Welcome to the NetApp First Quarter Fiscal Year 2012 Conference Call. My name is Michelle, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Tara Dhillon. Ms. Dhillon, you may begin.

Good afternoon, everyone. Thank you for joining us. With me on today's call are CEO, Tom Georgens; our CFO, Steve Gomo; and our Global Controller, Nick Noviello. This call is being webcast live and will be available for replay on our website at netapp.com, along with the earnings release, the supplemental commentary, our financial tables and the non-GAAP to GAAP reconciliation. As a reminder, during today's call, we will make forward-looking statements and projections including our financial outlook for Q2 and future operating metrics, our expectations regarding our future market share, competitive position and new product innovations, the benefits we expect from our partnerships and strategic alliances, our plans for a stock repurchase program and our expectations regarding our recent acquisition of Engenio, all of which involve risk and uncertainty. Actual results may differ materially from statements and projections. Factors that could cause actual results to differ include, among others, customer demand for our products and services, our ability to compete effectively, general economic and market conditions, particularly U.S. budget and debt considerations and the continuing fiscal challenges in the Eurozone and other equally important factors that are detailed in our accompanying press release, which we have filed on an 8-K with the SEC, as well as our 10-K and 10-Q reports, also on file with the SEC and available on our website, all of which are incorporated by reference into today's discussion. All numbers discussed today are GAAP unless stated otherwise. To see the reconciling items between non-GAAP and GAAP, you may refer to the table in our press release, our supplemental commentary or on our website. In a moment, Steve will provide you some additional color on our financial results, and then Tom will walk you through his perspective on the business this quarter. I'll now turn the call over to Steve for his thoughts. Steve?

Thank you, Tara. Good afternoon, everyone. NetApp achieved mixed results this quarter after getting off to an extremely strong start during the first 2 months. Unfortunately, business softened dramatically during the last few weeks of July under the weight of the debt ceiling crisis and macroeconomic uncertainty. Our growth rate in July ended up at about half of our growth rate in May. As a result, our revenue came in at the bottom end of our targeted range. However, non-GAAP EPS was at the midpoint of our target helped by stronger margins. As I mentioned at our Analyst Day in June, moving forward, we will focus our color commentary on the performance of our total OEM revenues, our total NetApp branded revenues and our total consolidated revenues. In some markets, the distinctions between the branded E-Series and branded FAS may blur. And as a result, we'll be focusing on optimizing the total branded revenues. In the case of OEM revenue, a large account such as IBM may see a shift in the mix between our FAS offerings and E-Series OEM offerings, and some OEM customers may even in carry both product families in the future. Bottom line, we feel that understanding revenues from a branded, OEM and total perspective is the most useful way to assess our performance. Our E-Series OEM revenue performance was a bright spot this quarter, coming in well above plan at $157 million in revenue with better than expected product cost performance. Our consolidated non-GAAP gross margins were also a bright spot coming in about 0.5 point higher than our expectations despite slightly softer revenue. Moreover, non-GAAP product margins were in line with the model we presented at our Analyst Day despite the larger than forecasted amount of E-Series OEM revenue in the mix. Remember, E-Series…

Thanks, Steve, and good afternoon, everyone. Before I begin, I'd like to take a moment to recognize Steve for his tremendous contributions and strategic counsel over the past 9 years and also to congratulate Nick on his promotion. Both are well deserved. But Steve had not retired yet, and I do not expect improvements in his golf game until next year. Turning now to the business. As Steve described, we exited Q4 with strong momentum and it continued into Q1. Even without the new E-Series products, the combination of April and May were the strongest consecutive bookings growth quarters in the year. We entered the month of July with forecasts and results well ahead of our expectations despite the geographical balance being uneven. APAC and EMEA bookings were especially strong. Americas commercial was on track, but U.S. federal is behind. Over the course of July, the International business remained strong but the Federal business struggled to catch up with the backdrop of the debt ceiling dispute. However, July also brought some weakness in our business in the U.S., particularly in the Financial Services sector. We had 23 U.S. firms in our major accounts program, 6 of them are in financial services. All 6 of them saw bookings decline from Q1 of last year. Despite the weakness in U.S. federal and financial services, we did see strength in other parts of the Americas with very strong growth in our state, local and higher education group, our telco and service provider group and in the channel. We also had our second highest ever Storage 5000 new customer acquisition quarter. Although anticlimactic, Q1 actually ended up as the third consecutive quarter of increasing year-over-year bookings growth in the organic NetApp business. However, the trajectory weakened as the last month was roughly half the…

[Operator Instructions] Our first question comes from Aaron Rakers from Stifel, Nicolaus. Aaron Rakers - Stifel, Nicolaus & Co., Inc.: So just to dig in a little bit on what you saw in July and maybe what you're seeing at this point in August, can you update us there? And just so I understand, are you pulling the full year guidance off the table given, Tom, your comment there at the end?

My answer is no to your second part of the question. I think at this point in time, the trajectory of the full year guidance is going to be a function of the macro, and I don't think that's what we're going to predict. When I think about the guidance we gave, the EPS was already in line so we're certainly not off our EPS trajectory, certainly not after one quarter. And the revenue's certainly a little bit behind, but if we have some reasonable health in the market, I'm more than of the belief that we can close the gap. The July thing was obviously surprising, as you can well imagine. We just came off Analyst Day. So the last thing we've done is that if we didn't believe we were saying, it would have been hard to pull up Analyst Day, but we were in good shape. I mean, we exploded out April, we closed last quarter exceptionally strong. We're very pleased with how last quarter ended. May was very strong so we came out of the shoot [ph]. So there was no evidence that we had drained the swamp. We had no business to carry into this year. And June was strong. so we were rolling. We were ahead on the results. We were ahead on the forecast, and we felt really, really good about where we were. But the combination of April and May was the best 60-day period we had in the whole year. So for us, I think we felt pretty good. Now what we didn't know at the time -- let me be clear, we did know at the time that we were a little uneven. The Federal business was clearly lagging, and we saw that. But we were overpowering it on the…

Our next question comes from Richard Gardner from Citigroup.

I guess just to follow up on that question, Tom, you spent a lot of time on competitive metrics. Can you just be -- can you give us your sense of whether your win rates in the marketplace have changed at all, since EMC started ramping up DMX in the midrange? Do you feel like this is 100% a market issue or do you have any reservations at all that this might be partly a competitive issue?

Clearly, that's a fair question on your behalf and also internally to the company, particularly where we come up a little bit short on revenue. And I think it's fair. I think the answer to that we probably ask is first and foremost, we need to look inside first. The numbers certainly correspond to weakness that certainly other people are reporting so it's very plausible that would make sense, but I think we need to investigate ourselves. So I mean, first and foremost, the high-level bet is whether it be EMC or HP or IBM or Dell with new offerings. I think it was too sudden and too concentrated to think it was suddenly a competitive issue. And on top of that, on the federal side, that's an area where we're very, very strong and none of those guys are reporting competitive losses. If you go beyond that, I think that the margins were strong so there wasn't any indication that we we're seeing margin degradation. So I think the proximate cause of the shortfall in revenue relative to our plan, I don't believe was competitive. I think the question that we are evaluating is while it might not have been the approximate cause of the revenue shortfall, a lot of these various different products nibbling at us around the edges. And where that becomes relevant is we need to make an assessment as to whether we think Federal and the Americas are going to bounce back quickly. And if we're going to double down in some other area, then clearly understanding the dynamics of those other sectors in the market matter to us. But I think from a purely competitive perspective, I'd say just the nature of it, the timing, the specificity of it, the fact that it's a handful of accounts we have, a lot of intelligence into those accounts. I don't think it's competitive. Could there be nibbling around the edges to the rest of the business that chopped off a little of our upside? Perhaps and that's what we're looking at.

Our next question comes from Jason Ader from William Blair. Jason Ader - William Blair & Company L.L.C.: I wanted to just delve into the Federal because you guys are certainly not alone there. Pretty much every company's talking about it. My question to you is why wouldn't -- September's coming up, end of the fiscal year. If these agencies have the budget, which I think it's already been allocated because of the budget process, I mean why wouldn't they spend it and why wouldn't you be more confident that the October quarter will see a significant change in terms of your federal trajectory?

Well, to some extent that is baked into part of our guidance. I think the question that nobody's going to know the answer to until October 1 is where are they. Federal spending is reportedly behind and we have different schools of thought, one of was that austerity is coming, and they're going to spend every cent they possibly have now. And there's another school of thought that says austerity is coming and they want to conserve cash now. So we'll see what happens. I think the debt ceiling dynamic was a little bit different because they were facing this arbitrary deadline of August 2 and cash hoarding to extend that deadline, I think, might have been in play. But I don't want to dwell too much on that and speculate. The bottom line here is I think there's a few moving parts on the government. I think we took our best shot. Certainly, we're anticipating that our U.S. Public Sector will be up significantly from this quarter as it typically is. But the dynamic of that business, and this year is no different, is that a substantial amount of budget is still not allocated to individual projects until the end. And a fair amount of the activity in that business has positioned themselves in the event money becomes available. And for the question, there's really 2 questions. One of them is how much money will be available and what projects will it fund? And correlate to that, and what agencies? And that will determine whether we're successful or not. So what do I think? I think the government being the government, they'll find a way to spend all their money. It will probably be a last minute thing, but I can predict which agencies will get what funding.

Our next question comes from Brian Marshall from Gleacher and Company. Brian Marshall - Gleacher & Company, Inc.: A follow-up on that question with respect to what's implied for the guidance for the quarter. You talked about U.S. public being up significantly. Can you talk about your expectations for both EMEA as well as financial services? EMEA, obviously, I think that's kind of mixed out there globally. It seems like you guys are doing well, roughly 30% of sales. Can you talk about what you've embedded in your guidance for that in addition to your financial services, obviously, perhaps 10% to 15% of total revenue?

Yes, from our guidance point of view, our financial services is kind of buried into a broad Americas number. So as the team rolls up from the field, and we're looking at bookings forecast and the things of the like, that's kind of buried in there and factored in. We don't do specific vertical forecast. Certainly, I don't. As far as EMEA, we'll see. I think EMEA was remarkably strong. One of the things about -- we didn't go through it in the script is sometimes, there's a little bit of a spread between the bookings performance and the reported revenue performance and the revenues kind of mixed up now between the 2 businesses. But the EMEA booking performance was really strong. Even if you adjust out the currency effects, we're very, very pleased with what happened in EMEA and really across all the territories, including the mature ones, the U.K., France and Germany. So I think we're anticipating continued strength. We just did that in a quarter where certainly the German GDP growth was not that impressive yet we still had a pretty good quarter. So my general sense of the business is yes, we have these backdrops, but I expect to overachieve against the backdrops. So we've been doing it for the last year and if Europe's weak, obviously, that's not going to make it easier for us, but I expect us to do better than most.

Our next question comes from Shelby Seyrafi from FBN Securities.

If you subtract the $157 million in E-Series OEM revenue, then it looks like your core NetApp business grew no more than 13% year-to-year. I'm wondering why you're not cutting back your projection for like, I think it was 18% core growth this year. What kind of catalyst do you see ahead? Is this simply a rebound in the Federal segment? Is it ONTAP 8.1? Is it a lull in refresh? What do you see that causes you not to pull in your forecast right now?

Well, I think we're talking about roughly a $6.7 billion number, and we're talking about being $50 million behind after one quarter. And it doesn't take much of a move in a favorable direction to get us in pretty good shape. So I think we're a long way away from that. Now I think right now, trying to extrapolate $50 million, the macro's going to have a bigger lever on driving that one way or the other. The other part of it is the deferred revenue coming off the balance sheet that we built in prior years is going to get stronger as the year goes on so I think we have that buffeting the business. So our business doesn't hinge quarter-to-quarter purely on bookings. We also have some underlying -- it's roughly 1/3 to 40% of our overall revenue is actually coming off the balance sheet. So I think that gives us some stability both on the revenue side and on the margin side, frankly. But I think going forward, I mean, one thing that was -- we were in really good shape midway through the quarter. And in one of our geographies, we're behind so I don't think that we need to execute to perfection to get to that number. I just think we need to see some rebound, either a little bit in both of the 2 that underperformed or one of them coming completely back. So as far as the full year, it's way too early to tell. And I think even if the climate got no better than it is today that, that $50 million plus the guidance that we put in this quarter is recoverable as the year wears on.

Our next question comes from Amit Daryanani from RBC Capital Markets.

I just want to understand, given the concerns of softer macro going forward, just talk about is there any plans to look to constrain OpEx and probably freeze hiring for the rest of the year? And how should we think about headcount and OpEx numbers over the next few quarters?

Okay, so the answer is no. We're executing our strategy. We did not -- actually, last quarter since it was so late at the end of the quarter, there was our time to do that, but we haven't substantially changed things this quarter either. We are still hiring. We're still pushing ahead, and we are still -- the gross margins are ahead of plan. Some of the efficiencies and some of the transaction we just did is ahead of plan. And if EPS is still on plan, I don't see any reason to change anything, and our guidance reflects that. So I see no reason to panic. Yes, we had a couple of slowdowns in a couple sectors. If it deteriorates from here, clearly, we'll change direction. I think if there's one thing we've proved in the last downturn, where we actually got back to our operating plan in one quarter is that if we put the brakes on, we can put the brakes on hard, but we're not doing that now. I still see -- there's way too many pockets where we are outperforming and gaining share. And as long as that's the case, we're going to invest in them. Now if it looks like the government and financial services or even some other sectors of the U.S. is protracted. We may realign resources, but we're in no means constraining OpEx. Clearly, we're trying to protect our guidance so we're trying to protect the guidance we gave for the year as well on the EPS side. But we're not -- we're certainly not in panic mode. I don't see any business distress here. We're going through some tough sector weaknesses and we're going to ride through it and we're going to monitor it closely.

Our next question comes from Brian Freed from Wunderlich Securities.

As you look back at the past, you guys were somewhat of a canary in the coal mine going into the '08, '09 recession, one of the first storage vendors to really see a lot of weakness. Can you kindly compare and contrast what you saw then versus what you're seeing right now?

I'm trying to envision whether we want to be the canary in the coal mine or not. I'd love to think that this is just a flash in the pan and we're back to normal soon. I would say what was different last time was that the symptom that we saw then was lots of deals that were being struck that we were in technical evaluation and then it was difficult to get transactions signed. And while we certainly see some of that, it's not as widespread as it was last time. So that's what I would say is the biggest difference is that we still did a fair number of large transactions. They were just hard to close at some industries than others, and then you have this big government overhang, which is completely different. So if you took the Fed piece out, I think the story would look a lot different. So I don't feel like we're on the trajectory that we were in a couple years back. I may feel that way 90 days from now, but it doesn't yet feel that way today. In fact, this government thing -- I don't know how much the political overhang is a factor here, and we'll just see what happens. But right now, I think we're just going to assume that the current environment is going to stay roughly at this level going forward, and we'll see where goes from there. But right now, it still seems to be a little bit localized and it'll either heal itself or it will get worse. And right now, we're just going to assume steady state.

Our next question comes from Deepak Sitaraman from Crédit Suisse. Deepak Sitaraman - Crédit Suisse AG: Tom, if I can just ask one more on the guidance. To the extent your full year guidance is still valid, the implied half-over-half revenue growth rate is quite a bit higher than what we've seen over last several years. I guess my question is what level of visibility or confidence do you have beyond the second quarter and are you expecting strength in Asia Pacific and EMEA to offset any potential weakness on the federal or the U.S. public side or do you just don't know at this point?

Of the things that we have in our favor is the deferreds again. So last year, we went through a whole year where the deferreds were basically flat all year. So we had roughly 1/3 to 40% of our revenue generating no growth, and we just overpowered that with extremely strong product growth. This year, those deferreds that we put on the balance sheet during those growth periods are actually going to stop to create growth for us so we'll actually see roughly 20% growth in the deferreds as the year wears on. So from that perspective, I think we have that base to build on. So if you think about it in terms of what the incremental year-over-year product growth is going to achieve the numbers, it's not quite as intimidating.

Our next question comes from Maynard Um from UBS.

I just wanted to get some -- a question on your comment that you'd focus on continued market share gains. I'm just wondering how we should think about that comment. In fiscal '09, you had revenues up on a year-over-year basis, but that was pretty much offset by gross margin declines and OpEx increases. So obviously, you said it was harder to close deals back then in the last downturn because of technical evaluation, et cetera. So I'm just wondering, if we were to go into another downturn, which seems to be the fear, how we should think about that comment in particular relative to the business model? And where you would kind of sort of put the brakes on the spend? Is it geographical expansion, R&D, in sales? I guess what part of your costs are variable?

Well, I think we have a number of variable costs, not the least of which is our hiring plan. But right now, I guess that's kind of a hypothetical conversation. That's not really what's dominating our thought process at this point in time. As I think about market share gains, clearly that's going to be in the context of an overall adequate P&L performance. And we're certainly not going to chase market share gains all the way into a loss position. And frankly several years ago, we didn't do that. In fact, once it was clear that market share gains weren't there to be had and the industry was in distress, we actually reduced OpEx and it was one of the few painful layoffs in our history. So it isn't, it's market share at any price. I just think that we're in a situation where the revenue is a little weak. On the other hand, our earnings were right there. Our gross margins were strong. It doesn't appear that we're losing competitive position. There are certain geographies where we're exceptionally strong. Right now, I think what we're probably spending a little bit more time on is which of these areas are going to come back, which ones do we think are going to come back or do we kind of let those go for a little while, maintain investment and reinvest in other areas where we have some strength. So I think our aspiration is unless the market deteriorates substantially from where we are today, our goal is to get back to our guidance even if we have to make it up in other areas. So that's really where we are. And make no mistake, if the market deteriorates and we're dropping and if there just isn't business to be had, we're going to protect the P&L. At the very least, try to protect the EPS guidance we gave. But beyond that, as long as we're in the range, we're going to try and find ways to eke out growth out of this environment wherever the opportunity lies.

Our next question comes from Jason Maynard from Wells Fargo.

Sort of to follow up maybe on that last comment about protecting the P&L. Is there a hypothetical operating margin target that you have in mind that you feel like you have to hit? And one of those things that I believe sort of differentiated you in the last downturn is that you did still make ongoing investments in light of the economic challenges. How do you sort of balance that out as you sort of think about the various scenarios that could play out over the next 6 months?

I have no magic number. I think that the first thing that we would probably try to do is protect the EPS guidance we gave. And I think that's where we want to be. And I think we have a fair amount of investment leverage and still be able to do that even if the market doesn't materially improve from here. Now a couple years ago, we did a few things, some of which I think were probably obvious to the outside world looking at the P&L, but some of them are very specific internally. And that is we had a clear message to us to the team and that is there's a lot of initiatives we want to pursue, but the spending levels are flat. So in the context of a flat investment environment, how are we going to fund these initiatives? And we put a pretty big effort on one of the low yield activities we have underway that we are going to shed so we can move to stop the things that matter going forward. And I think we did that. And out of that, we shed some product lines and it was painful. I think we crisped up our marketing message. I think we did a bunch of things that served us well. So I think that even under the covers of an investment is that realigning the investments, whether it's realigning them geographically to take advantage of market opportunities, whether it's product side. But as far as an ultimate threshold, I would say it depends on what we see happening. If we think it's competitive, we might do one thing. If we think it's a regional slowdown, we might do something else. But I don't really want to commit to that number. Our focus is going to be on EPS, and clearly we want to protect the EPS guidance that we just gave. The other thing that I think is somewhat in our back pocket, which will play out a little at a time, I think is synergies from the acquisition we just did. I think we're seeing probably the near term supply lines synergy of just basically our buying power coming into play. I think as time goes on, we'll basically bring them into our manufacturing fold and get leverage there as opposed to have split manufacturing like we do today. And I think in the longer run, there's obviously some engineering synergies around common components. So I think that there's Engenio leverage over time that will play out. And we opened up some transition services underway with them because we did not buy an operating business, we just bought assets. So there's still some dependency on the other side that we'll try and wind down over time. So I think there's a number of sources of synergies and reprioritization even before we think about increasing the OpEx envelope.

Our next question comes from Bill Shope from Goldman Sachs.

I have a question on pricing and I recognize that when this question has been asked in the past, the answer is that it's always competitive and the dynamic hasn't changed that dramatically over the past several years. But did you see any signs that the pricing seemed to get more competitive as demand came under pressure in July? Do you think that's a risk, particularly since it seems like you believe this weakness is impacting all vendors in the industry? And how should we think about that risk going forward in light of your margin goals and whatnot?

I think that's a question of how widespread this becomes. If the federal has -- in the federal accounts, I don't think they were standing across the table saying, "You guys are too expensive. If you guys were cheaper, we would buy." I think they were saying, "We don't have any money. We're not going to buy anything." If it becomes more widespread, then you have the inevitable issue of too much worldwide sales capacity chasing too many deals and limited opportunities then people can't afford to lose any, and as a result, pricing becomes very competitive. And I wouldn't rule out that we'll see some of that in the financial services side if this continues. But I say that, in general, we're not in that state on a worldwide basis yet. So I'm not anticipating any significant pressure from the margin side other than what we normally see. It's interesting that I took a look at that myself and we actually saw lower discounting this past quarter than we did in the prior quarter. And it's noticeable, it had a slight impact on the prior gross margins. That's one of the reasons why the product gross margins are stronger. So if it is getting more competitive, we haven't seen it yet. So I would characterize it the same way I have over the past several years, Bill, is that it is a tough market out there. It is very competitive all the time, and people will do something to get a footprint in a particular installation or customer site. But at the end of the day, I don't think this quarter we saw anything to give it any indication that the competitive situation has changed.

Our next question comes from Ben Reitzes from Barclays.

With Engenio doing better than expected in the quarter, can you talk about your expectations for the year? Are they still the same at $750 million and $150 million for NetApp branded? And for the accretion as well, what is the expectation for accretion for the year? And also your expectations in the 2Q for Engenio, that would be great to hear that, too.

Well, I think at this point we're just trying to develop an intuition for the business. Even the question of did we see the same July effect in the Engenio business as we saw in the rest of the business is still something that we're trying to sort out. One of the things that's a little bit different dynamic is that the big customers in that business have quarter ends that don't line up with ours. So at this point, I think we're just trying to build up our own intelligence around the business and what the seasonality's going to be. So I don't think we want to tip the numbers up or down. I think we're very pleased how we came out of the shoot. I'd say, probably from a pure accretion perspective, I think we're ahead of where we are. There's still opportunities on the cost side as time goes on as well. So, so far so good. But even if the core business was strong, and I don't think that we would be changing our expectations for the new E-Series business just yet. In terms of in the market, the OEMs continue. Teradata was very, very strong. IBM is continuing. We had good conversations with Oracle this quarter amid all the noise. And we have commitments from them that this business will continue unchanged. On the branded side, the enthusiasm is very high. There's nothing like a $14 million deal to get people's attention. But even beyond that, the amount of activity, the ability to getting all that stuff through our systems and parts of them because we're shipping the branded stuff out of our systems, not through LSIs, has been a little slow. That's probably the only execution concern I'd have. But the enthusiasm for the field, the amount of bids that are out there, the amount of opportunities being pursued, the OEM business appears to be on track. It's not as spectacular, but the branded side has a lot of activity and I'm still very optimistic about that.

Our next question comes from Lou Miscioscia from Collins Stewart.

Maybe if you can talk about Europe a little bit more, give us maybe the constant currency growth number that you had there, what kind of demand trends that you're seeing. Obviously, the number looks good, but does it seem like that's going to continue as we finish out the year given some of the problems you've had over there?

Okay, this is Steve. I'll start the answer. We were very, very pleased with Europe in terms of the demand we saw over there. And as Tom mentioned earlier, it was spread across the larger geographies which was also good news from our perspective. If you look at the constant currency type of demand growth we saw, it was probably on the order of 25%. And in fact, currency adjusted, it was much higher than that. So Europe had a very, very good first quarter. That's all there is to it. Now we'll see -- we read the papers everyday like everybody else, and it looks like there is storm clouds brewing over there. But nonetheless, right now, they're still bullish on their opportunities and they're winning their fair share of business.

Yes, and I think we said before that Southern Europe is not material to our European number at this point. So from a risk perspective, I think it's small. And the other message that I'm always quick to point out to the team is that when you have no market share, the macroeconomy doesn't matter. So I think in a lot of those geographies, we don't really have a strong presence that we're building up. So we grew in all of those, in fact. But even if they disappear tomorrow, it wouldn't be material, although we're clearly getting bigger and bigger as each quarter goes by. But the general European trend, the German GDP numbers that were reported this week were a bit of a surprise to me. Because in general, I kind of felt over the last year, the Germans in particular were remarkably bullish. In light of everything else that's going on, they were enormously confident. And I'm not just talking about our sales guys, I'm talking about the customers themselves. And we'll see if that confidence is shaken. But in the midst of this relatively low GDP quarter, they still bought a lot of stuff, and they still showed a lot of confidence. So I guess it's just like anything else. As long as we're winning and gaining share, we're going to continue to invest. And the papers are interesting, but until they affect our business, we're not going to do anything different.

Our next question comes from Katy Huberty from Morgan Stanley.

Last quarter, you mentioned that the company's APAC exposure needs to increase and that did happen in the July quarter. So can you talk about whether that's a function of a formal initiative you've put in place and we should continue to see that percentage of the revenues coming from APAC grow? Or were there some big deals impacting the quarter?

So in terms of the growth numbers and a percentage of revenue associated with APAC, part of that is related to the new business that we acquired so that adds to the APAC number because a number of them have manufacturing facilities out there on the OEM side. But that said on the core business side, it was very, very strong. And even Japan had double-digit growth, and all the other geographies did better. The key thing there, not surprisingly, is really leadership. We've replaced a lot of our leaders in a lot of these geographies. A lot of them have been in place now for 1 year to 1.5 years and we're seeing the impact. Asia/Pac had a very, very good booking quarter last -- a very, very good booking year last year, and they had a very, very good first quarter. So I think we're just plain executing better. Now that said, as a percentage of our revenue, it still needs to be higher. So that means by definition, we're underpenetrated in a number of geographies so we need to keep doing better. But overall, I think that as a company, I've got more confidence in the Asia/Pac team than at any time in my tenure at NetApp.

Our next question comes from Ananda Baruah from Brean Murray. Ananda Baruah - Brean Murray, Carret & Co., LLC: Just a question about the buyback that you alluded to in your earlier comments. To what extent might that be a response to what the stock did today and seemingly doing in the aftermarket? And philosophically, how opportunistic might you be willing to be, any context you can give us there would be great.

For what it's worth that part of the script was written before today's performance. So we basically, we told you that we have the authorization from the Board last quarter when we did the buyback. You know how much the authorization is and how much is left. We told you we would probably continue it at that point, now we're affirming that we're going to continue it. We haven't decided on an amount, the timing. We obviously don't know the share price yet so there's not a lot of other details I can give you. But indeed, it's better to buy stock when it's down as opposed to up so it looks like it could be a good opportunity right now.

Our next question comes from Mark Moskowitz from JPMorgan. Mark Moskowitz - JP Morgan Chase & Co: More of a technology question, Tom. I just want to get a sense of what you're seeing from customer interest in terms of ONTAP 8.1. What kind of benefits can you maybe characterize for us that could attract customers or retain customer interest? If the macro issues were worse, are there certain goodies or cost savings with ONTAP 8.1 that could really preserve your relevance in data center optimization?

Yes, I think the essence of 8.1 is it's the first time we're going to broadly marry our enterprise data management software suite with clustering to basically bring that at scale. And that's got applications in many dimensions, including obviously the obvious ones on the purely performance side and the scalability side and content repository side. But the thing that's especially unique about it is that we bring the data management suite that we're bringing to enterprise customers and traditional business apps, that we're marrying that with true scale and true clustering. That's really going to be the only platform of its type that's targeted at the enterprise customer. So it's really a monetization of storage for the enterprise customer. Most of the enterprise applications are still running on architectures that are 15 or 20 years old. So that is really the big push on this. Now it will spill over into high-performance computing, it will spill over to technical computing and a lot of the scalability boundary limits and things like that will be relaxed so it will make these things easier to manage. So value proposition, I think, is clearly the ability to bring our broader value proposition to a greater set of customers and a greater set of applications. For existing customers, obviously, the manageability and the scalability and the performance and the ability to manage storage as a pool as opposed to an individual box, I think will have tremendous advantages from a complexity perspective or performance perspective. And really the ability to build a virtualized infrastructure, the ability to build a broad storage pool to serve a big server farm that's capable of running multiple apps at the same time and manage security, manage performance, manage capacity, manage cost. So I think from that perspective,…

Our next question comes from Keith Bachman from Bank of Montréal. .

Tom, I wanted to get -- the customer sets that have slow, which is Federal government and financial services, is the characterization that they've shelved the deals or they're still in discussion or don't know. I just want to understand if they pulled or tabled. And then related to that when I look at your guidance for this upcoming quarter, it's a fairly wide range of, say, 3% to 10%. But if you pick kind of the midpoint, in the last 2 years, you've grown 8% and 9% sequentially so it's in that same neighborhood. My question is have you let yourself enough room here? Because it seems like implicitly, you're assuming that the weak areas of Federal and financial grow at normal seasonal trends. I'm just trying to reconcile that with your comments on uncertainty surrounding their current demand trends.

Well, the other thing that we didn't have last year is that we have the deferreds growing at a reasonable rate that we didn't have a year ago and that will clearly help us on this particular dimension. As far as deals bill being shelved or whatever, I'd say more so on the federal side than on the commercial side, including financial services. I don't think that any of them have suddenly sat down and re-architected and recrafted their budgets for the entire year, and everybody has new budgets. I think people are operating under the old rules and basically spending is being modulated at high levels when these things have to be signed off. So I'd say on the federal side, clearly, projects have been deferred. I'd say, on the U.S. side and particularly in the financial services sector, I think those are still in the delayed. And if things look a little better, will approve of type of mode.

Our last question comes from Chris Whitmore from Deutsche Bank.

To follow up on Keith's question, I wanted to ask about the impact cycles on customer spends. In other words, do you think you're seeing a pause in front of Romley or a pause for evaluation of ONTAP 8.1, et cetera that's contributing to the pullback or do you think this is purely macro?

On the server side, I don't think that the Intel refresh has had that a big of an impact on our business. In some ways, you could argue it would be the opposite. I think if they have a big server spend coming up, they might spend less on storage. I don't really know, but I've never really seen the correlation there. What's interesting about our business is that the customer behavior is actually more driven by platform refreshes than they are software refreshes. So the thing about 8.1 is it's going to run on the platforms that we currently ship so if they make an investment in the platform today and then they can upgrade to 8.1, it isn't like the equipment is obsolete. So from that perspective, I'm not expecting that there's a big waiting for 8.1 to come along. I just don't see that. If 8.1 only ran on a platform, a new platform that only ran 8.1, then it would be a little bit different, but I just don't think that's the case. So the server thing, I think, is somewhat irrelevant. But what I do think, though, is that the demand tends to flow towards the newer platforms. And I think we see that with the 3000, we see that with the 6000. I mean, the 6000 just blew it out. And I think that some of that is people might be buying a new 6000 instead of a couple 3000s, to kind of get on the new technology at the high end. I think that some of that's happening to with the 2000s. They'll buy a 3000 instead of a couple of 2000s. And then the public sector business hit. If you look at our 2000 family, it kind of goes into a few categories. There are some that goes into the big accounts for like branch office type of things. And that was kind of mediocre. There's the Channel business, which mostly goes to midsized enterprise and small businesses, state, local governments. That was actually strong. And then there was the public sector use, which could be anything from ships to cars to boats to planes to whatever. And that was very weak. And that was the big mover on the platforms this quarter.

I will now turn the call over to the host for any final remarks.

Thank you, all, for joining us today. We will announce our next quarter earnings results on November 16. In the meantime, we look forward to talking to you -- to many of you between now and then. Have a good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.