NetApp (NASDAQ:NTAP) reported Q2’12 earnings last month led to a subsequent 15% slump. NetApp had a rough quarter with gross margin down 1.3 percent points sequentially and down 3.9 percent point from the same period last year. While revenue for the quarter was up 20% year over year, it grew only 3% sequentially. NetApp’s poor earnings also highlighted concerns for competitors like EMC (NYSE:EMC), HP (NYSE:HPQ) and IBM (NYSE:IBM).
Adjusting for the lower than expected revenue and margin for the year, we now have an updated $46.73 Trefis price estimate for NetApp which is about 35% above the market estimate.
Q3 Outlook below Analysts’ Expectations
NetApp’s forecast for Q3’12 came in below the analysts’ expectations as the data storage major cited increasing economic turmoil in Europe and flooding in Thailand, saying that these conditions make forecasting, both revenue and cost of sales going forward, far less predictable. These factors, especially after a weak quarter, sent NetApp’s stock tumbling.
With disk drives prices expected to rise in December and January as output from factories in Thailand to decline, NetApp’s revenue and/or margins are expected to take a hit, depending on how much of the price hike could be passed on to the end users. 
Strong Long Term Industry Outlook
However, as the long term outlook for the disk storage market remains positive – with massive amounts of data being created and stored – we believe there is enough potential for NetApp’s innovative data storage and management technologies going forward and the stock currently seems oversold based on our fundamental valuation method. See our note Big Data is for Real: EMC Sees a $70 Billion Industry Growing at Double DigitsNotes: