Tara Dhillon – Sr. Director Investor Relations Daniel Warmenhoven – CEO Thomas Georgens – President & COO Steven Gomo – CFO

Analyst – Credit Suisse Keith Bachman – BMO Capital Markets Louis Miscioscia – Cowen & Co. Aaron Rakers – Wachovia Capital Markets Paul Mansky – Citigroup Min Park – Goldman Sachs Mark Moskowitz – JP Morgan Katy Huberty – Morgan Stanley Ben Reitzes – Lehman Brothers Brent Bracelin – Pacific Crest Securities Kaushik Roy – Pacific Growth Equities Thomas Curlin – RBC Capital Markets Brian Freed – Morgan, Keegan & Company William Fearnley – FTN Midwest Securities Wamsi Mohan – Merrill Lynch Rich Sherman – MKM Partners Chris Whitmore – Deutsche Bank Jason Noland – Robert W. Baird & Associates Clay Sumner – Friedman, Billings, Ramsey Glenn Hanus – Needham and Company Scott Craig – Banc of America

Good day ladies and gentlemen and welcome to the NetApp first quarter of fiscal year 2009 earnings conference call. (Operator Instructions) I would now like to turn the call over to Ms. Tara Dhillon, Senior Director of Investor Relations; please proceed.

Good afternoon everyone. Thank you for joining us today. Our call is being webcast simultaneously 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 the GAAP and non-GAAP numbers. In the course of today’s call we will make forward-looking statements and projections that involve risk and uncertainty including statements about our projections for our second quarter and first half fiscal 2009 financial results, including our revenues, margins and earnings, our top line results for our second half and our beliefs that there is an will continue to be increasing customer demand for storage efficiencies. Actual results may differ materially from our statements or projections. Factors that could cause actual results to differ from our projections include but are not limited to customer demand for products and services, increased competition and any decline in general economic conditions. Other equally important factors are detailed in our accompanying press release as well as our 10-K and 10-Q reports on file with the SEC and also available through our website. All of which factors are incorporated by reference in today’s discussion. With me on today’s call are Dan Warmenhoven, CEO; our President and Chief Operating Officer Tom Georgens; and our CFO Steve Gomo. Steve will review the first quarter financials and our targets for the second quarter of FY09, Tom will discuss our operations, and Dan will share his thoughts and then we will wrap up with Q&A. At this point I’ll turn the call over to Steve.

Thanks Tara, good afternoon everyone. NetApp executed right on plan this quarter with revenue and earnings both ending just above the middle of our targeted range. As I walk through the results, please note that all numbers are GAAP unless stated otherwise. To see the reconciling items between non-GAAP and GAAP refer to the table in our press release and to our website. Total revenue for the first quarter was $869 million, down 7% sequentially and up 26% over Q1 of last year. Foreign currency effects aided sequential growth by about one-half of a percentage point and improved the year-over-year growth by about three percentage points. Product revenue of $548 million was down 13% sequentially and up 18% year-over-year accounting for 63% of total revenue. Add-on software which is a subset of product revenue was almost 20% of total revenue this quarter. Revenue from software entitlements and maintenance was $144 million or just under 17% of total revenue. Software E&M was up 6% sequentially and 34% year-over-year continuing to help fuel deferred revenue growth. Total software the combination of add-on software and software E&M was 36% of total revenue compared to 38% in Q4 and 41% in Q1 of last year. Thomas will discuss the software dynamics in his remarks. Revenue from services which includes hardware support, professional services and educational services, was $177 million and 20% of total revenue up 3% sequentially and up 50% over Q1 of last year. Service maintenance contracts increased 8% sequentially and 48% year-over-year. Professional services decreased 8% sequentially but increased 53% over last year. Non-GAAP gross margins were 60.7% of revenue this quarter down 1.5 percentage points from last quarter and just slightly below the 51% we had projected due to lower product gross margin and the higher contribution from our services business. On our fourth quarter earnings call, we shared with you that we would be implementing a change in the reporting format for our warranty costs beginning in Q1. Historically we reported those costs and services cost of good sold. In our Q1 actual results and going forward they are reported in product cost of goods sold. This change has zero impact on total cost of goods sold and total gross margins. It simply shifts dollars between product and service gross margin. From what we would have traditionally reported this reporting change reduced product margins by 1.1 percentage points and added about 4.8 percentage points to services margins. Product margins were impacted by volume related effects from lower Q1 revenue levels and a heavy low end mix of products. As a result non-GAAP product gross margins were 55.8% and non-GAAP services margins were 45%. Non-GAAP software and E&M margins were consistent at 98.5%. Turning to non-GAAP expenses, our operating expenses totaled $444 million or 51% of revenue. OpEx increased 2% sequentially and 27% year-over-year. During the quarter headcount increased by 354 people on a net basis ending up with 7,999 employees. While we were somewhat below our overall hiring targets in Q1, we were very close to our goal for hiring quota bearing sales reps. Our future investments in operating expenses will continue to emphasize sales coverage to help fuel top line growth. Our GAAP operating expenses include the effect of prior merger related costs, the amortization of intangibles from acquisition and the affects of FAS123R as well as the net gains or losses on investments. Non-GAAP income from operations totaled $83 million or 9.6% of revenue in Q1 and finished just above the middle of our projected range of 9% to 10%. Non-GAAP other income which consists primarily of interest income was $9 million. Non-GAAP net income before taxes was $92 million or 10.6% of revenue. Our non-GAAP effective tax rate remains at 17.5%. Non-GAAP net income totaled $76 million or $0.22 per share. GAAP net income totaled $38 million or $0.11 per share. Now moving to our cash flow performance our cash from operations was $250 million down 15% sequentially and up 25% over Q1 of last year. Capital expenditures were $77 million this quarter. We define free cash flow as cash from operations less capital expenditure so free cash flow totaled $174 million down 24% sequentially and up 4% over Q1 of last year. Expressed as a percent of revenue Q1 free cash flow was 20%. Turning now to the balance sheet, our cash and investments totaled $2.1 billion which includes the net effect from the $1.265 billion in proceeds we raised from the convertible note that we announced on June 3rd, 2008. This balance excludes approximately $200 million of restricted cash related to our secured revolving credit facility. It also excludes about $72 million of auction rate securities which have been reclassified from short-term to long-term investments. The debt associated with our credit facility is $131 million and is classified entirely as a long-term liability. We continued to buyback stock this quarter both in conjunction with our convertible offering and on the open market. We repurchased a total of 17 million shares at an average price of $23.58 for a total outlay of $400 million. This includes the $274 million spent to purchase 11.6 million at $23.59 as part of the convert. Turning to DSO, accounts receivable day sales outstanding were 45 days compared to 56 days last quarter and 53 days in Q1 of last year. Inventory turns were 21.7x this quarter, up from the 20.3x achieved in Q4. The total deferred revenue balance increased $55 million this quarter to $1.56 billion, a 4% sequential increase and a 36% increase in the balance year-over-year. Now before I turn the call over to Thomas, I’ll discuss our target operating model for Q2. Our outlook is based on our current business expectations and current market conditions, and reflects our non-GAAP presentation. We are making forward-looking statements and projections that involve risk and uncertainty. Actual results may differ materially from our statements or projections for the reasons cited previously. We are targeting second quarter revenue to be in the range of $910 million to $940 million within the range we outlined for you at our Analyst Day in March. We expect our non-GAAP operating margins to be in the targeted range of about 11% to 12%. Non-GAAP EPS is expected to be approximately $0.27 to $0.30 per share with GAAP EPS between $0.16 and $0.19 per share. Our diluted share count is expected to increase by about 2 million shares in the second quarter depending on the stock price. Now with that I will turn the call over to Thomas for an update on operations.

Thanks Steven, the diversification of our revenue stream has been a high priority for us, both strategically and in terms of our near-term investments. At Analyst Day I laid out the segmentation we now use to track our diversification efforts. We are looking at the top 5,000 buyers of storage in the world or the S5000. In March we had achieved high penetration in just under 10% of those customers. We had now penetration in about 17% and did not yet have a presence in more than 73% of the S5000. The percentage of our highly penetrated accounts has grown modestly mostly through the efforts in growing our lesser penetrated accounts. The highly penetrated category includes many of our top enterprise accounts or TEAs which had flattened out or declined as the economy slowed. However in the US non-federal market our TEAs grew 11% over Q1 of last year for the first double-digit growth quarter in a long time. This reinforces our belief that the lull in growth was a result of spending constraints not losses to competition. Another contributor to the growth was the expansion into new opportunities within existing accounts especially in the area of server virtualization. The growth in bookings from our Q1 2008 lesser penetrated accounts was very encouraging at 47% year-over-year reflecting the early results of our efforts to open new accounts and to expand in currently under penetrated ones. While the S5000 remains our primary focus on prior calls we also talked about our efforts to expand our market coverage to the mid size enterprise particularly through the channel and driven by our refreshed entry level offerings. In this segment we added 460 new customers in Q1. Overall the percentage of bookings from net new customers both S5000 and mid sized enterprise was at its highest level in three years. This quarter EMEA contributed 32% of revenue up 27% over last year. Asia Pac grew to 12% of total revenue up 14% sequentially and up 24% year-over-year. The Americas contributed 56% of revenue up 26% year-over-year. Within the Americas federal contributed 11% of total revenue again this quarter. Due to the contribution of US non-federal TEA accounts, which are all mostly direct, channel revenue dropped 61% of the total mix but remains very healthy. Arrow and Avnet have achieved a new record growing to 20% of total revenue. IBM also had their best quarter ever with us contributing almost 6% of revenue this quarter. On the product side, total store systems shipped were up 35% year-over-year. Entry level units continue their aggressive growth and were up 74%. The high end was also quite robust with units shipped up 36%. This is clear evidence of the expansion of our product offerings both up and down market. The mid range growth was not nearly so aggressive but still represents over 50% of systems revenues. Our latest mid range product family, the 3100 series, started shipping in July and Q2 will be the first full quarter of availability. The continued strength of the entry level has had an impact on our software mix and to some extent our gross margins. While overall [attach] rates remain constant within the platform categories, our software pricing is tiered meaning software products are priced based on the platform type. In addition the entry level systems tend to have lower software content at initial purchase. Despite the impact on our software mix, the rapid expansion of our entry level offerings are allowing us to win accounts earlier in the evolution of their storage infrastructure and position us well for follow-on business in terms of hardware and software upgrades as well as professional services. Our services business continues to outperform the overall company growth fueled in part by higher attach rates of premium support contracts and our comprehensive professional services capabilities reflecting an increased enterprise penetration we’ve accomplished over the past few years. From a protocol perspective orders with the Fibre Channel SAN or an iSCSI component totaled 40% of our bookings this quarter with 30% including Fibre Channel and 16% including iSCSI. Six percent had an overlap with both protocols. NAS protocols were present in 63% of our storage bookings. Our GX operating system continues to grow beyond its high performance computing roots with new installations and financial services and media. Bookings continue to ramp up 44% over Q1 of 2008 in advance of the convergence of the operating systems next year. Q1 continued the robust pace of deployment of our deduplication technology with almost 13,000 systems installed and over 3,000 licenses added in July alone. We believe that this is the largest footprint in the industry and NetApp is the only vendor that can deploy deduplication in all workloads and on all FAS platforms. While deduplication may have a dampening affect on short-term storage upgrades, we are convinced that it will be more than offset through customer loyalty, new account penetration, and conversion of older non-deduplication capable models. However, deduplication is just one component of a broader storage efficiency story that includes our FlexClone technology, RAID-DP and Thin Provisioning. Faced with escalating energy costs, budget pressures and a weakened world economy and green initiatives, customer interest in storage efficiency has never been higher. Deployment rates on each of these technologies not just dedupe are growing at a very high rate and we are seeing innovation from smaller vendors as well. All of this is evidence that conventional solutions, particularly on the SAN side are offering no meaningful relief on the storage efficiency dimension and customers are seeking alternatives at an increasing rate. Our V series controllers had their best quarter ever with units more than doubling over Q1 last year. This quarter’s V series highlight was the announcement of our ability to deduplicate EMC storage, before they offer that capability on their own systems. Using our V series controller running our ONTAP 7G operating system customers can now have deduplication and our other data management and storage efficiency products for their primary storage systems from EMC, HP, Hitachi, and others. This represents an important entry point for us into new accounts. Another key entry point to new accounts and expansion into existing accounts is the trend towards server virtualization. In fact, many of you have probably seen recent NetApp installations supporting virtual environments implemented in your own firms. This focus area continues to progress well and we expect this sector to get even more [mindshare] with the imminent rollout of the Microsoft offering. To wrap up, I’ll just point out that the industry trends we’ve been talking about for awhile, virtualization, storage efficiency, Ethernet, and backup redesign are all being fueled by a challenging economy that forces customers to consider new ways to more cost affectively solve their storage and data management needs. We believe that the industry is still in the early stages in each of these areas and there are ample opportunities for us to capitalize on in the future. I look forward to updating you on our progress again next quarter.

Thank you Thomas, I’m very pleased with the results NetApp delivered in the first quarter of our new fiscal year, results which are consistent with the expectations we shared with you both in our Analyst Day last March and the Q4 earnings release in May. Likewise our expectations for the second quarter are consistent with those we shared with you on those two occasions. Perhaps I should recap the basis for our outlook starting with the macroeconomic climate. We do not see any significant changes in the general spending patterns of our customers or prospects. While there is broad concern about the global economic environment most enterprises continue to invest in their infrastructure to improve operating efficiency. The projects they undertake play to our competitive strengths in areas such as server virtualization, improved storage utilization, Ethernet and attached storage and so on. Competitively NetApp stacks up very well and we have not seen any significant changes in the competitive dynamics in the marketplace. In March we outlined a plan to invest in sales capacity and awareness so we could engage with a broader set of customers. Early leading indicators from our awareness campaign are encouraging with more than double the number of unique visitors to our website, significantly increased sales inquiries and almost a 5x increase in global online search clicks for NetApp. We have also executed well on our plan to hire incremental sales capacity and that is also showing early signs of driving future growth. In terms of diversifying of our business bookings from new customers were at their highest level in three years. Of course we still have work to do in expanding our distribution and sales reach but we’re well on our way with the hiring we’ve done over the past few quarters. We believe that we are growing faster than the markets we participate in and we continue to gain share. We are benefiting from increased volumes from partners like IBM, Arrow and Avnet. We’ve also seen some improvement in our top US accounts. Our unit volumes have grown nicely and we continue to bring innovations to market that will ultimately drive more business for NetApp. I believe these factors will continue to drive revenue growth in the future. On behalf of the NetApp team, I thank you for your support and your interest in NetApp. At this point I will open the floor to questions.

(Operator Instructions) Your first question comes from the line of Analyst – Credit Suisse Analyst – Credit Suisse: Can you give us any more color on the near-term adoption trends you’re seeing in virtualized server environments? There’s obviously been some signs in the market of some slow in virtualization adoption which I do think is near-term but I’m wondering if that’s translated to the storage side at all?

No I definitely don’t see any slowing. What we’re really seeing probably more symptomatic of our business particularly in large customers is we’re actually seeing the culmination of a lot of proof of concepts in our favor and actually going into production now. So if there’s some short-term slowing of the business I clearly don’t see it. In fact I see more in accounts that we’re actively participating particularly our big accounts, including a lot of them in New York City, we’re actually seeing the conversion from proof of concept into production right now and I don’t see any slowing down at all. I think clearly the Microsoft announcement which is imminent will be out there. And the other trend is I’m actually seeing a fair amount of desk top virtualization as well as server virtualization and if anything I’d say that that activity is higher now then it was six months ago.

I would echo the same thing internationally. In the past quarter I’ve spent time in both Australia and the Far East and China and Japan, and topic number one throughout the Far East has always been server virtualization. So I don’t sense a slowing down at all.

Your next question comes from the line of Keith Bachman – BMO Capital Markets Keith Bachman – BMO Capital Markets: I just wanted to see if you could talk a little more about the product gross margins. Even if I net out the change in the warranty it looked to be a little lower than we were forecasting and I know you said there was volume variance there that impacted it but how do you see the trends in the product gross margins going forward and if you could just repeat what the software add-on number was?

With the product gross margins compared to the fourth quarter level, so on a nominal basis as reported they’re down 4.6%, 1.1 percentage points of that is warranty. About two percentage points of that is attributable to the volume of revenue that we had and I think I had talked with a number of folks that came through here and told them that to expect this as business declined from fourth quarter levels as we expected and is seasonal for NetApp. We have many cost of goods sold that are main elements of cost of goods sold that are fixed in nature, like our product transformation costs, like standard revision, like scrap etc. Those are fixed so you would expect to see your margins decline as a result of that. The final element is about 1.5 percentage points and that’s mix and configuration of the products we shipped. We were pretty close to what we had expected. We had expected most of that, we didn’t capture all the nicks and configuration changes in our forecast.

Also [inaudible] and while neutral to the bottom line it’s a lower gross margin for us. The only component which I think was also factored into our thinking and we gave some guidance on last time, is also the mix. The low end has been particularly robust, it’s not nearly as heavily configured as some of the higher end offerings and as a result at least at initial purchase time, the software component is a little bit lower and that has both impact in terms of our software revenue mix and likewise a little bit on gross margin as well.

The add-on software number was almost 20% of total revenue this past quarter and then the software entitlement maintenance was about, was just under 17%, the grand total was about 36%.

Your next question comes from the line of Louis Miscioscia – Cowen & Co. Louis Miscioscia – Cowen & Co.: I was wondering if you could talk about your expectations for the full year. I didn’t see any comments in the press release especially as obviously your OpEx should continue to go up as you’re doing hiring and wonder if it’s going to start to get challenging to make some of the operating margin numbers you need for your full year guidance in the back half?

Right now we feel we’re right on the plan that we had outlined back in March and we just don’t have enough data to tell you one way or another that anything’s going to be different. So right we’re assuming that we’re right on plan.

I’d like to echo that I think as I viewed this plan it really had two stages. One was heavy investment on the frontend. Stage two is to reap the return from that investment in the second half of the year. We have I think executed well on the front half of that. We’ve proven that we can in fact crush our operating margin and yet we’re very confident that that’s going to return a significant growth in the back half and with our gross margin levels if the people we brought on board generate the revenues we expect, you’ll see the operating margin snap right back. I should point out that in the 13 years since we’ve been public this is the first time the management team has intentionally taken a gross margin down below 15 points. We did that because we sensed that there was a big opportunity and we’re in the middle of the execution of that and we believe just as strongly that that’ll pay off and we’ll come roaring right back.

If you look at our guidance into this current quarter Q2, is we’re actually taking some relatively significant step function in a number of fixed expenses. We have a new system online. We also have our merit increases go into affect. We have some building so we’re actually adding $17 million to our cost structure yet we’re still adding a couple of points of operating margin leverage. So if you go forward into the second half of the year, we don’t have similar step function expenses going into Q3 and Q4. So if we can deliver on the top line our ability to generate leverage below I think its pretty clear. So I think the story on NetApp is really about do you believe our growth or not? And clearly our investments and in expanding our awareness, expanding our sales force are really focused on that particular activity.

Your next question comes from the line of Aaron Rakers – Wachovia Capital Markets Aaron Rakers – Wachovia Capital Markets: I want to dive into the free cash flow story for the company, it looks like free cash flow from operations was fairly in line with what I was expecting however, CapEx is trending a little bit higher and also free cash flow as a percentage of revenue looks like its at the lowest level that we’ve seen from the company and relative to your guidance of 23%, 24% range. How should we think about free cash flow generation going forward and maybe also how that dovetails into your expectations in terms of deferred revenue growth?

We were actually quite pleased with our cash flow this quarter. We saw cash flow from operations of $250 million. What happened in terms of free cash flow was not so much from the cash that was generated on the operations level but really from the purchases of plant property and equipment. Thomas just mentioned that we had some unusual transactions that are going to generate some costs next quarter, that’s depreciation associated with these large capital transactions. We just got done capitalizing the last part of our SAP program, part of our [inaudible] effort, a whole bunch of software, about $18 million to be exact of software was capitalized this past quarter. In addition we had some building, some lab improvements that we did which added another $15 million so I would probably assume that the capital purchases will fall back around $25 million next quarter. As far as the percentage of free cash flow percentage of revenue, remember that the problem is not the free cash flow the problem or the amount of cash that’s being generated its in the earnings. This is the lowest net margin quarter we’ve had in a long time as a result of the investments that we’re making and when we’re back on the business model you should expect the free cash flow to return to that level of 23%, 24% of revenue. Aaron Rakers – Wachovia Capital Markets: And the assumption of around deferred revenue growth was is that?

Remember we also paid out the ICP this past quarter also. The incentive comp plan, that’s a one-time cash flow out. Aaron Rakers – Wachovia Capital Markets: What are you assuming in terms of deferred revenue growth given that it is a fairly significant driver of cash flow generation?

I think deferred revenue growth is going to be somewhat consistent with what we saw this quarter in terms of its year-over-year performance and if the growth rate of the company steps up you can expect to see the growth rate of deferred revenue step up with it.

Your next question comes from the line of Paul Mansky – Citigroup Paul Mansky – Citigroup: With respect to headcount plans for the current quarter given that we were modestly below targets previously and maybe if you could refresh what you’re thinking from an exit rate perspective on the fiscal year and then just as we model out some of the impact around deduplication, can you provide us what product by shipments were preferably broken out by interface if you can?

As you just saw we added 354 people this past quarter. I would look for us to add about the same number of people on a net basis next quarter. That is by the way roughly consistent with our plan and I think that we’re going to be on our plan for quarter bearing reps. Look for about the same level of adds give or take 20 people.

We have definitely focused our hiring machine though on field personnel. Where we’re behind is primarily in what you’d consider to be the headquarters and support personnel.

On the question of drive interfaces, I did indeed leave that out of my prepared remarks. Total terabyte shipped were 195 [tenabytes] and the mix was 63% ATA, 33% Fibre Channel and 4% SAS.

Your next question comes from the line of Min Park – Goldman Sachs Min Park – Goldman Sachs: If you look at the mid point of your October quarter on margin targets of 11% to 12% and you combine that with this quarter’s 9.6%, it implies a first half operating margin around 10.6% which is a bit below your 11% target you gave us at your Analyst Day, so does this adjustment [inaudible] a better second half of the year or is the difference really within your margin area of your targets?

That is definitely within our margin of error. From the mid point up, we round to 11%. So and at the high end of the range—I think that’s well within our ability to call.

Your next question comes from the line of Mark Moskowitz – JP Morgan Mark Moskowitz – JP Morgan: As far as the low end shipped clearly you’re having some really good trends there, but in terms of the add-on software or your ability to increase the monetization there after the initial sale, have you done anything in terms of improving your ability to share code rewrites or improvements in these installations so that you can actually have a faster attach rate down the road?

There’s no doubt that just expanding our footprint is fundamentally good for the business. I think the more footprints you have out there the more subsequent whether it be upgrades, whether it be software, hardware, professional services, you name it. So one of the things that we’re doing in the category of expanding our coverage is also inside sales. So the ability to go out and cultivate these accounts and actively try and up sell whether it be software, hardware or what have you going forward, so absolutely I think that while these machines are a little bit lightly configured going out, our expectation is that over their life they will actually become a lot more configured and pretty much all of the add-on business will be higher margin then the initial sale. Whether it be our channel programs, our channel partners or our inside sales, we actively want to cultivate those accounts.

To give you some historical perspective on it, the low end business has always been less highly configured in terms of software. They tend to be more single purpose in their deployment as opposed to multi purpose as are the mid range and high end systems. The real question is when they add something on it’s typically something like a mirroring capability or some kind of data protection. It’s not a new application service and so it’s a much more limited opportunity to upgrade them as well. I think they are lightly configured to go out and I think historically they’ve had some degree of add-on but I’m not sure its going to equate that. Typically what we find is when people move from a low end system to a mid range is when they really start adding on a great deal of software and so having those footprints is a great way of driving upgrade business in the future.

Your next question comes from the line of Katy Huberty – Morgan Stanley Katy Huberty – Morgan Stanley: I want to circle back around to the hiring in the quarter what exactly caused you to change the hiring plans for the non-sales work force and is that a bucket of costs that you’re willing to adjust in order to hit numbers in the back half?

Part of it was execution. We’re trying to manage the ship here to land on that 9.5% which was the middle of the guidance range type of thing. That’s part of it but frankly the other part of it was we just ran out of funnel. We just didn’t execute as well as we thought on some of those non-sales oriented functions.

We took all our [in-house] recruiters and turned them onto the field and that didn’t leave enough bandwidth to get the candidate flow through for the rest of the non-sales functions. We’ll get caught up but that was a decision we made to prioritize where the hiring machine was focused and it worked out well.

Your next question comes from the line of Ben Reitzes – Lehman Brothers Ben Reitzes – Lehman Brothers: Could you talk about your capital strategy? Maybe bring us back to the convert and then obviously raising capital and then with today’s buyback comment and announcement how should we look at your balancing of acquisitions versus buybacks and how you’re playing that, there’s some views out there maybe you would have been acquisitive and now it looks like you may be buying back more stock and any guidance between the two versus how you raise the money as well?

You shouldn’t really assume that we’re going to be buying back more stock in fact; our basic policy has not changed. Our stated objective in the past has been to buy back enough shares to both offset the effect of dilution resulting from employee stock options and any historical acquisitions we have made. And so I think those are both achieved at this point and on a go forward basis we’ll execute along the same lines. The fact that we raised the cash was partially opportunistic and partially a result of the fact that our is stranded offshore. The bulk of our liquid assets are actually sitting in accounts outside the US company and cannot be used for anything like stock buybacks or acquisitions. Even when we’ve acquired Israeli companies like [Topeio] it turns out that primarily US based equities and we use US cash. So our US cash balance is getting fairly depleted and we’ve got a billion dollars overseas and nothing here in the US so we decided it was time to put something on the balance sheet here. Don’t read into that that we have a particular acquisition in mind or that we have any particular change in terms of stock repurchase in mind. Neither one of those would be an accurate interpretation.

Your next question comes from the line of Brent Bracelin – Pacific Crest Securities Brent Bracelin – Pacific Crest Securities: On the gross margin as you think about the blend in gross margin here, the lowest in a couple of years, obviously you went through line by line, how that was impacted but as you think about on a go forward basis, the low end you’re having good success with, it sounds like IBM is starting to have some momentum, the services gross margins seem to be at the higher end of historical range, why wouldn’t there continue to be some pressure on the gross margin and if so, why is that a bad thing?

I think that what you should expect to see is that next quarter sequentially you’re going to see a pick up in product revenue and as product revenue picks up that phenomenon that I described the impact of the fixed cost is going to be diminished so we’re going to pick up margin on products just from that very phenomenon. And remember that was two percentage points this past quarter. So I expect to get virtually most of that back next quarter. Then the rest is going to have to depend on mix and configurations and everything else. But don’t underestimate that volume affect that we just saw.

Is low gross margin necessarily a bad thing, the answer is no as long as the operating margin stays in the mid teens kind of range. If IBM is more successful that’s a good thing and we think we can run an OEM deal at our historical operating income levels because our cost of sales, sales expenses is much lower. The fact that we’re getting more from the channel, that’s great. So you roll all these things together and you go, our real goal is to deliver especially the second half of the year, somewhere around 16% operating and if we do that at a 60% gross margin level, I’m happy if it comes from the right sources. If it’s a just deeper discounts etc. then I’m not happy. The gross margin number all by itself is not just a pure indicator of performance, its got to be looked at in terms of what’s driving it up and down and in this case I think a lot of the affects are very good. I am really thrilled with the success at the low end and at the success for the IBM business in particular.

I think the low end business has been robust, the high end business has been robust, and both of those platforms have been refreshed relatively recently. Just in the last month of last quarter we actually did a refresh of our mid range offering which is really the sweet spot of our business so we’re hoping to get some leverage out of that as well on a margin perspective.

That’s what I was referring to when I referred to mix; you’re going to see a full quarter of the 3100 as opposed to three weeks of it.

Your next question comes from the line of Kaushik Roy – Pacific Growth Equities Kaushik Roy – Pacific Growth Equities: Did I hear that right, are you still expecting 16% operating margin in the second half?

I have not changed my view of what the right long-term business model for this company is and although we intentionally took down the operating income level at the frontend to fund some investments I still believe that the right balance point between maximizing growth and revenues and earnings is in fact at the 16% point. I’m pretty focused at getting back there certainly before we exit the end of this fiscal year. Kaushik Roy – Pacific Growth Equities: Did you give guidance for the October quarter non-GAAP gross margin guidance?

No. We just gave top line and bottom line.

Your next question comes from the line of Thomas Curlin – RBC Capital Markets Thomas Curlin – RBC Capital Markets: The FAS3000 upgrade, it seems to be is [inaudible] in the order of upgrades that historically has worked well for you that is you’ve got the low end out and then now you’re doing the mid range, etc. but how significant an upgrade is that FAS3000 and maybe elaborate on what’s been upgraded in that system and how that might drive that upgrade cycle?

Clearly the product presentation can take a long time but I think the 3000 is significant in a bunch of ways. First of all it’s the first mid range system that actually has both ends of the cluster in one box so I think from a space and a cost efficiency it’s actually a lot better. Performance wise it’s a lot stronger. We recently did a product announcement although focused on the engineering data center, the 3100 series of course if a general purpose product, but we had other things that went with it including our FlexCache for caching, we had an accelerator module that actually delivers higher performance for a number of really key workloads, so I think all in all we’ve done a lot from a performance perspective. We’ve done a lot from a cost perspective and somewhat in parallel with that and somewhat asynchronous we also have the latest version of ONTAP 7G our 7.3 release which also has a fair number of new functionality components to it as well.

I should point out that going forward our unit count may look a little weird because historically we’ve packaged each of the processors in a separate box, each one is counted as a separate unit purchased primarily though in pairs, clusters. The 3100 family has both components of the pair in one single box and will look like one node as it goes out so when our unit count doesn’t grow as fast as you might think, that’s why. Thomas Curlin – RBC Capital Markets: Does that help gross margin a bit but maybe as you mentioned just given the units lower, well I guess higher ASP because now it’s a dual controller configuration, how does it look in terms of ASP versus gross margin?

It’s a product refresh so I think the ability to justify our value both in terms of performance and functionality is higher and whenever that happens that usually helps from a gross margin perspective. So all in all it’s a product refresh and like I said the high end has been refreshed since the beginning of the calendar year, the low end is new as well. While the previous version of the product was by no means old, in fact this is actually the second refresh of the product line in three years, so we’re upping the [inaudible] on the mid range and this is our latest offering. But as I indicated it’s a fundamentally different structure in that the vast majority of our systems now are clustered and this allows us to put both clusters in one box which is a lot more efficient, it’s a lot easier, it’s a lot cheaper.

Your next question comes from the line of Brian Freed – Morgan, Keegan & Company Brian Freed – Morgan, Keegan & Company: You hinted at a growing pipeline of upgrades as people with legacy hardware look to take advantage of the deduplication, can you give a little more color on pipeline growth as well as how customers are reacting to your decision not to support the whole FAS models with the deduplication?

I think a decision is kind of an overstatement I think that the further back in time that you go; the machines just don’t have the computer memory capacity to support it. However, let’s be clear is that a substantial amount of our existing installed base is indeed upgradable with deduplication. So one of the things we’re clearly seeing is customers getting greater efficiency out of investments they’ve already made with us. So I don’t want the message here to be that everything we shipped in the past prior to this year is not upgradable. But there are machines that are three and four years old that out of production. Just think of the value proposition. You have an older machine, it might be running 144 GB drives, its consuming a lot of power, consuming a lot of rack space and now you can come out and you can run terabyte drives and on top of that deduplicate it and have much more efficient rack space and power consumption, that’s a pretty compelling value proposition and we’re actually seeing some upgrade business around that.

Your next question comes from the line of William Fearnley – FTN Midwest Securities William Fearnley – FTN Midwest Securities: In the last call you talked about the importance of unit growth, could you give more color on whether unit growth was by product segment and customer segment and where it’s above where you were you were expecting? In the past you’ve commented that the number of deals above a million dollars, any update on the trends in the million dollar plus deal range as well?

As far as the unit growth I think I went through that, the low end was 75% year-on-year; the high end was 35% and 36% year-on-year. I don’t have the mid range number but I did say it was about 50% of total revenue. So I think the unit growth number, when you strip away all the more detailed metrics I think acceleration of unit growth is a good thing on a bunch of fronts. The flip side if you’re not growing units you can pretty much assure yourself you’re not gaining new customers and you’re not gaining new footprints and you’re not sowing the seeds for future success. The unit growth number is something that’s really important to me and this is a sequentially down quarter so I haven’t talked about the sequential numbers but the past two quarters if not three, we’ve actually seen double-digit sequential increases in unit growth count and I’m quite pleased with this quarter as well on the year-on-year comparison. William Fearnley – FTN Midwest Securities: Any product segment or customer segments that jump out at you when you look for instance at the low end growth of 75%?

Well I think the channel, certainly the strength of Arrow and Avnet and the fact that we’ve added 460 new mid size enterprise customers tells me that this product is being very, very well embraced by the channel and we talked six, nine months ago, about trying to get, we’ve certainly seen competition out there reporting strength in what they call commercial markets or mid sized enterprise, and we made it a focus of ours to go after that now that we’ve refreshed the product and I’d certainly say that that’s more then exceeded our expectations. William Fearnley – FTN Midwest Securities: Any commentary on the million dollar deals?

Not as strong as last quarter as you would expect because sequentially we’re down but it was much stronger than the first quarter of a year ago.

Your next question comes from the line of Wamsi Mohan – Merrill Lynch Wamsi Mohan – Merrill Lynch: Given the recent management changes at [Viemware] can you tell me if your working relationship with them has changed at all and could you also tell us what your revenues were by vertical?

When I first read the news about the change at [Viemware] I was a bit shocked. I will say however and I really want to thank Paul [Moritz]. He placed a call to me before 1:00 pm the day he was announced as the CEO and I’ve got to imagine that was a very busy day for him. When we did connect he actually reaffirmed every part of the relationship we had prior and even took some very visible actions to strengthen the relationship so we were very, very pleased. I think its going to be terrific. The pipeline that we have with [Viemware] and consequently the pipeline they have with NetApp is so significant that I’m sure that its in our mutual best interest to continue a very close relationship and Paul certainly understands that and I think he feels as though his objective is to go make [Viemware] number one in their segment. He’s facing some significant competition coming up on the horizon and he’s not about to jeopardize any close relationships he has. A very pragmatic kind of situation. We’ve seen things proceed really, really positively in that regard. The vertical breakdown is tech and internet was about 19% led the list. Financial services is back, that was about 11%. It was remarkably similar to Q4 I should point out. Government was about 11% and followed by Telco, manufacturing, energy in that order.

Your next question comes from the line of Rich Sherman – MKM Partners Rich Sherman – MKM Partners: On discounting, was there greater pressure for discounting in the quarter especially at the high end of the business?

No not particularly, customers always want lower price but our discounts, we’ve maintained significant discipline and I’m quite pleased.

Your next question comes from the line of Chris Whitmore – Deutsche Bank Chris Whitmore – Deutsche Bank: DSOs came down in the quarter can you talk about linearity through the course of the quarter, order linearity specifically? And can you give any color on total bookings and backlog?

Linearity was pretty much what we’ve experienced over the past several quarters. It wasn’t a big change, slightly better but not materially. I think I attribute the reduction in DSO to a super collections effort. We did a lot of work in the collections area; we just were able to knock down the collections bar that was the big driver. Obviously we’re not going to be able to do that again next quarter. Chris Whitmore – Deutsche Bank: Any color on total company bookings in the quarter and did you see an acceleration in bookings growth following the announcement of the upgrade to the 3000?

No we didn’t see any significant difference in linearity in this quarter then we’d see in any typical Q1. Q1 always gets off to a slow start because everything that was an active deal got closed at the end of the fiscal year and then we run to the finish in July and had exactly the same profile as prior years. And we have no comment on total bookings.

Your next question comes from the line of Jason Noland – Robert W. Baird & Associates Jason Noland – Robert W. Baird & Associates: Are you seeing much demand in the field for 10 gig E, is server virtualization pushing the demand for 10 gig E and how would that impact your business?

First of all our systems are 10 gig E ready and we certainly have systems out there that are running it today. The general question of [Viemware] creating opportunity for Ethernet based storage whether it be NAS or iSCSI that is clearly one of the big motivators of that particular area and we’re seeing conversions to Viemware and we architecture the data centers moving towards more Ethernet based methodologies. As far as 10 gig Ethernet clearly pricing behavior by some of the suppliers in the industry I think slowed down some of its adoption but we’re actually seeing some breakthrough pricing at some of the newer systems. So I expect to see that pick up but its still a relatively small percentage of our installed base but the general question of Ethernet based storage is unmistakably on an up trend and I think when the infrastructure economics warrant it I think we’ll see 10 gig Ethernet as well and we want to lead in that area.

I see a lot of customers now evaluating 10 gig where prior they thought it was just too expensive and a lot of the preproduction pilots going on in both server virtualization and in just general Ethernet based storage has a higher density with 10 gig but they’re not in production yet so hopefully I think you’d expect to see the take up of that be maybe in calendar Q4 as those preproduction pilots roll into production.

Your next question comes from the line of Clay Sumner – Friedman, Billings, Ramsey Clay Sumner – Friedman, Billings, Ramsey: You talked about executing your plan to gain share in the weak economy, if the economy stays weak for an extended period, longer then you expected, well into 2009 or whatever would you consider changing the plan to stay below the operation model for an extended period to keep investing for share gain or would you rather get back on plan at 16%?

No, I’d keep investing for share gain. It really depends on what the macroeconomic picture looks like. I actually think our very best opportunity to gain share is when the global GDP is about 1%. That’s as budgets aren’t getting whacked and cut but they’re getting squeezed to the point where customers have to look at new alternatives and that’s kind of the sense we have. You know when the budgets are just getting [macheted] like they did in 2001 then we’re not going to be immune from that and then we’d probably pull back. So if you see a general implosion of the major economies, we’d move to a more conservative stance. But as long as it’s the status quo I think we are on exactly the right track to go gain an enormous amount of share right now. Customers still have money to spend. That’s still the key but they can’t get the job done in the traditional manner and they’re looking for new approaches and the storage efficiency argument we have to them is just really compelling. Run dedupe on your primary, drive more ATA into your primary environment, all those kinds of things. Move to an over provisioning scheme. You go through a list and they go okay that kind of makes sense. I understand how I can get my job done and not blow my budget and so we’re convicted to stay in that kind of mode as long as the economy doesn’t significantly deteriorate.

I’d say that unless you believe that the long-term growth rate of this industry was permanently impaired which we don’t, then I think that accumulating share when you’re in the best position to grab it has to be the most healthy strategy and the storage efficiency story is really, really huge. And my general observation is that customers are under enormous pressure whether it be budget pressures, you’ve got green IT on top of that, you’ve got energy costs that are escalating, and when we go in there we can talk about deduplication and FlexClones and we can talk about thin provisioning and all of that and what it means to their environment or exchange or oracle, customers aren’t hearing that from their existing vendors particularly on the SAN side. I get a sense just looking at our momentum around those technologies and even frankly some of the start ups getting some traction is I think that the traditional SAN architectures are being exposed as being dated and inflexible and really have no meaningful answer on the storage efficiency story and I think that’s a gigantic opportunity and we’re going to press it as hard as we can.

I want to make sure I didn’t mislead anybody, we made an investment surge if you will, but we got a troop surge in the field and we expect that that surge to yield in some delayed manner by a couple of quarters growth in revenues that would get us back to our 16% operating model. That is assuming no change in the macroeconomic conditions. I don’t expect to have 11% operating in the second half of this year if that was your question. Clay Sumner – Friedman, Billings, Ramsey & Co.: Yes, if the economy stays weak do you do another surge?

No I don’t think so; I think we’ve got enough in the capacity bubble right now that that should work just fine. Again, if it goes down then we’re going to have a different discussion. But as long as the economy stays at global GDP 1% growth I think we’re fine.

Your next question comes from the line of Glenn Hanus – Needham and Company Glenn Hanus – Needham and Company: On the competitive question, what impact if any do you think the EMC CX4 might have on the sales cycles or the, introducing the new mid range product you have?

No I think certainly from a product competitiveness situation I think that the 3100 stacks up quite nicely in fact it’s a major step forward for us so I’m not that concerned from a competitive perspective. It’s something new for our competition and our customers but overall I don’t think its going to change the competitive landscape any. We still don’t see deduplication, we don’t see FlexClones, we don’t see a lot of this other type of technology there and that seems to be what customers are asking us about.

Your final question comes from the line of Scott Craig – Banc of America Scott Craig – Banc of America: Can you talk about the cost structure, you’ve added a lot of people here and you’re going to be adding some more next quarter and it appears that as you work into the back part of the year you’re going to be doing a good job of managing that from a percentage of sales basis, so where are the areas that you’re able to really offset some of these costs that you’re probably adding from all the employees that you’re bringing on?

Basically we’re at the high point of our operating expenses as a percent revenue and for the subsequent quarters going forward you should expect to see a decline. A lot of the decline comes from the fact that revenue starts growing faster then operating expense. Thomas told you why some of the operating expenses aren’t going to be growing as fast because we’re not going to be incurring these one-time hits that we did this past quarter. I think that after the sales surge in the first half of the year, in the second half of the year I think we start to see a calming or a settling if you will of the sales to revenue ratio. All the other ratios are basically being held steady or improving throughout the year. So they’re all going down basically. It’s across the board.

That concludes the time we have for questions; I’d like to turn the call back over to Daniel Warmenhoven for closing remarks.

I want to thank you all again for joining us today and thank you for your continued support. We look forward to seeing you in about 91 days. Thank you all and have a wonderful day.