NetApp Earnings Preview: Weakness In Storage Hardware To Continue To Impact Results

May 24th, 2016 by Trefis Team
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NetApp (NASDAQ:NTAP) is scheduled to report its Q4 FY 2016 earnings on Wednesday, May 25. [1] The last few quarters have been tough for the company in terms of product sales, with its core hardware sales stagnating. This trend is consistent across most large storage hardware vendors across the industry. (Read: ODM Storage Vendors Gain Share From Giants: EMC, HP, IBM, NetApp Lose Market Presence) As a result, NetApp’s revenues and earnings are expected to be lower on a year-over-year basis through the end of its fiscal 2016.

q416earnings2Comparatively, NetApp has witnessed meaningful growth in its software entitlements, maintenance and services revenues in the last few years. Despite a 17% dip in product revenues through calendar year 2015, NetApp’s software maintenance revenues and hardware maintenance revenues were both up by 5%. Moreover, its product gross margin compressed by 6 percentage points through the year, while hardware maintenance and services gross margins improved by 90 basis points through the year.

q416earnings3However, the slight improvement in gross margins for the maintenance business wasn’t enough to offset the declines in the product division. As a result, the company aims to lower its selling, general and administrative expenses through the year to improve profitability. Earlier this year, NetApp’s management indicated that it will cut 1,200 jobs by July, which is roughly 12% of the company’s total workforce. [2]

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for NetApp
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Notes:
  1. NetApp Hosts Fourth Quarter and Fiscal Year 2016 Financial Results Webcast, NetApp Press Release, May 2016 [↩]
  2. NetApp To Slash 12 Percent Of Workforce, Fortune, February 2016 [↩]