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Data storage company NetApp Inc. had more bad news for investors after posting financial results today that once again left a lot to be desired.

The company, which sells data storage systems and software for hybrid cloud information technology environments, reported fourth-quarter results that fell short of expectations. It posted earnings before certain costs such as stock compensation of just $1.22 per share on revenue of $1.59 billion, down from $1.64 billion in the same period one year before. Wall Street was expecting earnings per share of $1.26 on revenue of $1.65 billion.

Even worse, the company issued guidance for its first quarter that came in way below analyst’s forecasts. NetApp officials said on a conference call they’re expecting earnings per share of between 78 and 86 cents for its first quarter fiscal 2020, with revenue between $1.315 billion and $1.465 billion. Analysts had predicted a far better quarter with earnings in the range of $1.05 per share on revenue of $1.5 billion.

NetApp’s dismal performance was nothing new, since it also missed expectations on revenue in its previous quarter. That caused its stock to fall 5.5%, and today it took another plunge, with its shares down almost 8% in after-hours trading. Update: They fell a little over 8% Thursday.

NetApp did at least have some brighter news regarding its full-year revenue for its fiscal 2019, which was up 4% from the year before. The company pulled in sales of $6.15 billion for the full year, with product revenue growing 7% and all-flash revenue up 25%.

One reason for NetApp’s troubles is that it’s undergoing a slow transition from its dependence on hardware sales to newer, software-defined network and storage products. Its Data Fabric offering, for instance, is designed to simplify and integrate data management across cloud and on-premises environments. It’s a painful transition, but NetApp Chief Executive Officer George Kurian insisted it would eventually pay off.

“Despite the modest shortfall relative to our fiscal year 2019 expectations, we made significant progress in the strategic markets of all-flash, private cloud and cloud data services,” Kurian said in a statement. “Our Data Fabric strategy clearly differentiates us from our competitors. Our opportunity is large and growing, and we are moving quickly to improve our execution.”

Another reason why NetApp is struggling is because of the increasingly crowded nature of the flash storage and cloud markets it operates in, said Charles King, an analyst with Pund-IT Inc.

“Missing expectations is never good for companies and it’s hardly a surprise that some NetApp shareholders are heading for the exit,” King said. “But the cautious expectations for next quarter are more troubling, considering how much synergy there is between NetApp and its system partners’ businesses. It’s worth asking whether the company’s disappointing guidance is due to its own individual concerns or is a shadow of broader problems. The answer to that question is likely a quarter or two away. ”

NetApp’s flash storage sales in particular are a cause for concern, analyst Steve McDowell of Moor Insights & Strategy told SiliconANGLE. He pointed out in the last quarter that a high percentage of NetApp’s flash sales are likely to be replacements being sold into their existing customer base, and said that nothing from today’s earnings call changes that perspective.

Even worse is that NetApp appears to be struggling in what is an otherwise healthy market for enterprise storage systems. McDowell noted that while the overall storage market saw sales increase by around 12% last year, NetApp’s revenues were down. He drew a comparison with NetApp’s rival Pure Storage, which also missed expectations in the quarter just gone, but saw its yearly revenue grow 28% with higher margins than NetApp.

“Dell EMC, in its latest earnings, also demonstrated growth, above 30%,” McDowell said. “That growth is coming directly from NetApp’s lost business.”

NetApp therefore seems to be “struggling overall,” the analyst said. He added that there are many warning signs the company could be on the precipice of a much longer slide. He noted that its maintenance contracts, usually a bright spot, were down, which could indicate that customers aren’t committed in the long-term.

It’s not all doom and gloom though. McDowell said NetApp does at least remain a trusted brand, having ushered in the modern storage era. He also pointed to its “strong technology” and a nascent partnership with Lenovo Group Ltd., which he said has the potential to become a strong long-term play.

“Lenovo, at its Accelerate Conference in Orlando last week, was very bullish on its expanding relationship and joint-venture with NetApp,” McDowell said. “Lenovo highlighted significant growth numbers in China resulting from its NetApp joint venture, and hinted at success in other segments. As NetApp loses business to competitors with broader portfolios, it has a very real chance at growth through Lenovo.”

Meanwhile, analyst Holger Mueller of Constellation Research Inc. told SiliconANGLE the results show that NetApp’s return to growth is a bumpy road that will take longer than anticipated.

“The challenge for NetApp remains to grow its new offerings faster than its hardware maintenance revenue shrinks,” Mueller said. “It was able to do so over the full year, but not in the quarter just gone. Now it comes back to execution to get back to growth across its portfolio in the first quarter, which is traditionally a slow one due to summer vacations and budget preservation.”

Kurian discussed the role of Data Fabric in NetApp’s hybrid cloud strategy during an interview on theCUBE, SiliconANGLE’s mobile livestreaming studio, during the Google Cloud Next event in San Francisco last month:

Photo: SiliconANGLE