NetApp (NASDAQ:NTAP) is set to report its second quarter earnings of fiscal 2012 on Wednesday. Here we highlight a few key trends to watch for in the upcoming earnings release. NetApp offers solutions for storing, managing, protecting and archiving business data and competes with firms like EMC (NYSE:EMC), IBM (NYSE:IBM), and Hewlett-Packard (NYSE:HPQ), among others in the fast growing and rapidly changing data storage market. (See Big Data is for Real: EMC Sees a $70 Billion Industry Growing at Double Digits)
Our Trefis price estimate for NetApp stands at $52, which is about 20% above the market price.
Can NetApp Sustain its Double Digit Revenue Growth?
NetApp’s revenue has increased at double digits rate consistently for the last four quarters on a year over year basis, averaging an extraordinary growth rate of 28.7%. In Q1 12 NetApp reported revenue growth of 26% over the same period last year in spite of the fact that business softened dramatically during the last few weeks of July under the weight of the debt ceiling crisis and macroeconomic uncertainty.
The continued revenue growth underlines the fact that the storage industry as a whole is witnessing tremendous growth and despite the fact that macroeconomic uncertainties loomed large during the quarter, it is not hard to see NetApp’s revenue rising at healthy double digits rate once again in Q2’11 boosted by strong demand.
NetApp expects Q2 revenues to be in the range of $1.5 billion to $1.6 billion, which implies approximately 3% to 10% sequential growth and 20% to 28% year-over-year growth. Many analysts’ estimates also appear to be in line with the company’s guidance coming in at $1.53 billion revenue for the quarter.
Margins Could Moderate
NetApp’s E-Series product line was one of the highlights of the last quarter, bringing better than expected revenues and large number of new customers as well as a new Full-Motion Video deal, the first ever for the firm. However, as E-Series OEM revenues are expected to rise forming a greater mix of the products, the lower gross margin associated with the product line may negatively impact the company’s overall gross margins. This may be bad for NetApp, which loves to tout its superior gross margin performance as a symbol of its strong competitive position in the market.
All is all, we remain bullish on NetApp given the massive growth potential the storage industry offers and the fact that NetApp remain one of the most innovative companies in the sector.