What Factors Will Impact NetApp’s Q4 Fiscal 2019 Earnings?

by Trefis Team
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NetApp (NASDAQ: NTAP) is expected to publish its Q4 fiscal 2019 results on May 22. This note details Trefis’ forecasts for NetApp, as well as some of the key trends we will be watching when the company reports earnings. You can view our interactive dashboard analysis ~ How Is NetApp Likely To Have Fared In Q4 Fiscal 2019? for more details on the key drivers of the company’s expected performance in Q4. In addition, you can see more of our data for Information Technology companies here.

How have NetApp’s revenues changed over recent quarters, and what’s the forecast for Q4 fiscal 2019?

  • Total Revenues for NetApp have largely been rangebound, hovering around the $1.50 billion mark over the last few quarters.
  • The revenues stood at $1.56 billion in Q3 fiscal 2019, as compared to $1.54 billion during the prior year quarter.
  • The company has guided for revenues to be in the range of $1.59 to $1.69 billion in Q4 fiscal 2019.
  • Our estimate of $1.64 billion, a figure 5% higher than what it reported in the previous quarter, is close to the mid-point of the company’s guidance and in line with the consensus estimate.

What are NetApp’s key sources of revenue?

  • NetApp generates its revenues from storage solutions and related products and services. The company reports its revenue under three segments ~ Product, Software Maintenance, and Services.
  • Product segment includes revenues generated from NetApp’s storage based hardware and related software sales. The segment accounted for a little under 60% of the company’s total revenues in fiscal 2018.
  • Software Maintenance refers to product upgrades, enhancements, and technical support for customers. The segment contributed 16% to the company’s top line in the previous fiscal.
  • NetApp’s services revenue refers to revenues earned from maintenance of hardware sold. It also includes revenues from professional services, and training. This is a recurring revenue stream, and it can be linked to the company’s installed base.

What to expect from Products segment in Q4?

  • Products segment revenues have seen a modest increase from $952 million in Q3 fiscal 2018 to $967 million in Q3 fiscal 2019.
  • This can largely be attributed to growth in all-flash arrays with favorable NAND pricing.
  • The segment revenues could see low single-digit decline in Q1. Weaker demand from the enterprise customers weighed over the company’s sales growth in the previous quarter, and this trend will likely continue in Q4 as well. The global server market could see a slowdown in 2019, given the expected launch of new processors in the near term. This will likely impact storage companies, including NetApp.
  • Asia Pacific accounts for 14% of the company’s total sales. There is a slowdown in Chinese economy, and ongoing trade tensions between the U.S. and China could further add to the woes.
  • The segment revenues were impacted by currency headwinds in the previous quarter, and this could continue in Q4 as well.

How much can Software Maintenance and Services segments grow in Q4?

  • Software Maintenance revenues could grow to $290 million in Q4 fiscal 2019, as compared to $247 million in the prior year quarter, while Services revenue could see a slight decline to $367 million.
  • The company’s sale of add-on software and infrastructure solutions products are aiding the revenue growth.
  • Services revenues can be linked to the company’s installed base, which could be impacted by the overall demand outlook, primarily on the enterprise side.

What will be the impact of the above on NetApp’s EPS?

  • NetApp’s adjusted earnings per share will likely be $1.25 per share in Q4 fiscal 2019, reflecting 11% growth to the prior year quarter.
  • Average consensus earnings estimate ~ $1.26 per share.
  • This can largely be attributed to slight growth in margins, driven by lower share count and growth in all-flash arrays, which carry higher average selling prices (ASPs).


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