UPDATED 22:51 EDT / AUGUST 14 2019

INFRA

NetApp beats estimates two weeks after revising its outlook

Data storage company NetApp Inc. managed to beat its own expectations on earnings and revenue in its first quarter, but that was only because it slashed its original forecast two weeks ago.

The company, which sells a mix of data storage hardware and software for hybrid cloud information technology environments, reported a profit before certain costs such as stock compensation of 65 cents per share. Revenue for the quarter came to $1.24 billion, down from $1.47 billion a year ago.

Wall Street had been looking for a profit of 58 cents per share on revenue of $1.23 billion.

NetApp had originally forecast first-quarter earnings of 78 to 86 cents per share and revenue in the range of $1.31 billion to $1.46 billion. But two weeks ago it shocked investors by slashing its outlook dramatically, revising its earnings forecast to just 55 to 60 cents per share and saying its revenue was more likely to fall between just $1.22 billion and $1.24 billion.

One reason for NetApp’s revenue decline was that it lost $90 million in sales from previous enterprise software license agreements that were not renewed by customers.

NetApp Chief Executive Officer George Kurian (pictured) said he was disappointed with the results, but remained confident in the company’s strategy and business model.

“The gross margin and cost structure improvements we’ve made provide support for our free cash flow generation and enable us to navigate the ongoing macroeconomic headwinds while making the strategic moves that position us well to return to growth,” he said.

In a conference call, the CEO added that he had received positive feedback from customers and partners regarding its Data Fabric strategy. That entails NetApp selling a mix of storage hardware and software services to customers wanting to take a “software-defined” approach to data management. It helps them connect disparate storage resources and streamline information management between their on-premises and cloud environments, so they can quickly move data to and from the cloud as necessary.

Whether or not this strategy will help NetApp to onboard new customers remains to be seen, however. Two weeks ago, Moor Insights & Strategy analyst Steve McDowell told SiliconANGLE that NetApp was struggling to expand its market beyond its existing legacy customer base, which itself now appears to be shrinking. But he said the Data Fabric strategy is still a good bet for NetApp as there are no dominant players in the hybrid and multicloud markets. So an opportunity still exists.

“NetApp is in no danger of fading away,” McDowell said. “But the company is in a tough spot, and Kurian is making the only moves he can really make.”

Kurian’s optimism seemed to reassure the company’s investors, at least. After losing more than 20% of its value two weeks ago, the stock recovered somewhat and was up 3% in after-hours trading. The company also sweetened the deal by returning $365 million to shareholders through share repurchases and cash dividends.

For the next quarter, NetApp is forecasting revenue of $1.325 billion to $1.475 billion, the midpoint of which is above the analyst consensus of $1.37 billion in revenue.

Photo: SiliconANGLE

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