webscale, Cloud ONTAP, ONTAP 8.3. Resources redeployed against those activities is why those activities exist and why they exist now. So the things that we did just this past year, some of them are reflected in those activities and some of those are reflected in future innovation and future investments not only on the product side but also on the go-to-market side and services side. So I think no doubt I believe our headcount today is higher than it was before we did the restructuring. We are doing the restructuring because we were out of ideas and we didn’t know what to spend money on. We did those restructuring because we had a lot of ideas that we wanted to get on and get our resources aligned to it, and I think we did that. So I guess just to wrap up, I guess just kind of the summary. Where we are, I think it’s a challenging environment but the business performed as we expected. If we look about the rest of the year, I think absent the dilution of the SteelStore and the FX, I think the EPS and the revenue for the year are more or less what we said they were going to be when we last talked to you. So I think we see consistently in the rest of the year, despite a fair number of moving parts. Probably for us, I’d say probably the two big headline things for us since we last met; big portfolio build out and the products that I just mentioned. Obviously, the acquisition of SteelStore on top of that and I also think that we’ve become a lot crisper in our messaging and communication with not only our internal audiences but now with customers and analysts and the community around our hybrid cloud strategy. And key elements of that whether it’d be NetApp private storage or Cloud ONTAP are now reeling in the market. So when I think about just the raw technology and where we are today, our go-forward story about the hybrid cloud and the prove points against it, I feel really good about what we’ve accomplished certainly over the last 90 days and the last year. So thanks for your time. Hopefully, see you all again next quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today’s program. This concludes the program. You may all disconnect.