NetApp has witnessed meaningful growth in its software entitlements and maintenance revenue in the last few years, even as its core storage product revenues have suffered in the same period. Software entitlements and maintenance includes product upgrades, bug fixes and patch releases for existing products on an ad hoc basis. The growth in NetApp’s product sales over the past few years is also reflected in the SEM division, as shown in the table below. A key point to note is that since it is a purely software division, its gross margin (over 95%) is significantly higher than the company-wide gross margin (60-65%).

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