NetApp's fiscal Q1 2027 revenue rose 30% to $2.03B (roughly 26% excluding an extra week) on 47% all-flash growth and price increases; GAAP EPS rose 63% to $1.88, but guidance points to a 3-4 point gross-margin squeeze from memory costs next quarter.
Revenue
$2.0B
+29.9% YoY
Net income
$375M
+60.9% YoY
Diluted EPS
$1.88
+63.5% YoY
Operating margin
23.9%
Overview: all-flash sales and higher prices drive a 30% jump, helped by an extra week
NetApp sells data storage: the hardware and software companies use to hold and manage their data in their own data centers, plus storage services that run inside Amazon Web Services, Microsoft Azure and Google Cloud. Its fiscal year ends in late April, so this report covers Q1 of fiscal 2027, the quarter that ran from April 25 to July 31, 2026. The 10-Q was filed on September 2, 2026.
Net revenue rose 30% to $2,025 million from $1,559 million. GAAP net income rose 61% to $375 million, and diluted EPS rose 63% to $1.88. Almost all of the growth came from product revenue (sales of storage systems), which rose 51% to $987 million. The 10-Q attributes that to "higher revenues from sales of all-flash array systems, supported by the price increases we implemented in the fourth quarter of fiscal 2026."
There is one comparison distortion to keep in mind. Fiscal 2027 is a 53-week year, and the extra week fell in this quarter (14 weeks against 13 a year earlier). NetApp says the extra week added about $65 million of services revenue and about $22 million of operating expenses. Without that $65 million, revenue growth would be roughly 26% instead of 30%. That is still very strong, but the headline overstates the underlying pace. The extra week matters most for support revenue and hardly at all for product sales.
Key metrics
Metric
Q1 FY27 (Jul 31, 2026)
Q1 FY26 (Jul 25, 2025)
YoY Change
Net revenue
$2,025M
$1,559M
+29.9%
Product revenue
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Services revenue (support, professional services, public cloud)
$1,038M
$905M
+14.7%
All-flash revenue (Hybrid Cloud)
$1,309M
$893M
+46.6%
Public Cloud segment revenue
$206M
$161M
+28.0%
Gross margin (GAAP)
70.1%
70.4%
-0.3 pts
Operating margin (GAAP)
23.9%
19.8%
+4.1 pts
Operating margin (non-GAAP)
31.9%
25.7%
+6.2 pts
Net income (GAAP)
$375M
$233M
+60.9%
Diluted EPS (GAAP)
$1.88
$1.15
+63.5%
Diluted EPS (non-GAAP)
$2.58
$1.55
+66.5%
Billings (non-GAAP)
$2,057M
$1,511M
+36%
Free cash flow (non-GAAP)
$401M
$620M
-35%
Q1 FY27 had 14 weeks against 13 in Q1 FY26. Non-GAAP figures, billings and free cash flow come from the September 2, 2026 earnings release (Exhibit 99.1). Everything else comes from the 10-Q.
What drove revenue
All-flash storage is the story. All-flash arrays are storage systems built entirely on solid-state (flash) drives instead of spinning hard disks. They are faster and denser, and they are NetApp's premium product line. All-flash revenue, which covers both the systems and their related support, rose from $893 million to $1,309 million and now makes up 72% of Hybrid Cloud segment revenue, up from 64%. The older hybrid-flash and disk category was essentially flat at $510 million, against $505 million a year earlier. Almost all of the $421 million increase in Hybrid Cloud revenue came from all-flash.
Price is doing part of the work. NetApp raised prices in Q4 of fiscal 2026 and again at the start of Q2 of fiscal 2027, "in line with market trends," as the 10-Q puts it, to offset rising memory and other component costs. Both the product-revenue and the all-flash explanations in the filing name those price increases as a contributor alongside demand. The filing does not split the growth between higher unit volumes and higher prices, so it is not possible to say how much of the 51% product growth is more systems sold and how much is a higher price per system. That split matters: price-driven growth tied to a memory-cost cycle is less durable than volume growth.
AI: a theme, not a quantified driver. The earnings release highlights AI-related partnerships and the July 16 acquisition of DataPelago, an AI and analytics data-processing company, for $193 million ($87 million paid at closing, the rest contingent on performance criteria). But the 10-Q's own explanation of the all-flash increase is "growing customer demand for our all-flash storage solutions, supported by price increases." It does not attribute a specific share of revenue to AI workloads. Read the AI angle as plausible support for flash demand, not as a figure the filing backs up.
Services grew more slowly, and much of the growth was the extra week. Support revenue (maintenance contracts on installed systems) rose 11% to $720 million. The 10-Q attributes about $50 million of that to the extra week, which leaves underlying support growth of roughly 3-4%. Professional and other services rose 15% to $112 million, "primarily due to an increase in revenues from our Keystone storage-as-a-service offering." Keystone is NetApp's subscription option, where customers pay for storage capacity as they use it instead of buying the hardware up front.
Public Cloud accelerated and became more profitable. Public Cloud revenue, mainly NetApp's storage services sold through AWS, Azure and Google Cloud, rose 28% to $206 million, about $15 million of it from the extra week. The segment's gross margin (revenue left after the direct cost of delivering the service) rose from about 80% to about 86%, and cost of Public Cloud revenue fell 13% even as revenue grew. The 10-Q credits "cost optimization that included a decrease in fixed assets depreciation."
Geography: Every region grew in dollars, but APAC (19% of revenue, up from 17%) and EMEA (33%, up from 32%) grew faster than the Americas (48%, down from 51%). The filing points specifically to "slower Americas Commercial growth."
Margins: flat at the gross level, much better below it
The gross margin was flat at about 70%, and that hides two opposing forces. On products, materials costs rose by $152 million and now make up 94% of the cost of Hybrid Cloud products, up from 89%. The 10-Q says product gross margins were "relatively flat... reflecting higher selling prices offset by higher component costs." Put simply, the price increases roughly paid for the memory-cost inflation. At the same time the revenue mix moved toward hardware: products were 49% of revenue, up from 42%. Hardware carries lower margins than support (product gross margin here was about 54%, against over 90% for support), so that shift alone would pull the blended margin down. Better Public Cloud and professional-services margins made up the difference.
The real improvement came in operating margin, the share of revenue left after running the business and before interest and tax. It rose from 19.8% to 23.9% on a GAAP basis. Sales & marketing, R&D and G&A together grew about 12%, to $879 million from $787 million, against 30% revenue growth. They fell to 43% of revenue from 50%. The 10-Q says the rise in these costs was mainly higher incentive compensation plus the extra week.
That GAAP margin already absorbs a $56 million restructuring charge, mostly severance, under a plan "to redirect resources to highest return activities and reduce costs" that is expected to be substantially complete by the end of fiscal 2027. Without that charge, GAAP operating margin would have been about 26.7%. The non-GAAP operating margin of 31.9%, which also excludes $98 million of stock-based compensation and $6 million of intangible amortization, is why non-GAAP EPS ($2.58) sits well above GAAP EPS ($1.88).
A few smaller items helped net income grow faster than operating income. Other expense went from a $5 million loss to zero, mostly because of foreign-exchange swings. The effective tax rate dipped to 22.5% from 23.4% on larger stock-compensation tax benefits. And diluted shares fell to 200 million from 203 million because of buybacks, which added about 1.5 points to EPS growth.
Takeaway: NetApp's 30% revenue jump rests on all-flash systems (+47%) sold at higher prices, not on its services base. Support grew only ~3-4% once the extra week is stripped out. Gross margin held at 70% only because price increases kept pace with memory-cost inflation, and management's own guidance calls for gross margin to fall 3-4 points next quarter. The key question for the rest of the year is whether pricing can keep up with component costs.
Cash flow and balance sheet
Cash generation lagged profit. Operating cash flow fell 25% to $503 million and free cash flow (operating cash flow minus capital spending) fell 35% to $401 million. Two reasons stand out. First, inventories rose $176 million, which the 10-Q attributes to "higher strategic purchases of components and an increase in finished goods to fulfill customer demand." That is a deliberate stockpile against a tight memory market. Second, capital expenditure nearly doubled to $102 million from $53 million.
NetApp spent $200 million buying back 1.5 million shares (average price $133.32) and paid $102 million in dividends. It holds $3.6 billion of cash and short-term investments against $2.5 billion of debt principal. The $550 million of 2.375% notes due June 2027 have moved into current liabilities, which is why working capital fell $651 million to $1.1 billion. Remaining performance obligations (contracted revenue not yet recognized, mostly multi-year support and subscriptions) stood at $5.6 billion, with 44% expected to be recognized within 12 months.
Outlook
Management gave the following guidance in the September 2 earnings release, which it described as significantly raised for the full year:
Guidance
Q2 FY27
Full FY27
Net revenue
$2.025B – $2.175B
$7.975B – $8.225B
Gross margin (GAAP)
66.0% – 67.0%
67.1% – 68.1%
Operating margin (GAAP)
24.9% – 25.9%
24.3% – 25.3%
Operating margin (non-GAAP)
30.9% – 31.9%
30.3% – 31.3%
Diluted EPS (GAAP)
$1.97 – $2.07
$7.35 – $7.65
Diluted EPS (non-GAAP)
$2.54 – $2.64
$9.73 – $10.03
Our read: Three points stand out.
Revenue momentum continues without the extra week. Q2 is a normal 13-week quarter, yet the $2.10 billion midpoint of revenue guidance is slightly above Q1's 14-week $2.025 billion. Management is therefore guiding for higher sales per week. The Q2 price increase is probably part of that.
Gross margin is expected to take a hit. GAAP gross margin guidance of 66-67% for Q2 compares with 70.1% in Q1. The 10-Q warns that memory and component costs "will remain elevated, or continue to increase, in the near term," and that tight supply "could pose challenges in meeting customer demand for those products." Management expects cost inflation to outrun pricing for at least a quarter, which is the first real test of the price-offsets-cost pattern that held in Q1.
Operating leverage offsets it. Q2 GAAP operating margin is still guided at 24.9-25.9%, above Q1's 23.9% (which carried the $56 million restructuring charge; the Q2 GAAP-to-non-GAAP bridge lists only stock-based compensation). The cost cuts and fixed-cost leverage are expected to more than absorb the gross-margin squeeze.
The main risks are that a larger share of growth comes from pricing tied to a memory-cost cycle, which could reverse when component prices ease, and that underlying support growth is in the low single digits, which limits the high-margin recurring base. Public Cloud's improving margins and Keystone's growth are the more durable parts of the story. The full-year revenue midpoint of $8.1 billion implies about $2.0 billion per quarter for Q2–Q4, a little below the Q2 midpoint, so the full-year range leaves room for the second half to slow or for the guidance to prove conservative.