NetApp (NASDAQ:NTAP) announced its Q4 results on May 23. The data storage equipment maker posted revenue of $1.7 billion and net earnings of $181 million. This was up y-o-y from $161 million last year. NetApp is involved in designing solutions for storing, managing and protecting business data through enterprise storage and data management software and hardware products and services. Its main competitors are HP (NYSE:HPQ) and EMC (NYSE:EMC). 
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Outlook And Business Drivers
For the current quarter, revenue was pegged at $1.4 to $1.5 billion by the company while its GAAP EPS was expected to come in at $0.10 to $0.15. There was no full year forecast provided, citing a lack of insight into future demand in its Europe, Middle East and African businesses. NetApp has a relatively high exposure to European markets and slowdown in Europe could be the main factor for providing a lower current quarter estimate.  We think the following factors will drive its business in the future:
1) FlexPod Revenues Set To Grow Due To Cloud Computing
FlexPod is a pre-validated configuration that delivers a virtualized data center in a rack composed of leading computing, networking, storage, and infrastructure software components. This architecture was jointly built by NetApp and Cisco and has been gaining a lot of momentum in the marketplace. Currently more than 850 institutional clients use the FlexPod architecture to make the transition to the cloud easier. The latest releases help clients of VmWare to quickly deploy virtual desktops. It is also configured to transition clients to Microsoft private cloud. Going forward we see this to be a key revenue driver.
2) Big Data Initiative
The E-Series platform is a solution from NetApp helps store, manage, analyze, and protect the data and information produced by big data and high-performance applications. With the sheer volume of this data growing exponentially, companies are scrambling to ramp up the infrastructure supporting these applications. New enhancements to the E-Series platform enable NetApp’s ecosystem of OEM partners to more effectively serve their customers’ growing big data requirements and serve as the platform for many of NetApp’s own big data solutions. The enhanced platform provides improved management capabilities along with new data protection technology to help customers optimize overall performance. With companies making a push for big data analytics, we can expect revenues from this to be strong as well.
3) Europe Slowdown, Supply Shortage And Higher Prices Likely To Hurt Margins
The company has mentioned that lack of insight into European IT spending is the main reason for not providing a full year outlook. IT spending has generally been slowing across Europe and this may hurt NetApp’s short term revenues. NetApp has said that it can no longer absorb cost increases as it will mean compromising its margins. The supply shortage and price increases will likely impact its sales and margins in the short term. ((NetApp follows Thai flood HDD price hike, crn.com.au))
We currently have a $55.60 Trefis price estimate for NetApp, which is significantly higher than its market price.Notes:
- NetAPP SEC Filings, www.sec.gov, May 23, 2012 [↩]
- NetApp’s Europe Exposure Leads To Warning, Stock Selloff, www.wsj.com, May 23, 2012 [↩]