Network Appliance Announces Results for First Quarter Fiscal Year 2007; Achieves 39% Year-Over-Year Revenue Growth

For the first fiscal quarter, GAAP net income was $54.7 million,or $0.14 per share(1) compared to GAAP net income of $60.1 million, or$0.16 per share for the same period in the prior year. This firstquarter of fiscal year 2007 is the first quarter in which NetworkAppliance adopted the implementation of FAS 123R expensing of stockoptions in the GAAP results. Non-GAAP(2) net income for the firstfiscal quarter increased 55% to $96.6 million, or $0.25 per share,compared to non-GAAP net income of $62.1 million, or $0.16 per sharefor the same period a year ago.

"NetApp delivered another strong quarter, driven by strong growthin every region of the world," said Dan Warmenhoven, CEO of NetworkAppliance. "Our new products and new relationships are gainingmomentum, and our business with enterprise customers reached recordlevels. Our results demonstrate that the NetApp value propositionresonates with customers and continues to drive our competitivesuccess."

Outlook

-- Network Appliance estimates that growth in revenue for the second quarter of fiscal year 2007 will be in the range of 2 1/2% to 4%, which translates to 32% to 34% growth year over year.

-- Including the implementation of SFAS123R and with current information and assumptions, the company expects second quarter GAAP earnings per share to finish between $0.13 and $0.16 per share. Network Appliance expects second quarter non-GAAP earnings per share to be in the range of $0.25 to $0.26 per share.

-- For the full fiscal year 2007, Network Appliance estimates that revenues will finish in the range of 32% to 33% higher than fiscal year 2006.

-- Including the implementation of SFAS123R and with current information and assumptions, the company expects GAAP earnings per share for fiscal year 2007 to be in the target range of $0.61 to $0.69 per share. Network Appliance estimates full-year non-GAAP earnings per share to be in the range of $1.04 to $1.06 per share.

Quarterly Highlights

During the first quarter of fiscal year 2007, Network Appliancedemonstrated value and leadership in the data center with new productsand solutions for the enterprise, introduced the industry's firstall-in-one solution for the small and medium business (SMB) market,and continued its leadership position in the iSCSI andnetwork-attached storage markets.

This quarter, NetApp challenged the largest storage competitorsfor data center leadership by introducing a new line of products andservices designed to enhance customers' data management capabilities,offer the best total cost of ownership, and achieve the highestproductivity. The FAS6030 and FAS6070, new flagship systems thatgreatly extend the breadth and scale of the NetApp storage systemsportfolio, extend the NetApp FAS line to a substantially higher levelof performance and scalability. Additionally, NetApp debuted anenhanced NetApp Manageability Software family and new Fibre Channel(FC) SAN capabilities as well as Premium Support Services for theFAS6070 and Rapid Deployment Services for Storage Implementation.Highlighting its greater value in data center environments, theexpanded NetApp portfolio offers modular, transparent scalability forthe largest data center applications and consolidations; maximumflexibility to help customers adapt to business changes; and thehighest availability of application data, ultimately enabling moreproductivity for IT administrators and achieving the best overalltotal cost of ownership. These offerings are aimed at enterprises thathave vast data requirements and demanding service-level agreements andthat operate large-scale Oracle(R), SAP, and Microsoft(R) enterpriseapplications.

During the quarter, NetApp announced the availability of its newData ONTAP(R) GX operating system, giving customers withhigh-performance computing (HPC) applications extreme throughput,flexibility, and NetApp hallmark simplicity and reliability. DataONTAP GX combines the global namespace functionality of SpinOS(acquired through the Spinnaker Networks(R) acquisition) with the keydata management, performance, and high-availability features of DataONTAP 7G. Although the needs of NetApp enterprise customers are wellserved by the performance, features, and functionality of Data ONTAP7G, HPC customers in the areas of energy, entertainment, andelectronic design automation have an insatiable demand for extremelevels of performance. Coupled with the new FAS6070 and/or FAS3050systems, HPC customers can leverage the clustered file systemtechnology inherent in Data ONTAP GX, which enables individual filesor datasets to be striped across multiple nodes to achieve far greaterperformance than can be achieved with a traditional storage system.Data ONTAP GX, coupled with the new FAS6070, scales in capacity up to6PB and achieves the unprecedented industry performance of more thanone million operations per second, based on the SPEC SFS benchmark.

During the quarter, NetApp unveiled the StoreVault(TM) S500, aimedat the small and medium business market segment. StoreVault S500combines enterprise-proven storage technology from NetApp with thescalability, simplicity, security, and affordability that are missingin today's network storage solutions for SMBs. The StoreVault S500 isthe industry's first scalable all-in-one network storage appliance forthe SMB market segment that supports NAS, iSCSI SAN, and FC SAN,providing SMB customers unparalleled flexibility compared todirect-attached storage.

Continuing disclosures of privacy breaches are drivingrequirements for enterprise-wide encryption and key management. Thisquarter, Decru, a NetApp company, unveiled a new key managementplatform, the Decru(R) Lifetime Key Management(TM) 3.0 Appliance (LKMAppliance). The LKM Appliance extends Decru's capabilities for secure,automated, enterprise-class management of storage encryption keys andadds integration capabilities for third-party encryption products.

In other product news, NetApp was awarded Storage Vendor of theYear and NAS Product of the Year for the NetApp(R) NearStore(R) R200storage system at the Storage Awards: The Storries III. Judged by thereaders of Storage Magazine, the UK's leading IT storage magazine, theStorage Awards recognize excellence and innovation in the UK storageindustry.

From a market perspective, according to IDC's Worldwide QuarterlyDisk Storage Systems Tracker Q1 2006,(3) NetApp gained revenue sharein the networked storage market, growing to a 9.6% share in Q1 2006,up from an 8.5% share at year-end 2005. NetApp also gained capacityshare in networked storage, growing to 19.5% from 15.8% in the sameperiod.

In the FC SAN market, NetApp continued to grow faster than themarket in both revenue and capacity, both sequentially and year overyear. Sequentially, FC SAN market revenue dropped 12.9% while NetAppgrew 17.4%. Year over year, the FC SAN market revenue grew 14.8% whileNetApp grew 60.2%.

In the NAS market, NetApp grew faster than the market in bothrevenue and capacity, both sequentially and year over year.Sequentially, the NAS market revenue dropped 1.5% while NetApp grew7.3%. Year over year, the NAS market revenue grew 14.7% while NetAppgrew 17.8%. NetApp continues to lead the NAS market in terms ofcapacity, with a 45.8% share in Q1 2006, up from a 42.6% share atyear-end 2005.

NetApp demonstrated continued leadership in the iSCSI market interms of revenue and capacity, with first place market share for Q12006 in capacity shipped (40.0%) and in revenue (29.7%). In Q1 2006,the iSCSI market revenue dropped 7.2% sequentially, while NetApp grew10.0%.

Also this quarter, NetApp announced it has shown the strongestmarket share growth among the top 10 vendors of storage software andhas moved into the top four vendors for market share in 2005.According to Gartner's report "Market Share: Storage ManagementSoftware, Worldwide, 2005,"(4) the total market for new licenserevenue in 2004 to 2005 grew at a rate of 8.8%, with NetApp beatingthe market with a growth rate of 42.3% for the same period. For thethird year in a row, this was the fastest growth rate among the top 10vendors in the space and for the first year places NetApp in the topfour, with a total overall market share of 6.5%.

On the partner front, NetApp unveiled several new solutionenhancements and partner offerings with Attune Systems, Brocade,Cisco, Emulex, Microsoft, Symantec, and Reconnex, to address a varietyof data concerns, including network file management, data contentmonitoring, data protection, and FC SAN scalability.

In corporate news, NetApp entered into a definitive agreement tosell its NetCache(TM) business to Blue Coat Systems. Also during thequarter, Edward Kozel, a member of the Yahoo! board of directors andCEO of cRight, Inc., a developer of anti-piracy software, joined theNetApp board of directors.

Webcast and Conference Call Information

-- The NetApp quarterly results conference call will be broadcast live via the Internet at http://investors.netapp.com on Wednesday, August 16, 2006, at 1:30 p.m. Pacific Time. This press release and any other information related to the call will also be posted to the Web site at that location.

-- The conference call will also be available live in a listen-only format at (866) 700-0133 in the United States and (617) 213-8831 outside the United States. The passcode for both numbers is 31954843.

-- A replay will be available for 72 hours following the completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, with replay code 85474493. The Webcast replay will be posted on our Web site for at least one year.

About Network Appliance

Network Appliance is a world leader in unified storage solutionsfor today's data-intensive enterprise. Since its inception in 1992,Network Appliance has delivered technology, product, and partnerfirsts that simplify data management. Information about NetworkAppliance solutions and services is available at www.netapp.com.

This press release contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Thesestatements include all of the statements under the Outlook sectionrelating to our forecasted operating results and metrics for secondquarter of fiscal 2007 and for all of fiscal 2007; statementsregarding our optimism for our 2007 fiscal year generally; statementsregarding the anticipated benefits of our new products, technologies,and services, including Data ONTAP GX, Decru Lifetime Key Management3.0 Appliance, StoreVault, the FAS6030, and the FAS6070; andstatements regarding anticipated benefits from partner offerings.These forward-looking statements involve risks and uncertainties, andactual results could vary. Important factors that could cause actualresults to differ materially from those in the forward-lookingstatements include general economic and industry conditions, includingexpenditure trends for storage-related products; risks associated withthe anticipated growth in network storage and content deliverymarkets; our ability to deliver new product architectures andenterprise service offerings; competition risks, including our abilityto design products and services that compete effectively from a priceand performance perspective; risks with new product introductions; ourreliance on a limited number of suppliers; our ability to accuratelyforecast demand for our products and successfully manage ourrelationships with our contract manufacturers; our ability to expandour direct sales operations and reseller distribution channels; ourability to develop, maintain, and strengthen our relationships andproduct offerings with strategic partners; risks associated withinternational operations; our ability to successfully acquire andintegrate complementary businesses and technologies; foreign currencyexchange rate fluctuations; and other important factors as describedin Network Appliance, Inc. reports and documents filed from time totime with the Securities and Exchange Commission, including thefactors described under the sections captioned "Risk Factors" in ourmost recently submitted 10-K and 10-Q. We disclaim any obligation toupdate information contained in these forward-looking statementswhether as a result of new information, future events, or otherwise.

(1) Earnings per share represent the diluted number of shares forall periods presented.

(2) Non-GAAP results of operations exclude amortization ofintangible assets, stock-based compensation, restructuringcharges/recoveries, net gain/loss on investments, and the relatedeffects on income taxes.

(3) IDC's Worldwide Quarterly Disk Storage Systems Tracker Q12006.

(4) Gartner Dataquest, "Market Share: Storage Management Software,Worldwide, 2005," Aman Munglani and Nikhil Pank, June 28, 2006.

NetApp, Data ONTAP, NearStore, and Spinnaker Networks areregistered trademarks and Network Appliance, NetCache, and StoreVaultare trademarks of Network Appliance Inc. in the United States andother countries. Decru is a registered trademark and Lifetime KeyManagement is a trademark of Decru Inc., a NetApp company. All otherbrands or products are trademarks or registered trademarks of theirrespective holders and should be treated as such.

Network Appliance Usage of Non-GAAP Financials

The Company refers to the non-GAAP financial measures cited abovein making operating decisions because they provide meaningfulsupplemental information regarding the Company's operationalperformance. These non-GAAP financial measures exclude amortization ofintangible assets, in-process research and development, stockcompensation, restructuring charges/recoveries, net gain/loss oninvestments, and the related effects on income taxes as well ascertain discrete GAAP provision for income tax matters recognizedratably for non-GAAP purposes. We have excluded these items in orderto enhance investors' understanding of our ongoing operations. The useof these non-GAAP financial measures has material limitations becausethey should not be used to evaluate our company without reference totheir corresponding GAAP financial measures. As such, we compensatefor these material limitations by using these non-GAAP financialmeasures in conjunction with GAAP financial measures.

These non-GAAP financial measures facilitate management's internalcomparisons to the Company's historical operating results andcomparisons to competitors' operating results. We include thesenon-GAAP financial measures in our earnings announcement because webelieve they are useful to investors in allowing for greatertransparency with respect to supplemental information used bymanagement in its financial and operational decision making, such asemployee compensation planning. In addition, we have historicallyreported similar non-GAAP financial measures to our investors andbelieve that the inclusion of comparative numbers provides consistencyin our financial reporting at this time.

NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

July 28, April 30,
2006 2006
----------- -----------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents $442,329 $461,256
Short-term investments 830,051 861,636
Accounts receivable, net 376,920 415,295
Inventories 56,242 64,452
Prepaid expenses and other assets 41,140 43,536
Short-term restricted cash and investments 135,141 138,539
Deferred income taxes 48,496 48,496
----------- -----------
Total current assets 1,930,319 2,033,210


PROPERTY AND EQUIPMENT, net 533,121 513,193

GOODWILL 487,535 487,535
INTANGIBLE ASSETS, net 69,869 75,051
LONG-TERM RESTRICTED CASH AND INVESTMENTS 96,632 108,371
OTHER ASSETS 63,193 43,605
----------- -----------
$3,180,669 $3,260,965
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt $163,354 $166,211
Accounts payable 99,927 101,278
Income taxes payable 33,527 51,577
Accrued compensation and related benefits 90,979 129,636
Other accrued liabilities 65,122 69,073
Deferred revenue 433,599 399,388
----------- -----------
Total current liabilities 886,508 917,163
----------- -----------

LONG-TERM DEBT 108,780 133,789
LONG-TERM DEFERRED REVENUE 309,611 282,149
LONG-TERM OBLIGATIONS 4,943 4,411
----------- -----------
1,309,842 1,337,512
----------- -----------

STOCKHOLDERS' EQUITY 1,870,827 1,923,453
----------- -----------
$3,180,669 $3,260,965
=========== ===========


NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

Quarter Ended
-------------------
July 28, July 29,
2006 2005
--------- ---------

REVENUES:
Product $465,611 $340,926
Software subscriptions 74,830 53,704
Service 80,847 53,773
--------- ---------
Total revenues 621,288 448,403
--------- ---------

COST OF REVENUES:
Cost of product 187,965 131,499
Cost of software subscriptions 2,292 2,256
Cost of service 57,961 41,162
--------- ---------
Total cost of revenues 248,218 174,917
--------- ---------
GROSS MARGIN 373,070 273,486
--------- ---------

OPERATING EXPENSES:
Sales and marketing 195,518 137,814
Research and development 88,678 52,160
General and administrative 32,396 21,196
Restructuring recoveries (74) (1,256)
--------- ---------
Total operating expenses 316,518 209,914
--------- ---------

INCOME FROM OPERATIONS 56,552 63,572

OTHER INCOME (EXPENSES), net:
Interest income 16,656 9,048
Interest expense (3,871) (48)
Other income (expense), net 779 (224)
Net gain on investments - 33
--------- ---------
Total other income, net 13,564 8,809
---------- --------

INCOME BEFORE INCOME TAXES 70,116 72,381

PROVISION FOR INCOME TAXES 15,446 12,261
--------- ---------

NET INCOME $ 54,670 $ 60,120
========= =========

NET INCOME PER SHARE:
BASIC $ 0.15 $ 0.16
========= =========
DILUTED $ 0.14 $ 0.16
========= =========

SHARES USED IN PER SHARE CALCULATION:
BASIC 373,869 367,438
========= =========
DILUTED 391,319 386,383
========= =========


NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)

Three Months Ended
--------------------
July 28, July 29,
2006 2005
---------- ----------
Cash Flows from Operating Activities:
Net income $ 54,670 $ 60,120
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 18,714 14,756
Amortization of intangible assets 4,686 2,671
Amortization of patents 495 495
Stock-based compensation 43,022 2,028
Net loss (gain) on investments 6 (33)
Net loss on disposal of equipment 81 404
Allowance (reduction) for doubtful
accounts 144 (379)
Deferred rent 199 48
Excess tax benefit from stock-based
compensation (4,489) -
Changes in assets and liabilities:
Accounts receivable 38,187 57,892
Inventories (520) (4,998)
Prepaid expenses and other assets 5,384 (3,997)
Accounts payable (1,139) (2,691)
Income taxes payable (6,914) 9,648
Accrued compensation and related
benefits (38,964) (32,418)
Other accrued liabilities (10,980) (1,302)
Deferred revenue 61,982 36,716
---------- ----------
Net cash provided by operating
activities 164,564 138,960
---------- ----------
Cash Flows from Investing Activities:
Purchases of investments (874,416) (222,787)
Redemptions of investments 906,423 213,977
Redemptions of restricted investments 16,322 -
Increase (decrease) in restricted cash 252 (1,504)
Purchases of property and equipment (23,056) (33,538)
Proceeds from sales of investments 17 62
Purchases of equity securities (1,183) (275)
Purchase of business, net of cash acquired - (11,831)
---------- ----------
Net cash provided by (used in)
investing activities 24,359 (55,896)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock related to
employee stock transactions 36,831 50,763
Excess tax benefit from stock-based
compensation 4,489 -
Repayment of debt (27,866) -
Tax withholding payments reimbursed by
restricted stock (980) (419)
Repurchases of common stock (220,000) (95,543)
---------- ----------
Net cash used in financing activities (207,526) (45,199)
---------- ----------

Effect of Exchange Rate Changes on Cash (324) 178

Net Increase (Decrease) in Cash and Cash
Equivalents (18,927) 38,043
Cash and Cash Equivalents:
Beginning of period 461,256 193,542
---------- ----------
End of period $ 442,329 231,585
========== ==========


NETWORK APPLIANCE, INC.
SUPPLEMENTAL INFORMATION
(In thousands)
(Unaudited)

QUARTER ENDED JULY 28, 2006
----------------------------------------------------
Stock- Net
Amortizat based (Gain)/
-ion of Compensat Restructuring Loss on
Intangible -ion (Recoveries)/ Invest
Assets Expenses Charges -ments Total
----------------------------------------------------
Cost of product
revenues $3,866 $670 - - $4,536
Cost of service
revenues - 2,634 - - 2,634
Sales and
marketing
expenses 583 18,717 - - 19,300
Research and
development
expenses - 13,868 - - 13,868
General and
administrative
expenses 237 7,133 - - 7,370
Restructuring
(recoveries)/
charges - - (74) - (74)

----------------------------------------------------
Effect on pre-tax
income $4,686 $43,022 ($74) - $47,634



QUARTER ENDED JULY 29, 2005
----------------------------------------------------
Stock- Net
Amortizat based (Gain)/
-ion of Compensat Restructuring Loss on
Intangible -ion (Recoveries)/ Invest
Assets Expenses Charges -ments Total
----------------------------------------------------
Cost of product
revenues $1,108 - - - $1,108
Cost of service
revenues - - - - -
Sales and
marketing
expenses 207 515 - - 722
Research and
development
expenses - 1,358 - - 1,358
General and
administrative
expenses 1,356 155 - - 1,511
Restructuring
(recoveries)/
charges - - (1,256) - (1,256)
Net (gain)/loss
on investments - - - (33) (33)

----------------------------------------------------
Effect on pre-tax
income $2,671 $2,028 ($1,256) ($33) $3,410


NETWORK APPLIANCE, INC.
RECONCILIATION OF NET INCOME
(In thousands, except per share amounts)
(Unaudited)

Quarter Ended
-----------------
July 28, July 29,
2006 2005
-------- --------


NET INCOME $54,670 $60,120

Adjustments:
Amortization of intangible assets 4,686 2,671
Stock-based compensation expenses 43,022 2,028
Restructuring (recoveries)/charges (74) (1,256)
Net (gain)/loss on investments - (33)
Income tax effect (5,749) (1,381)

-------- --------
NON-GAAP NET INCOME $96,555 $62,149
======== ========


EARNINGS PER SHARE $0.140 $0.156

Adjustments:
Amortization of intangible assets 0.012 0.007
Stock-based compensation expenses 0.110 0.005
Restructuring (recoveries)/charges (0.000) (0.003)
Net (gain)/loss on investments 0.000 (0.000)
Income tax effect (0.015) (0.004)

-------- --------
NON-GAAP EARNINGS PER SHARE $0.247 $0.161
======== ========


NETWORK APPLIANCE, INC.
RECONCILIATION OF NON GAAP GUIDANCE TO GAAP
EXPRESSED AS EARNINGS PER SHARE
SECOND QUARTER and FULL YEAR 2007
(Unaudited)

Second Quarter Full Year
2007 2007
--------------- ---------------
ADJUSTMENTS OF SPECIFIC ITEMS
TO EARNINGS PER SHARE FOR
THE SECOND QUARTER AND FULL
YEAR 2007 ($):

Adjustment:
Amortization of intangible assets (0.012) (0.048)
Stock based compensation expense (0.100 - 0.122) (0.389 - 0.456)
Restructuring (recoveries)/charges - -
Income tax effect 0.016 - 0.018 0.063 - 0.073

--------------- ---------------
NET DECREASE IN EARNINGS PER SHARE (0.096 - 0.116) (0.374 - 0.431)
=============== ===============