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

Wamsi Mohan – Merrill Lynch Brian Marshal – American Technology Research Min Park – Goldman Sachs Brian Freed – Morgan, Keegan & Company Keith Bachman – BMO Capital Markets Mark Moskowitz – JP Morgan Bill Choi - Jeffries William Fearnley – FTN Midwest Securities Chris Whitmore – Deutsche Bank Benjamin Reitzes – Barclays Capital Jayson Noland – Robert W. Baird & Co. Alex Kurtz - Merriman Curhan Ford Kaushik Roy – Pacific Growth Equities Bill Schultz – Credit Suisse Brent Bracelin – Pacific Crest Securities

Welcome to the NetApp, Inc. third quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Tara Dhillon, Senior Director of Investor Relations; please proceed.

Good afternoon everyone. Thank you for joining us today. Our call is being web cast live and will be available for replay on our website at www.netapp.com along with the earnings release, the financial tables and GAAP and non-GAAP reconciliations. Today we are also presenting slides concurrently with our audio remarks. They will be available for download on our Investor Relations site at the end of this call. In the course of today’s call we will make forward-looking statements and projections that involve risk and uncertainty including statements regarding our financial performance in future periods, including Q4 of FY09, our expectations regarding future growth, market share and customer demand, our expectations with respect to our inventory management, the expected costs of settling a dispute with the Federal Government, the expected financial benefits from our restructuring actions and our expectations regarding our effective tax rate. 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, our ability to maintain or increase backlog and increase revenue, increased competition and the material and adverse global economic market conditions that currently exist. 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 on our website, all of which are incorporated by reference in today’s discussion. Please note that all numbers are GAAP unless stated otherwise. To see the reconciliation items between non-GAAP and GAAP refer to the tables on our press release and on our website. We would also like to notify you that in accordance with SEC guidance published on August 22, 2008, NetApp will begin to disseminate material information about the company through our corporate website within the next several fiscal quarters. We intend to designate a separate portion of our website for purposes of these disclosures and will include a prominent link on our site to allow visitors to locate this information, which NetApp will routinely update. The website will supplement, rather than replace, NetApp’s current existing channels of information distribution. With me on today’s call are Dan Warmenhoven, Chairman and CEO; our President and COO, Tom Georgens and our CFO, Steve Gomo. Steve will review the third quarter financials and discuss our outlook, Tom will discuss our operations and our opportunities, Dan will share his perspective on the business and the market, and then we will wrap up with Q&A. At this point I’ll turn the call over to Steve.

Good afternoon everyone. The financial highlight of our quarter was strong expense management by the entire NetApp team. Given that the macro economic environment continues to be challenging and uncertain this discipline was crucial. While our results in November and December were close to plan, close rates became even more unpredictable than we had expected in January and January performance was lower than planned. Fortunately our expense reduction efforts were already well in motion and we were able to expand our non-GAAP operating margin in spite of the revenue decline. Despite our Q3 expense reductions, the worsening global macro conditions in January and the ensuing levels and uncertainty about IT spending in calendar 2009 influences can move forward with the restructuring plan which we implemented earlier this week for fiscal Q4. This restructuring will further streamline our expense stack for the lean economic times ahead. Our actions are designed to preserve our revenue generating potential, increase our focus on true growth opportunities and at the same time improve our operating margins in FY10. Before discussing the future I will walk through our third quarter results. On a non-GAAP basis company revenue for the third quarter was $874 million, down 4% sequentially and down 1% from Q3 last year. Foreign currency effect diminished our sequential results by about 1.7 percentage points and lowered the year-over-year growth by almost 2 percentage points. Including the impact of $128 million accrual to value of contingency related to a dispute with the Federal Government, on a GAAP basis total revenue was $746 million. As we have previously disclosed this dispute relates to a disagreement over our discount practices and compliance with the Price Reduction Clause Provisions of our GSA contract for the time period of 1995 to 2005. Since 2005 most of NetApp’s government business has been conducted through a third party who bears all the responsibility for complying with GSA requirements. This charge represents an estimate of the final resolution costs and is accounted for as a reduction to the GAAP revenue. For the remainder of this call our references to revenue will exclude the impact of the GSA reserve and will therefore be non-GAAP unless stated otherwise. Product revenue of $528 million which represents 60% of total revenue was down 7% sequentially and down 13% year-over-year. In a few minutes Tom will describe how the January effect contributed to this decline. Add-on software which is a subset of product revenue was 19% of total revenue. Revenue from software entitlements and maintenance was $157 million or 18% of total revenue. Software E&M was up 3% sequentially and 25% year-over-year. Total software, the combination of add-on software and software E&M, was 37% of total revenue compared to 37% in Q2 and 40% in Q3 last year. Revenue from services was $190 million and 22% of total revenue, up almost 1% sequentially and up 26% over Q3 of last year. Services revenue are comprised primarily of hardware maintenance support and professional services. Revenue from the maintenance contracts, the largest component of our services category, primarily comes off the balance sheet. In Q3 hardware maintenance increased 1% sequentially and 27% year-over-year. Professional services decreased 1% sequentially but increased 23% over last year. Non-GAAP gross margins were 60.7% of revenue this quarter, down 3/10 of a percentage point from last quarter and in line with our expectations. Non-GAAP product gross margins were down 2.2 percentage points to 53.5% due in part to a continued shift away from our larger software rich systems which we believe has been driven by customer frugality. Non-GAAP service margins increased to 49.6% as a result of continued improvements in the scale economies of our services business. Non-GAAP software E&M margins were consistent at 98.5%. Turning to non-GAAP expenses, our operating expenses totaled $424 million or 48.5% of revenue. Opex declined 7% sequentially and increased just 6% year-over-year. Every functional category of operating expenses declined and opex dropped to its lowest level in the past year. All categories of discretionary spending will continue to be tightly controlled going forward. In the third quarter our GAAP operating expenses included a number of unusual charges in addition to the normal items associated with FAS123R stock compensation and the amortization of intangibles from prior period acquisitions. This quarter we also recognized a $19 million of restructuring to close our Haifa, Israel facility and place our open system SnapManager products on an end-of-life status. In addition we recognized a $9 million charge to write off a sales force automation tool. Non-GAAP income from operations totaled $107 million or 12.2% of revenue in Q3. Non-GAAP other income which consists primarily of interest income was $4.3 million, down 55% from last quarter due to the drop in interest rates. Non-GAAP net income before taxes was $111 million or 12.7% of revenue. Our non-GAAP effective tax rate declined to 16% as a result of a greater mix of profits from our overseas operations. We expect our non-GAAP effective tax rate for FY09 to be about 16.5%. Non-GAAP net income totaled $93 million or $0.28 per share. Including the GSA accrual our GAAP results turned to a net loss of approximately $75 million or $0.23 per share. Now moving to our cash flow performance our cash from operations was $236 million, up 14% sequentially and down 18% from Q3 of last year. Capital expenditures were $51 million this quarter, up from $27 million last quarter. Free cash flow, which we define as cash from operations less capital expenditures totaled $185 million, up 3% sequentially and down 21% from Q3 last year. Expressed as a percent of non-GAAP revenue, Q3 free cash flow was 21%. Turning to the balance sheet our cash and investments totaled $2.6 billion. This balance excludes approximately $69 million of auction rate securities which are classified as long-term investments. Our overseas cash balance is about 48% of our cash or roughly $1.2 billion. The total deferred revenue balance increased $52 million this quarter to $1.6 billion, a 3% sequential increase and a 21% increase in the balance year-over-year. Turning to DSO, accounts receivable day sales outstanding were 36 days again this quarter compared to 36 days last quarter and 48 days in Q3 last year. Our collection efforts were very strong again this quarter and the quality of our receivables as measured by their aging remains very high. Inventory turns were 16.8 times compared to 18.3 times achieved in Q2 reflecting lower levels of business in the third month of this quarter. Inventory levels ended up modestly due to the last large buy of a specific type of disc drive. This will work itself out of the system in the fourth quarter. Look for turns to improve going forward. During the third quarter headcount increased by three people on a net basis ending up with 8,383 employees. I will discuss our future employment levels shortly when I review our Q4 restructuring plan. NetApp did not buy back stock in the third quarter. We felt it was important to continue to conserve our available U.S. cash balances and keep our future options open given the uncertainty in the economy. Turning to our outlook for Q4 our forecast is based on current business expectations and current market conditions and reflects our non-GAAP presentation. We are making forward-looking statements and projections that involve risks and uncertainties. Actual results may differ materially from our statements or projections for the reasons cited earlier. With the poor visibility related to the macro economic environment and the resulting uncertainty around customer’s budgets we will not provide revenue guidance for the fourth quarter. What we can tell you is we expect non-GAAP gross margins to stay around 60% and while we clearly demonstrated our ability to control expenses this quarter some of the reductions like travel levels, savings from sales event cancellations and the holiday shut down are not sustainable. The result of this will be that our non-GAAP Q4 opex is expected to increase by about $5-10 million from Q3 levels. In addition to the expense reduction actions that have already been taken for today’s press release we have implemented a restructuring of our business to improve the economics of our business model and to reallocate resources to improve our operational efficiency going forward. In Q4 we expect to incur about $30-35 million in GAAP severance and other charges associated with these actions. This is a wide ranging restructuring that includes dramatic decreases in the number of contractors we use, a reduction in outside services that we purchase and optimization of our real estate lease portfolio and unfortunately the elimination of approximately 540 permanent employee jobs. I mentioned that the restructuring was intended to help us reallocate resources to improve operating efficiency. Over the next couple of quarters we will use a portion of the expense savings generated by the restructuring to make targeted investments in new skill sets around the world. We expect the effect of these actions to have minimal impact on our gross margin structure but to reduce our FY10 operating expense levels to about $405-410 million per quarter on average. About 2/3 of the reduction from Q3 levels is effectively due to the employment reduction and about 1/3 is due to the cost savings in the other areas I mentioned. At this point I will turn the call over to Tom for his operational update.

Thanks Steve. Despite the dismal economic backdrop there are still several very encouraging items to highlight about our business this quarter. Our storage efficiency story is particularly timely in this environment and our 50% savings guarantee for virtualized environments is generating higher rates of new customer engagements. Our channel development and sales force expansion have yielded record new mid size enterprise and storage 5000 accounts. Our SAN bookings are up dramatically and we closed the largest deal in our history this quarter. As Steve outlined for you we are also taking appropriate steps to tune the company for the current environment. As we mentioned in the last call we took actions in Q3 to stop most hiring and discretionary spending with the goal of more rapidly returning to our more historic operating model. The team responded aggressively and operating expenses were reduced by $30 million in a single quarter allowing us to generate sequential operating leverage despite the revenue decline. However, the economic outlook has only become more challenging and we had to make further reductions. Despite the difficult decision to reduce headcount we have actually increased investment in a number of key areas by eliminating low-yield products and inefficient activities. Similarly, our investment in quote bearing reps leaves us with sufficient sales capacity to rapidly rebound with the worldwide economies eventually recover. A key factor this quarter is the reported January effect where most customer budgets were being formally re-leveled to reflect the reduced 2009 expectations. In many cases customers were still finalizing budgets in January and many still have not completed the process. With our quarter ending January 23, earlier than usual, this uncertainty clearly impacted our business after somewhat more predictable conditions in November and December. The portion of our business most impacted by the downturn has been our 50 largest accounts. With relatively high shares of customer storage spending already achieved, opportunity to grow is often constrained by incremental storage demand as large, new projects are deferred. In many cases, particularly in financial services, budgets are being lowered aggressively. The net impact of that despite few losses to competitors, these accounts have seen year-over-year revenue declines of about 24% and some as much as 65%. Our NAS business has been particularly impacted as a large percentage of those products are contained in these accounts. Similarly, the decline in the top accounts have skewed our business towards indirect channels. While the decline in our largest accounts is hard to overcome, the good news is that the customer diversification activities we began over a year ago are yielding positive results, even in a challenging environment. This quarter’s bookings from new customers are at an all-time high and we have added over 700 net new accounts, the largest quarterly number since we started tracking it four years ago. We also added the highest number of net new storage 5000 accounts since we began the initiative. The primary value propositions driving new account penetrations are storage efficiency and server virtualization particularly in SAN environments. These are very encouraging statistics and are evidence that our branding, awareness and new customer development efforts are clearly making an impact. While the new accounts cannot yet fully diminish the impact of the decline of the large accounts we are aggressively building a broader, more diversified account base that should position us well in the future. Business from our indirect channel was up 8% year-over-year generating 69% of revenue this quarter. Our distributors Arrow and Avnet contributed 20% of revenue each at roughly 10%. IBM had an outstanding quarter producing a record high of about $50 million or 6% of revenue. From a geographic perspective on a non-GAAP basis EMEA with the exception of the U.K. which is heavily financial services weighted was relatively strong contributing 36% of revenue, up 2% over last year. Asia PAC was 12% of revenue, down 11% year-over-year. The Americas contributed 52% of revenue, down 1% year-over-year. Within the Americas the federal team contributed 9% of total revenue, up 11% year-over-year. On the product side, total storage system units shipped were up 14% year-over-year as we continue to install more footprints and acquire more customers. Our FAS2000 entry level units drove much of the increase, up 42%. Our mid range FAS3000 series was higher in the revenue mix this quarter contributing about 57% of storage systems revenue. The high end FAS6000 systems declined again this quarter, another reflection of customer preference towards fulfilling incremental demand and lower appetite for large expenditures. A NAS protocol was included in 60% of our bookings this quarter compared to 67% in Q3 of last year due to the concentration of our NAS business in our top accounts. Order with a fiber channel SAN or [inaudible] component totaled 45% of our bookings this quarter with 33% including fiber channel and 17% including [inaudible]. 5% of those orders had an overlap which included both protocols. The SAN numbers are particularly noteworthy as bookings grew more than 22% over Q3 of last year with even greater strength in fiber channel. In fact, fiber channel SAN is the most commonly deployed protocol in first time sales to new accounts. The key data center trends driving these numbers is the proliferation of server virtualization where NetApp provides unique functionality. More broadly, the storage efficiency story is especially relevant in this economic environment. NetApp has compelling success stories about customers who have deployed thin provisioning, thin cloning and de-duplication across all application types and have cut the cost of their storage in half. In certain application environments we actually guarantee it. Momentum here is particularly strong as products from the traditional SAN vendors have demonstrated little recent innovation and are very susceptible to the storage efficiency message. In addition our SANscreen products acquired about a year ago have exceeded our expectation allowing us to close multi-million dollar transactions in high end environments. As a result our SAN momentum continues unabated despite a difficult backdrop. De-duplication continues to be the most rapidly adopted technology we have ever shipped with over 28,000 de-duplication licenses downloaded at over 6,000 customers. It is not uncommon for customers to see 70% reductions in their storage and we have yet to be asked to pay on our 50% savings guarantee. NetApp remains the only vendor to deploy de-duplication for primary storage and we have recently introduced it on our virtual tape library products to provide an optimized solution for backup environments. Our V series platform had its third record quarter in a row as customers are deploying this solution in front of their existing EMC, HP and Hitachi infrastructures to attain greater utilization and functionality. The V series is a great vehicle to introduce the value proposition of our software without requiring the customer to replace their current hardware. It is a smaller sale for us initially but helps customers acquire first hand experience with the NetApp solutions and then return for more business in the future. Despite the drop in our revenue we feel confident about our competitive position. Our win rates remain essentially unchanged from previous quarters. As I outlined earlier our analysis shows that the decline in business this quarter is coming from our most highly penetrated accounts. We believe their spending will rebound at some point and in the meantime we continue to win record numbers of new customers. In the interim we have taken serious steps to increase our efficiency, optimize our resource allocation for strategic growth initiatives and protect our sales capacity for future growth. With that I will turn the call over to Dan.

Thank you Tom. NetApp’s fiscal third quarter was characterized by strong execution in the areas of new account acquisition and expense management in the face of demand headwinds resulting from the economic contraction. The economic environment is impacting enterprises around the world along with the vendors who do business with them. Many companies are still trying to determine how severely their businesses will be impacted and therefore what their IT budget will be in 2009. As a result there is a high degree of uncertainty about what our business levels will be in the near term. In terms of expense management I would like to thank the NetApp team for their outstanding response when we asked them to do all they could to reduce expenses. We took $30 million out of our expense structure in one quarter. However our expectation is that a challenging business environment will exist for at least the next several quarters and we concluded we must reduce our expense structure even further than the reductions we achieved in Q3. Consequently we made a very difficult decision to reduce our employment by slightly more than 6%, approximately 540 positions. It was especially disappointing that we had to take this action within three weeks of being named the Best Place to Work in the U.S. by Fortune Magazine. The restructuring was not just about expense reductions. The primary focus of the restructuring was to implement changes intended to improve our efficiency while continuing to execute on our core strategy of delivering industry leading products and support and focusing on new account acquisition. These actions are designed to streamline our business and make sure we have the optimum resource allocation to maximize our ability to gain share during the downturn. I believe that our team has now set the right foundation for effectiveness to best execute on our strategic goals. Despite the current challenging economic environment there are some fundamental aspects of our business that allow us to do relatively well. Our value proposition resonates with customers and prospects particularly when budgets are under pressure. Our investments in branding awareness and new customer acquisitions have been very effective. Our record levels of new customer acquisition will translate into share capture once the economy begins to recover and these accounts spend their additional budget dollars with NetApp. Looking forward to Q4 there are a number of positive and negative factors which will affect our bookings and revenues in this upcoming quarter. We expect customer budgets to solidify at some point and we expect most to be at lower levels than last year. We expect storage spending in aggregate to decline versus last year but by a smaller amount than other areas of IT capital equipment. On the positive side I expect normal year-end behavior from our sales force to push very hard to close business. I also expect our U.S. public sector team should have a strong quarter with the passage of the Federal Stimulus Package. Overall I do not expect the typical Q3 to Q4 sequential growth rate we would normally experience. Given the uncertainty in this economic environment it is not possible to forecast our business levels in Q4. Hence our decision to not give formal revenue guidance for the quarter. Looking further out into our next fiscal year the restructuring actions we are taking now will enable us to achieve our targeted 16% operating margin and revenues in the low $900 million range. This sets our foundation for future growth. Our goal in any economic environment will continue to be the expansion of market share and the actions we have taken will help us achieve that. In closing I would like to thank the NetApp team for their passion and commitment in helping NetApp achieve our strategic goals. At this point I will open the floor to questions. Please do keep it to one question given the limited time we have and the number of people in the queue. :

(Operator Instructions) The first question comes from the line of Wamsi Mohan – Merrill Lynch. Wamsi Mohan – Merrill Lynch: You have alluded to the opportunity to gain share when market conditions are tough. Your results from the quarter suggest otherwise, at least from a product revenue standpoint as you lost some share. Can you comment on whether your expectations of share gain of 2-3 times market growth rate have changed and if yes do you expect to run the business with a different operating margin target?

Let me first challenge the assumption we lost share. Certainly we were very weak in January but I don’t think there is anybody else to compare us to for the November/December period. My guess is when you see the other storage vendors report on their first calendar quarter which includes January you may come to a different conclusion. That said, we were clearly down in, as Tom indicated, our top enterprise accounts. I think on a year-over-year basis they were down about 20% and that was the cause for the major shortfall. It was very concentrated in those accounts. About 16% of revenue came from new accounts so it almost balanced it out but nonetheless we couldn’t overcome the 20% shortfall. I don’t think we lost share in those accounts I should add. They just basically stopped spending. So if you put it all together I think we are still on track to continue to gain share. It may not be fully realized until the existing large accounts resume spending and the new accounts increase spending. I think we still have the opportunity to grow at rates that are multiple of the market growth rate in storage. We are not really changing our model for the operating income and leverage.

If I could add one comment to that I think if you look at the business on aggregate we clearly had some difficult times with our top enterprise accounts. However, on the other hand I would say that our SAN business was remarkably robust in this environment and there is no question that we gained share on the SAN side. In fact arguably we may have gained more share this quarter on the SAN side than we have in any quarter in recent memory.

The next question comes from Brian Marshal – American Technology Research. Brian Marshal – American Technology Research: A question with regard to pricing trends on your stand alone product file servers it looks as though the implied product gross margins there in April are going to be down about 1,000 basis points year-over-year. Do you expect this trend to continue going forward or flatten out at these levels? If you could provide any color it would be helpful.

Everybody here is confused about this comment about 1,000 basis points.

If you are talking about product I think you are referring to the consolidated company gross margin where we guided to something around 60% compared to 60.7% this quarter. Is that correct? Brian Marshal – American Technology Research: Actually no, when I look at April 2008 the product gross margins were about 60% that quarter and implied guidance for April 2009 based upon my model kind of assumes 50-51% for product gross margins.

I don’t have your model in front of me but that is not what my model shows. Remember also that in the fourth quarter of last year we treated our warranty costs differently than we treat them in FY09. So it is about 1.5 to 1.7 percentage points additional charge to the product cost of goods sold reducing the margin by a like amount and services goes just the opposite direction. So it is not like-for-like. It is true the product margins are down but it is nothing on the order of what you described. A substantial portion, i.e. 1/3, is due to the effect of the reporting change.

The next question comes from Min Park – Goldman Sachs. Min Park – Goldman Sachs: Just given the weakness in the month of January can you give us any color on your backlog heading into your fiscal Q4?

It is not materially different than you would expect for any other Q4. It is in line with what it was in this past quarter, Q3, and is very consistent with prior levels.

The next question comes from Brian Freed – Morgan, Keegan & Company. Brian Freed – Morgan, Keegan & Company: Last conference call you gave us a little color in terms of booking trends. I think you told us what bookings were in the October timeframe. Could you give us a little more color as to what you are seeing in January or year-to-date?

We were tracking pretty good through November and December. I think the focus was on the first three weeks in January. That is where things kind of really stalled out. Remember the quarter ended the Friday of the week that Obama was inaugurated on the 23rd. It was a really early end mostly because of a phenomenon of having our fiscal quarter’s walk, if you will, through the calendar of the year. The first three weeks were particularly weak in terms of bookings performance. Round numbers if you had looked at this as a normal pattern you would have seen about $50 million more booked in those three weeks than we experienced. That is a gross number. I’m not going to try to defend that number. You can come at it from three or four different directions. That is kind of the sense of how the slow down occurred. It would have been probably $30-35 million more in revenue if we had seen a normal bookings pattern those last three weeks. Brian Freed – Morgan, Keegan & Company: Have you seen any improvement in the last two weeks?

I’m not going to comment on that.

The next question comes from Keith Bachman – BMO Capital Markets. Keith Bachman – BMO Capital Markets: Steve, on the free cash flow generation you mentioned it was about 20-21% of revenues and that was fairly consistent with the October quarter. Last year you were about 24-26% depending on the quarter. Does that free cash flow yield so to speak continue up in this environment and in particular your DSO performance was pretty good. Is that sustainable within the context of free cash flow?

That is a difficult question to answer since we are not forecasting the fourth quarter revenue levels or next year’s revenue levels. Let’s put it this way, if business stays in this range free cash flow is going to be within a relevant range plus or minus $15-20 million of where it is now. I think our DSO is probably going to be better than our historical performance primarily just because of the weighting of the deferred element in our revenue base. Remember those items have already been invoiced in a prior period. We don’t have to collect those, etc. so the DSO is a little bit of an artifact of a shift in revenue mix towards more deferred elements. That said I think this company’s ability to generate cash is pretty substantial and I would think that we should be able to keep the free cash flow in a range of 18-24% depending on the quarter.

The next question comes from Mark Moskowitz – JP Morgan. Mark Moskowitz – JP Morgan: Regarding the velocity or weakness within hardware I want to get a sense if you can give us some context about how we should think about the roll out effect if you will in terms of software and services from this weakness in hardware over the next couple of quarters. How does that impact both the revenue velocity as well as margins?

I guess I don’t really expect anything to change in our mix if that is what you are getting at. I don’t see any fundamental changes going on in the market so I would expect the relative bookings profile as far as hardware and software services will be roughly the same. Clearly if revenue deteriorates further certainly that is not our hope or our forecast the impact of the deferred component will be a greater percentage of our overall revenue and that would be a factor. I think for now I don’t expect the dynamic to change very much. Probably the only one detail in that are customers that are not necessarily buying as much new equipment are certainly keeping their existing equipment on maintenance so we are starting to see maintenance renewal activity on equipment that has been out there for some time and that will continue.

This is consistent with what we saw in 2001. We would also expect to see add-on storage increase in the mix going forward as customers try to forestall upgrading systems and just kind of expand them in place as a temporary stop gap measure. We did not see that this quarter which I was a little surprised about. I still expect to see it going forward.

The next question comes from Bill Choi – Jeffries. Bill Choi - Jeffries: I’d like to get some more color on the January precedent in a slightly different way. Are you able to provide some kind of a year-over-year comparison on a monthly basis that would give us a sense of how rapidly things dropped in January and whether given the push into the fiscal year end that is the kind of level you would expect heading into Q4?

No I can’t. Here is the problem. Our calendar year and fiscal year don’t line up very well. You find end of year effects in the calendar year, such as IBM for instance which had a really big finish in the calendar year, don’t line up week by week in our fiscal calendar. Bill Choi - Jeffries: But compared to the same time period for you a year ago are you able to give a year-over-year comparison of how November/December and then January looked?

The best I can do is what I have done. I will tell you I think our bookings on a normal progression would have been about $50 million higher in that last three weeks than what we actually experienced.

I’d like to follow-up on that one too if I could. The one thing that I want to be clear about is that with our quarter ending on the 23 what typically happens is it isn’t only about January activity levels it is also about customer behavior. Usually the first couple of weeks in January customers are coming back from the holiday, resetting their budgets and usually those are difficult weeks to get business closed. In our particular case we typically have 2-3 weeks after that to actually close the quarter. In this particular case we only had one such week so our commentary about the January effect is just as much about corporate calendar as it is about business levels and I think at this point it is hard to speculate what the relative impact of those two were.

The next question comes from William Fearnley – FTN Midwest Securities. William Fearnley – FTN Midwest Securities: I wanted to ask if I could how are you looking at near-term and long-term changes in the sales support staff deployments? Certainly you saw weakness in your biggest accounts but strength in the channels and how do you look at deployments going forward and how do the upcoming staff cut backs affect some of that as well?

First of all the staff cut backs process is virtually complete. That process began this week and your point is a fair one. The staff cut back was not just about a financial exercise of beating a cost target. We actually used this exercise to restructure in a number of ways and I think every aspect of the company have taken substantial steps to not only find a way to reduce cost but also find a way to invest in our key investment areas and our key priorities going forward. So we did not cut all aspects of the company equally. We clearly kept a focus on those things that were going to keep generating business in the near-term as well as generate business for us in the long run with product development and the like. Clearly we have restructured our activities around moving support personnel closer to the customer in some cases, redeploying our people away from some of our slow moving, low growth accounts towards new account activity. All of those things are on the way. That was a big part of our process. The whole activity was not only about meeting new cost targets. The re-engineering component as I said had equal emphasis and was equally dramatic. William Fearnley – FTN Midwest Securities: Is there any overhang with any negotiations you have to do with work councils or whatever in Europe? I know you have taken the actions but is there any delay in terms of when the people actually leave the company?

The answer to that is yes. Obviously we have a lot of complexity associated with it. That is why I said the process is substantially complete. There is certainly going to be some overhang in Europe and some other geos and there will also be some people in transitionary roles for awhile as we make some of these re-engineering changes.

The next question comes from Chris Whitmore – Deutsche Bank. Chris Whitmore – Deutsche Bank: Can you quantify the impact of exiting product lines on annual revenue? How large are those products and what is the impact going forward?

I suspect you are referring to two in particular. One would be Store Vault and I think at peak I don’t think that one reached $5 million per quarter of revenue. The other would be the SnapManager for systems and that one really struggled. I’m not sure we ever reached $1 million.

I think in summary a big part of our thinking here is that in a cost constrained or investment constrained environment we can make sure that we are spending our money on the things that are going to have the greatest return. Clearly those products didn’t measure up against that particular metric and as a result we basically skewed those resources to other, more productive activities. I think that is visible but that is symptomatic of a lot of the changes we made internally in terms of making these hard decisions around activities that are not yielding what we want them to and essentially the message is that the opportunity to invest in new initiatives is going to have to come from reducing investment in those things that are not nearly as lucrative. Chris Whitmore – Deutsche Bank: If I could ask a question around expectations and Opex and sales people and making their year-end targets, presumably you have made some assumption there. Can you share with us in terms of what is in that Opex guidance for sales force going into this?

We have a normal seasonality, a normal commission structure that occurs in the fourth quarter when a lot of the accelerators are in place as people are beating their numbers and indeed many of our sales reps are beating their numbers this year so I don’t know it is going to be a whole lot different than it has been in past years. The aggregate level will probably be down in aggregate on an average per person basis but not that much. Chris Whitmore – Deutsche Bank: But yet you are getting less than normal seasonality on the top line? I’m just trying to understand that.

It is not a one-for-one relationship because the question is a certain account in an accelerated situation? Are the people that serve that account being paid on an accelerated basis? You can have an account that is 200% of their goal and the rest of them are 80% and if you do the math the way the multipliers work you can get a year that looks normal even though on average the company is down a little bit.

The next question comes from Benjamin Reitzes – Barclays Capital. Benjamin Reitzes – Barclays Capital: With regard to just another way to kind of think about going forward your indirect sales grew 8%, that is down I believe from 24% the previous quarter but your direct sales down 17%. Just common sense and I was wondering if you could refute this, wouldn’t indirect sales go next? We just heard from Arrow and obviously things are pretty weak but wouldn’t indirect go next and go pretty negative here and that is something you have to factor into your views for the upcoming quarter and make revenue go down sequentially? You would think indirect keeps this trend on the big accounts, you said the top 50 accounts, so I’m just thinking isn’t this indirect figure on the lag and we get that hit next quarter and how do you not know that?

I wouldn’t quite make that assumption. I’m not sure logically that follows. The fact that we are gaining so many new customers and we are actually acquiring customers at record rates tells me that the dynamics we are seeing are account specific and not fundamental to the entire industry at large or our competitive position. If we were not adding new customers at the same rate then I would say this industry is mostly locked in and we would expect to see these slow downs across the board. But we see the new mid sized enterprise account growth and we see the new storage 5000 account growth I still think there is opportunity for those channels to still be successful. A lot of that business is coming through our indirect channel and if anything if I look at what my competition is winning or losing their propositions look a lot similar to ours and that is the high end is weak and there is lots of new customer activity in the mid size enterprise area. I think our challenge is actually reaching it, not running out of demand.

The next question comes from Keith Bachman – BMO Capital Markets. Keith Bachman – BMO Capital Markets: I just want it on record that I went back in the queue to ask my second question. I wanted to ask you about product plans. That is to say big ticket generally isn’t selling well no matter what company; IBM, Sun, I imagine we will hear from HP and you guys that 6000 didn’t do as well as the 2000 series. How does that make you think differently or not about the product road maps for the balance of the year particularly any color on the GX and how you think about the operating system unification plans going forward?

Engineering is a long lead time activity so I think responding from the road map to events that might be a quarter or two quarters in duration is difficult. We haven’t done anything to change our road map in terms of hardware platforms which are the longest lead time items in response to this in any way. As far as the high end is concerned there are basically one or two things that I think are interesting and that is with the advent of the convergence of our operating systems and bringing clustering to our mainstream customer base the trade off of how many big high end platforms we need to continue to develop in the future as opposed to basically building large complexes out of more cost effective building blocks using clustering, there is a fundamental architectural question. I don’t think anybody in this industry is ready to say we are not going to build another high end platform but the question is beyond that will there be another one and another one after that. I think time will tell. For us I think our road map is intact. We still have another high end platform on the road map. We fully intend to deliver that as we previously said we would but I think beyond that as we see clustering become more pervasive then I think it is more of an option for debate.

The next question comes from Jayson Noland – Robert W. Baird & Co. Jayson Noland – Robert W. Baird & Co.: I had a question on verticals. I think the government was down off of a tough F2Q comp. Was the difference made up on the financial services side?

I’m trying to look at the year-over-year comparisons. First of all it is hard to believe that financial services would make up for anything. Quite frankly our government business is up 11% year-over-year. It was probably our most successful growth geo in terms of our major geos. I don’t feel like our government business has seen any weathering at all. In the aggregate our breakdown is tech still 16%, financial services and government were 11% and then the other verticals were all single digits.

Just with regard to the Federal Government, remember that they have really two strong quarters which are our fiscal two and four. Fiscal Q2 which ends in October and contains the end of the U.S. government fiscal year which is the end of September. So they surge. So on a sequential basis you would expect to see it fall quite dramatically which it didn’t.

The next question comes from Alex Kurtz - Merriman Curhan Ford. Alex Kurtz - Merriman Curhan Ford: On the competitive front as you cost trade more on the mid sized enterprise are you seeing more CTO’s and CIO’s bring additional vendors for the RFP process? Are you seeing more people in the deal or is it still the same group across the board?

The competitive mix didn’t change that much. We looked at frequency of engagement versus various competitors, win/loss rates both on deals and dollar value of the deals and it was remarkably consistent from Q2 to Q3. It is really the same players. We don’t really see much difference. I think you might see a difference when you get to the next layer down, what we call the small enterprise, they have a tendency to buy more from a server vendor with storage bundled in but the medium size enterprises are still pretty good size and they are not small businesses in general. Alex Kurtz - Merriman Curhan Ford: If you were to look at the 700 accounts you talked about you added this quarter was there a specific geo or vertical that really stood out from those customer acquisitions?

No. Actually not. I’d say what is more interesting is the technologies that set out. Server virtualization and the underlying technology of SAN. Probably just for a point is that the new customer account information actually does not include IBM which is a whole other trench of new accounts both for storage 5000 and the mid size enterprise. However, if I am going to make one observation about the industry and vendors this is particularly around the SAN industry, we are certainly seeing some of the newer companies showing momentum. Our SAN business is particularly robust in this climate and I actually think that there actually is a shift in SAN share underway. In fact if you look at the 5-year charts of SAN share NetApp has clearly gained the most share of the major players but the only other category gaining share is “other.” I tried to highlight this a little bit in my comments but I believe what you are starting to see is some new innovative technologies enter the SAN market that are not being offered by the traditional vendors. As a result I think particularly in this environment that most of those new technologies whether it be thin provisioning or de-duplication and the like are particularly relevant in an investment constrained environment. As a result I think some of the new innovation is getting a look it didn’t get two years ago. I think that what you are starting to see is some of the traditional SAN vendors, particularly in the mid range particularly vulnerable to it, and you are starting to see companies like ourselves and other companies offering new innovation gaining share.

The next question comes from Kaushik Roy – Pacific Growth Equities. Kaushik Roy – Pacific Growth Equities: On operating margins I understand the long-term target is still 16%. Can you comment on your expectations on operating margins for the next couple of quarters? I guess at what revenue run rate are you inclined to reduce headcount more?

You were breaking up a little bit and I’m not sure I heard the question. We are not giving revenue guidance. I can’t really give you operating margin guidance.

Reverse engineering. I think his question is, he did break up, but I think the question is at what level do we achieve the 16%.

You know when we get to a steady state let’s say in FY10 we should be able to hit 16% at $920 million and even at $900 million we are very close, within one percentage point of that, so by restructuring we positioned ourselves to be able to achieve our objective of 16% at very low levels of $900+ in revenue and even if we dipped into the $800’s which we are not projecting but if that were to happen we are still within reach of our goal. Kaushik Roy – Pacific Growth Equities: So you don’t have to cut more heads if it falls slightly below $900?

My answer today would be no.

The next question comes from Bill Schultz – Credit Suisse. Bill Schultz – Credit Suisse: Dan I wanted to ask a question on the competitive landscape as well. There was some chatter that some of your competitors might have been offering some pretty aggressive bundle deals in December to pull business into the quarter. Did you see any impact from these types of actions and is there a risk that the environment could get incrementally aggressive as it progresses through the next several quarters potentially impacting your margins?

Nothing really unusual. I should point out that a lot of our competitors do have quarters which end at the end of the calendar year and in particular the market leader has one that ends that way so they tend to get more aggressive every December. But this was nothing unusual from that perspective. Again as you look at the competitive frequency of engagement, resolution of deal and win/loss, dollar value of the deal, the reason for win or loss, etc. it really was very, very consistent with prior periods. Both the year-ago and the quarter earlier period both. No, I really didn’t see the change. I think what you probably saw is normal behavior but everybody is kind of more tuned into it now because they are looking for it because the economic conditions are bad. But I have to tell you sales people have a tendency to try to drive the accelerators and so forth and are willing to try to provide some financial incentives to our customers to close business. That is a normal pattern of behavior.

The next question comes from Brent Bracelin – Pacific Crest Securities. Brent Bracelin – Pacific Crest Securities: I guess just a specific question for Tom. As you look at NetApp it clearly has a long history of increasing storage efficiency through software. Clearly you talked about strong adoption of de-duplication, reducing storage footprints by up to 70%. As you think about the product business how do you now a portion of the 13% decline here in product sales is not partially attributed to the success you are having on de-duplication? At least partially exacerbating the macro concerns you see out there.

I guess my first response is that so what if it is. If we have 90% market share then I would say let’s be careful with the technology because we don’t know what is going to happen. But it is a mixed bag. A fair number of our big customers using or accelerating their deployment of this technology in order to defer storage purchases because they are under enormous budget pressure? I have no doubt that is going on. In fact I do see it. On the other hand once they have done that I think it makes a pretty sticky NetApp customers when it comes to actually buy some things. On the other hand not all of our platforms, not all of our older platforms actually are capable of running this and in that case it is an opportunity to upgrade. The other thing is the connect rate of this technology is the new environment is extremely high so I am sure it is helping business. So in the aggregate I have no doubt that some of the storage efficiency stuff is slowing our momentum in some of our big, large installed bases. However if that drives customer loyalty in the long run I think that is a risk worth taking. In the end I think if you have got new innovation the best thing you can do is make it available to your customers. I think only good things happen to you in the long run. Under no circumstances I could imagine unless we had massive market share would we contemplate holding this technology back. So I think we are going to aggressively promote it and if it has a short-term impact on our demand from our existing customer base then so be it.

When you look at the 16% of revenue that came from new accounts in the quarter and you go through the detail as to reasons why we won it was predominately storage efficiency. So I think that more than offsets any decline we might have seen from our installed base customers. Brent Bracelin – Pacific Crest Securities: It sounds like de-duplication certainly could be a potential headwind here in the short run but as you start to anniversary the inflation of the technology you should go back to a normalized kind of share gain environment. Is that the right way to look at it?

I think so. I think it frees up the space. Like de-duplication. As soon as this falls they are going to have to expand so it may be a short-term effect but like Tom said many of those have to be upgraded from a systems standpoint to even turn on.

I also believe that in the long run certainly this business environment is extraordinary but in the long run storage tends not to be capacity limited or demand limited. It tends to be budget limited. I think as normal environments as people get the efficiency to de-duplication and the thin provisioning and all the other technologies typically what they do is find a way to put even more stuff on line or make more copies of data or do more things along those lines. In this environment I think that probably curtailed as a second part of that but in the long run I feel that business is demand limited and if you can compress it you can find other things to put on line and more than make up for it. I am a firm believer and I haven’t been proved wrong that in the long run anything that lowers cost per bit stimulates demand.

The next question comes from William Fearnley – FTN Midwest Securities. William Fearnley – FTN Midwest Securities: Steve I apologize but a housekeeping question here. How should we be thinking about the tax rate and any potential tax benefits from R&D tax credits? Also how should we be thinking about share count and buy backs here in the near term?

On a tax rate standpoint if you are looking on a go forward basis I would be using a 16% effective tax rate. That is what we are using here and that is what we expect. As far as the share count is concerned I think there is a number of puts and takes there. The bottom line is I would look for it to be very flat.

At this time we have no additional questions. I will turn the call back over to Tara Dhillon for closing remarks.

Thank you for joining us today everyone. We will look forward to talking to you again on May 21.