Enterprise.Innovation.

2003 network appliance annual report

Revenues($ in millions)

Net Income($ in millions)

Total Assets($ in millions)

Total Stockholders’ Equity($ in millions)

“Southwest Airlines has become one of the largest carriers in Americabecause of our commitment to excellent customer service. By implementingOracle9i Real Application Clusters and Network Appliance storage systems,we have been able to provide our customers with fast account informationretrieval and reduced waiting time.”

Southwest AirlinesKerry SchwabDirector of MidRange and Intel Computing, Southwest Airlines

1 annual report 2003

Fiscal year 2003 was a watershed year for Network Appliance (NetApp).We are now recognized as one of the industry’s leading full-lineenterprise storage solutions providers, and have distinguished ourselvesby achieving significant growth in both revenue and market share ina challenging economic environment. At the same time, we expandedour customer base and made great strides with our technology and dis-tribution partners. In true NetApp fashion, our leadership in datamanagement innovation continues to drive the evolution of the storage industry.

Our success is reflected in impressivefinancial and market share results. Wegenerated growth in revenue and netincome in all four quarters while maintain-ing gross margins and improving our operating leverage. We strengthened our balance sheet, generated cash, andinstituted a stock repurchase program. We have worked diligently to build a solidfinancial foundation, thereby setting thestage for future growth.

Total revenue for the year increased by12% over 2002. Revenue from services,including hardware support, professionalservices, and education services, was up31%, year over year, and we extended our market share leadership in the network-attached storage (NAS) and content deliverymarkets, with 38.4% and 37%, respectively.Add-on software and software subscriptionsrevenue increased 35% over 2002, reflectingthe demand for NetApp’s data managementsolutions.

Indirect distribution channels accountedfor over 46% of total revenue. Year overyear, revenue from indirect channelsincreased 33%. This represents an impor-tant indicator of future growth potential.Our continued success with distributionpartners will help accelerate the realizationof our revenue goals and further extendour reach into the enterprise.

Relationships with other key industry leadershave been integral to our evolution. Enterprisecustomers require complete solutions thatintegrate seamlessly into their existingstorage environments. By partnering withkey technology and application providers,we have entered new markets and areaddressing the data management chal-lenges of today’s global enterprise.

Dear Stockholders,

Information is the lifeblood of the enterprise.For customers looking for solutions tobusiness-critical information technology(IT) challenges, a core consideration is theway their data will be stored, protected,and managed. We have enabled our cus-tomers to meet their business challengesby working with our partners to developsuch complete solutions as:

Powerful database systems for morerobust customer relationship management(CRM) and enterprise resource planning(ERP) applications;

Server and storage resource consolidationfor easier and more cost-effective IT management;

Data access and protection in the event of a disaster;

File archiving for rapid and easy recall on demand, or to meet a variety of newgovernment regulations; and

Data and content distribution to fieldoffices around the world.

Data storage has become a highly strategiccomponent of the enterprise IT infrastruc-ture. Customers no longer have the luxuryof ample IT budgets. They are replacingtheir monolithic, hardware-centric storagesystems with modular, software-drivensystems connected to corporate networks.This provides immense benefits to thereal-time enterprise. With networked storage, the true value of information isshared throughout an organization, givingdecision makers the tools they need toincrease revenue, explore new markets,get closer to customers, and reduceexpenses.

Another significant shift is that companiesincreasingly buy storage solutions fromstorage specialists rather than traditionalserver vendors. They recognize that storagespecialists, like NetApp, are focused onsolving data storage and managementchallenges that traditional server vendorsare not able to address with general-purpose servers and general-purposeoperating systems.

Enterprise

“FAS900 Series Appliances. After years of fighting with SANvendors, Network Appliance has turned the tables on its competition by providing customers with a solution that hasthe benefits of both file- and block-level storage, with a singlepoint of storage management.”

eWeekApril 14, 2003Henry Baltazar

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Simplicity Drives ValueThe NetApp installed base consists of over45,000 systems in more than 100 coun-tries. Our customers are leaders in theirindustries and have deployed our solutionsthroughout their companies, from theirdata centers to their remote offices. Theybuy the NetApp® solution because it simplifies the complexity associated withmanaging corporate data.

From product design through customersupport processes, simplicity is reflectedin everything we do. Our drive for simplicityprovides our customers with real andmeasurable advantages. The prime exampleis our single, common software architec-ture, which supports all of our productsand solutions. With NetApp storage solu-

tions, customers are more agile and canreact quickly to changes by rapidly deployingor reconfiguring their storage assets. This allows them to keep their information highly available to end users and improvesthe performance of their enterprise appli-cations, enabling them to bring productsand services to market sooner and toreduce their operating costs.

All of these benefits reduce our customers’total cost of ownership (TCO)—anotherNetApp hallmark. From initial purchasecosts through deployment and ongoingmaintenance, NetApp solutions meet ourcustomers’ stringent fiscal requirements,earning for us the reputation for having theindustry’s lowest TCO. Today’s corporatechief information officer (CIO) has the

daunting task of doing more with less,while keeping the business operating all day, every day. NetApp products and solutions—blending simplicity with highperformance, versatility with low TCO—help CIOs meet this challenge.

3 annual report 2003

“Sony Ericsson Mobile Communications (USA) Inc. chose Network Appliance tosupply a storage consolidation solution for our distributed enterprise of UNIX,Oracle, and Windows systems. The successful deployment has helped us to scalethe current data center storage environment to meet our growing informationneeds. We see NetApp as a key part of our infrastructure, and an important business solution partner for Sony Ericsson Mobile Communications (USA) Inc.”

Sony Ericsson Mobile Communications (USA) Inc.Des BlackDirector IS/IT, Region Americas, Sony Ericsson Mobile Communications (USA) Inc.

Network Appliance has fueled the evolutionof the storage industry through leadershipand innovation. This past year we introducedseveral groundbreaking technologies. Welaunched the industry’s first unified storagesolution; we redefined nearline storage; wedelivered an open-standard NAS gateway;and we took a leadership role within thestorage industry with our iSCSI offerings.

Unified StorageIn October 2002, we introduced theFAS900 series of fabric-attached storage(FAS) systems—the industry’s first unified SAN (storage area network) andNAS storage platform. Using one operatingsystem—our flagship software product,Data ONTAP™—along with scalable hardwareand a single management environment,NetApp has again set a new standard forsimplified data management and customers’ returns on investment.

Innovation

“The industry is rapidly evolving toward consolidatedfabric-attached storage infrastructures that can be managed from a single platform. We recommendorganizations seek vendors capable of seamlessly sup-porting unified storage infrastructures while offeringsolutions that leverage existing IT infrastructures.”

Gartner, Inc.Roger CoxVice President, Storage Research, Gartner, Inc.

The NetApp unified storage architectureenables customers to consolidate theirstorage and data management onto onehighly scalable platform. This alleviates theadded costs and complexity of deployingand managing different operating environ-ments to meet their many storage requirements.

In April 2003, NetApp introduced thenewest member of the FAS product family.The FAS250 is a compact, entry-levelenterprise storage appliance that is completely software-compatible with allNetApp products. The FAS250 providescustomers with an attractive entry-levelprice point and a simple upgrade path toour higher-capacity, higher-performanceservers, bringing the elegance and sim-plicity of unified storage to the low end of the storage market.

Redefining Nearline StorageNetApp redefined nearline storage with the introduction of our NearStore™ productline. Before this technological advance,customers had to choose between costlybut highly available online disk-based data storage and economical, but offline, slow-access tape-based data storage.NearStore technology provides customerswith a data protection solution that matchesthe low cost of traditional tape libraries,but with the exponentially greater perform-ance of disk-based storage.

The end-of-year rollout of the NearStoreR150, coupled with our Open SystemsSnapVault™ software technology, providesa cost-effective, high-performance solutionfor data backup and recovery. These tech-nologies enable our enterprise customers

to store and replicate any kind of data(not just NetApp data), and they providethe foundation for highly differentiateddata protection solutions unavailable fromother providers.

NearStore, together with our new SnapLock™

software technology, will help to open new market opportunities. SnapLock isdesigned to meet the requirements of“data permanence” mandated by variousgovernment regulations—most notablySEC Regulation 17a-4 for financial servicesbroker-dealers. Other industries, such ashealthcare and life sciences, have similarregulations. SnapLock provides WORM(write once, read many) attributes such as nonerasability and nonrewritability thatprevent data from being altered or deletedonce it is stored on NearStore with SnapLock.This emerging market is generally referredto as “regulated data” and NetApp is wellpositioned, with our data protection solu-tions, to garner significant market share.

NAS GatewayIn January 2003, NetApp introduced anew product line, the gFiler™ gateway—abridge between NAS and SAN storage. TheNetApp gFiler gateway provides file-levelaccess over an Internet protocol (IP) network to data stored in Fibre Channelstorage area networks. It brings the easeand simplicity of NAS data managementcapabilities to SAN environments.

5 annual report 2003

“Rapidly developing new automotive designs is critical to the success of our business, so Peugeot relies on NetApp to support its CAD manufacturing systems. Our systemsengineers have been impressed by the astonishing simplicity of the NetApp solution,which has increased productivity and resource exploitation while dramatically simplifyingadministration. NetApp has enabled us to reduce our storage total cost of ownership to nearly half that of the former solution.”

PeugeotJean Pierre DumoulinTIVV-ATI Support and Operation, PSA Peugeot Citroën

DAS Direct-attached storage. Storage devicesthat are directly attached to a computing device, not a network. Data is only available to users and applications on thatcomputing device.

SAN Storage area network.A special-purpose networkbased on peripheral channelssuch as Fibre Channel wherestorage devices store and serve blocks of data.

NAS Network-attached storage. Typically an Ethernet network, where storage devices store andserve files of data.

FAS Fabric-attached storage. Storage systems that support both SAN andNAS. Files and blocks of data share a common pool of disk drives, providing a unified management view of both types of data.

Storage Terms and Acronyms

The Emerging iSCSI MarketNetApp gains an additional foothold in the storage industry by including iSCSIsupport throughout our entire product line.Identified as a $10 billion market opportu-nity, iSCSI, or Internet SCSI, enables SANcapabilities through existing Ethernet infrastructures and brings the advantagesof storage networking to remote locationsand the extended enterprise. iSCSI isespecially appealing to customersbecause it enables affordable, networkstorage for Windows® and Linux® serverenvironments, where simplicity, flexibility,and price/performance are critical IT decision factors.

Advanced Data ManagementFundamental to data storage and accessis data management. Identifying availableresources, managing the movement ofdata, and serving and protecting data

throughout its lifecycle requires a sophisti-cated software engine. NetApp’s corevalue to our customers is the simplicity we bring to a very complex and business-critical function. With Data ONTAP, theoperating system at the heart of our unified storage architecture, customersrely on a single platform to store, manage,move, and protect the information thatruns their businesses.

Manage ONTAP™ ApplicationDevelopment ProgramThe announcement of our Manage ONTAPprogram has significant and far-reachingimplications. It allows third-party softwaredevelopers to integrate their products andtechnology with the NetApp operatingenvironment. By providing our technologypartners with open application programinterfaces (APIs), we have expanded the

capabilities and reach of our core technol-ogy and demonstrated our commitment totruly open storage network environments.

NetCache® SolutionsThe NetCache product line is a scalablesuite of appliances, designed to solve thecomplex Web-content delivery challengesfaced by enterprises and service providers.NetCache appliances currently powersome of the world’s largest enterprisesand telecommunications networks. Withthe introduction of the C1200 and C2100appliances, we have enhanced our abilityto meet demanding customer price/per-formance requirements by supporting awide range of capacity and reliability features.

NetCache is also at the core of ourInternet access and security solutions,which provide highly cost-effective, scalable,and secure Web access environments.

Product TimelineOctober 2002FAS900 SeriesIndustry’s first unified SAN/NAS storage platform

December 2002gFiler GatewayOpen-standard NAS gateway

February 2003Open Systems SnapVaultEnterprise software for heterogeneous data replication and protection

iSCSI Protocol SupportEnables the creation of SANs using pervasive Ethernet infrastructures

NearStore R150Capacity and performanceupgrade to flagship nearlinestorage product line

April 2003FAS250 Unified storage in an entry-level enterprise server

SnapLockEnterprise software for online data protection and archiving to meet government regulations for data “permanence”

Customer SatisfactionCustomer satisfaction is at the heart of our success and a NetApp core value. Our customers are large global enterprisesthat must have access to their data at all times. Downtime is not an option. Allfacets of our company, from manufacturingto product quality to global service andsupport, endeavor to deliver the highest-quality, most reliable products and services,bar none.

NetApp’s commitment to customer satis-faction is reflected in our Global SupportCenter (GSC) operations. As part of our“follow the sun” strategy, GSCs providearound-the-clock support regardless ofwhere our customers are located. AllGSCs have earned the Support CenterPractices (SCP) certification, an interna-tionally recognized standard. The Service

and Support Association (SSA) and a consortium of IT companies created theSCP certification as a recognized quality certification for support centers.

Rounding out our portfolio of integratedservice offerings, the award-winningNOW™ (NetApp on the Web) support siteprovides constant online monitoring ofinstalled equipment, along with a variety ofprofessional and learning services offeredthrough the NetApp University. NetApp’scomprehensive, global service and sup-port solutions help our customers achieveoptimal data availability while preserving alow total cost of ownership.

7 annual report 2003

“Oracle uses over 700 terabytes of NetApp storage every day throughoutits business. We rely on NetApp to support the development and testingof our next-generation products. NetApp also equips Oracle E-BusinessSuite Outsourcing (EBSO)—which supports over 500 customers world-wide—providing managed services at a lower cost of ownership forourselves, and ultimately for our customers, without sacrificing qualityof service.”

Oracle CorporationDave DargoVice President, System Platforms Division, Oracle Corporation

Fiscal year 2003 will surely be remembered as one of amazing successand accomplishment for NetApp. Our more than 2,300 worldwideemployees are very proud of our achievements and of the modelcompany we have built. This year FORTUNE magazine recognizedNetApp as one of the “100 Best Companies to Work For.” Debutingat number 39 on an impressive list of top U.S. companies, NetworkAppliance is the only enterprise storage company recognized thisyear for its premier work environment.

As we move into fiscal year 2004, we are confident and excitedabout the opportunities that await us. Building upon our leadershipin innovation, the dedication of our employees, and the support of our partners, we will continue to deliver unparalleled value toour customers.

On behalf of the entire NetApp executive management team, thankyou for your continued support and commitment to our success.

Sincerely,

Dan WarmenhovenChief Executive Officer

Tom MendozaPresident

Dave HitzExecutive Vice PresidentEngineering and Founder

Jeff AllenExecutive Vice PresidentBusiness Operations

Dan WarmenhovenChief Executive Officer

Tom MendozaPresident

Chris Carlton Senior Vice PresidentPeople and Places

Steve GomoChief Financial Officer and Senior Vice PresidentFinance

James LauExecutive Vice PresidentChief Strategy Officer and Founder

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Financial Contents

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Forward-Looking Statements

Business Overview

Employees

Risk Factors

Management’s Discussion and Analysis

Financial Statements

Notes to Financial Statements

DirectorsDonald ValentineChairman, FounderSequoia Capital

Sanjiv Ahuja Chief Operating OfficerOrange SA

Carol Bartz Chairman and Chief ExecutiveOfficer, Autodesk, Inc.

Michael Hallman PresidentThe Hallman Group

Nicholas MooreChairman (retired)PricewaterhouseCoopers

Dr. Sachio Semmoto Chairman and Chief Executive OfficereAccess Ltd.

Robert Wall PresidentOn Point Developments, LLC

Dan Warmenhoven Chief Executive OfficerNetwork Appliance, Inc.

Corporate Officersand Executive Vice PresidentsDan Warmenhoven Chief Executive Officer

Tom Mendoza President

Steve GomoChief Financial Officer and Senior Vice PresidentFinance

Andy KryderSecretary, General Counsel and Vice PresidentLegal and Tax

Jeff Allen Executive Vice PresidentBusiness Operations

Ed DeenihanExecutive Vice PresidentCustomer Satisfaction

Dave HitzExecutive Vice PresidentEngineering and Founder

James LauExecutive Vice PresidentChief Strategy Officer and Founder

Senior Vice PresidentsMark Jon Bluth Senior Vice PresidentOperations

Chris Carlton Senior Vice PresidentPeople and Places

Steve KleimanSenior Vice PresidentChief Technology Officer

Pat LinehanSenior Vice President and General ManagerEurope, Middle East and Africa

Rob SalmonSenior Vice PresidentWorldwide Sales

Mark SantoraSenior Vice PresidentWorldwide Marketing

Vice PresidentsNancy AielloVice PresidentCorporate Sales and ServiceMarketing

Roger AndersonVice PresidentSystems Engineering

Buz BattleVice PresidentWorldwide Sales Operations

George BennettVice PresidentSales–Central Americas

Thom BryantVice PresidentWorkplace Resources

Jay ChabrowVice Presidentand General ManagerNetwork Appliance FederalSystems, Inc.

Tom ChinVice PresidentAsia Pacific

Rich CliftonVice PresidentSAN/iSAN Business Unit

Gerry ConboyVice PresidentStrategic Accounts and Global Partners

Diptish DattaVice PresidentCustomer Satisfaction

Becky DeyoVice PresidentGlobal Support

Manish GoelVice President and General Manager–India

Elaine HamiltonVice PresidentHuman Resources

Ken HibbardVice PresidentProduct Development and East Coast Operation

Leonard IventoschVice PresidentChannel Sales

Scot KlimkeVice PresidentInformation Technologies and Chief Information Officer

Andreas KoenigVice PresidentSales–Central Europe

Ingemar LaneviVice PresidentFinance and Corporate Treasurer

Jerry LopatinVice PresidentPlatform and Storage

Eric MannVice PresidentSales–Eastern Americas

Amit PandeyVice President and General ManagerContent Delivery Business Unit

Leslie PaulidesVice PresidentFinance and Corporate Controller

Brian PawlowskiVice PresidentEngineering

Tim PitcherVice PresidentSales–Northern Europe

Patrick RogersVice PresidentStrategic Alliances

Whitney TomlinVice PresidentSales–Western Americas

Kort van BronkhorstVice PresidentCorporate Communications

Andy WatsonVice PresidentStrategic Technology

Mark WeinerVice PresidentSales–Western Europe

Phil WilliamsVice PresidentStrategic Marketing

Independent AuditorsDeloitte & Touche, LLPSan Jose, California

Transfer Agent and RegistrarComputershare Investor Services, LLCChicago, Illinois

Annual MeetingThe Annual Meeting of Stockholderswill be held at 3:00 P.M. Pacific Timeon Tuesday, September 2, 2003, atthe company’s headquarters locatedat 495 East Java Drive, Sunnyvale,California.

Investor RelationsNetwork Appliance, Inc. welcomesinquiries from stockholders andother interested investors.

To obtain a copy of the company’squarterly financial results and othercorporate information, please directyour request to our Web site:www.investors.netapp.com

or send an e-mail to: investor_relations@netapp.com.

You may also contact us by phone:(800) 445-2234 (U.S.) or (408) 822-7098

or by writing to: Investor Relations Network Appliance, Inc.495 East Java DriveSunnyvale, California 94089

Executive Staff

© 2003 Network Appliance, Inc. All rightsreserved. Specifications subject to changewithout notice. NetApp, NetCache, and the Network Appliance logo are registeredtrademarks, and Network Appliance, gFiler,Data ONTAP, Manage ONTAP, NearStore,NOW, NOW NetApp on the Web, SnapVault,SnapLock, and The evolution of storage aretrademarks of Network Appliance, Inc., in the U.S. and other countries. All other brands or products are trademarks or registeredtrademarks of their respective holders andshould be treated as such.

United States Main OfficesNetwork Appliance, Inc.495 East Java DriveSunnyvale, CA 94089

Network Appliance Federal Systems, Inc.8405 Greensboro Drive, Suite 1000McLean, VA 22012

Network ApplianceResearch Triangle Park627 Davis Drive, Suite 200Durham, NC 27713

International Main OfficesNetwork Appliance BV The Netherlands Scorpius 22132 LR HoofddorpThe Netherlands

Network ApplianceIndia–BTCThe Estate, 6th Floor121 Dickenson RoadBangalore, India 560042

CORP-AR-03