NetApp Earnings: Revenue, Profits Fall As Product Sales Stagnate

May 27th, 2016 by Trefis Team
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NetApp (NASDAQ:NTAP) announced its fiscal Q4 earnings, reporting a 10% annual decline in net revenue to just under $1.4 billion. [1] The last few quarters have been tough for the company in terms of product sales, with its core hardware sales stagnating. The trend continued in the fourth fiscal quarter, with product sales facing the largest decline.

q4earn1

While product revenues were down by 17% y-o-y to $757 million, NetApp witnessed growth in its software maintenance business. Additionally, low product sales led to discounted selling prices, which ultimately drove down product margins significantly. Comparatively, the gross margin for hardware maintenance improved by over 5 percentage points due to a sustained improvement in services infrastructure and product quality. [2] A similar trend has been seen across most large storage hardware vendors across the industry, seeing weak product sales while services drive much of the growth (read: ODM Storage Vendors Gain Share From Giants: EMC, HP, IBM, NetApp Lose Market Presence).

q4earn2

The company made efforts to improve operational efficiency by reducing cash operating expenses through its fiscal 2016. This resulted in lower sales & marketing and research & development costs through the year. However, the reduction in expenses wasn’t enough to make up for the revenue declines through the year. NetApp’s management aims to lower its selling, general and administrative expenses in the coming quarters 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. [3]

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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 Reports Fourth Quarter And Fiscal Year 2016 Results, NetApp Press Release, May 2016 [↩]
  2. NetApp’s Q4 2016 Earnings Call Transcript, Seeking Alpha, May 2016 [↩]
  3. NetApp To Slash 12 Percent Of Workforce, Fortune, February 2016 [↩]