) is scheduled to announce its fourth quarter 2012 results on May
23, 2012. We see some upward movement in analyst estimates over the
past 7 days.
Third Quarter Overview
NetApp reported modest third quarter 2012 numbers, with earnings
per share (EPS) of 41 cents missing the Zacks Consensus Estimate by
Revenue grew 21.4% from the year-ago quarter to $1.57 billion.
The revenue was within the company's guidance and modestly above
the Zacks Consensus Estimate of $1.563 billion.
The improvement was driven by a surge in demand for its storage
products and solid geographical contribution, which was partially
offset by slowing demand from its biggest customer and budget
constraints at the U.S. federal government.
Despite a 7.4% increase in gross profit, unfavorable mix, high
warranty costs and price discounts led to a 760 basis-point margin
contraction. Operating expenses were also on the rise.
Detailed analysis of third quarter earnings are available on:
NetApp Misses EPS, Guides Modestly
Fourth Quarter Outlook
For the fourth quarter of 2012, NetApp expects revenues in the
range of $1.645 billion to $1.725 billion, representing 5.0% to
10.0% sequential and approximately 15.0% to 21.0% year-over-year
Non-GAAP gross margins are expected to be roughly 59.0%, while
non-GAAP operating margins are projected to be roughly 17.0%. GAAP
EPS is expected to range between 38 cents and 43 cents, while
non-GAAP EPS is expected to be between 60 cents and 65 cents. The
company estimates shares outstanding of approximately 378
Agreement of Analysts
Let's see what the analysts are saying about NetApp's
performance in the next quarter.
On the whole, analysts believe that NetApp's core competencies
in Network Attached Storage and Internet-based storage networking
protocol will position the company well to benefit from further
adoption of server virtualization, unified storage and the shift
toward 10G Ethernet infrastructure.
Moreover, increasing storage spending, strong exposure to
midrange systems and overall share gains would help NetApp generate
Some analysts are also positive about the new low-range FAS
product line. They believe that these products, being more
aggressively priced than competing products, should generate
additional demand for NetApp.
But NetApp is in a vulnerable position due to its high exposure
to Europe (roughly 30% contribution) and the U.S. public sector.
These two sectors are fighting with debt issues and constrained
budgets, respectively, putting a lid on NetApp's revenue growth
Although NetApp is well positioned in the enterprise storage
market, some analysts fear margin contraction and EPS erosion. The
reason behind this concern is the weak macro-economic environment;
contraction in data storage spending, rise in competition and
launch of the new attractively priced
Moreover, customer response to the recently-launched ONTAP 8.1
from NetApp was lukewarm. This could also have a negative impact on
revenue and margins.
But some analysts believe that earnings growth potential exists,
mainly due to the on-time execution capabilities, leadership in
mid- and low-end markets, and rise in storage demand from the
healthcare, financial, manufacturing and retail sectors.
Though we witnessed a mixed sentiment from the analysts,
estimate revisions were limited. The majority of analysts preferred
to maintain their estimates. Out of the 10 estimates available for
the fourth quarter, there were two upward revisions and no downward
revisions in the last 7 days.
But among the 10 estimates for fiscal 2012, there was one
downward revision in the last 30 days. There was no movement
noticed in the past 7 days.
Magnitude of Estimate Revisions
The magnitude of revisions has been minimal since the company
reported its third quarter results. The Zacks Consensus Estimate
for the upcoming quarter was up by a penny to 49 cents, while the
estimate for fiscal 2012 remained unchanged at $1.81 over the last
Though we are confident about NetApp's strong business momentum
and the company's modest guidance, ongoing macro uncertainty caused
by the European debt crisis and federal budget cuts keeps us on the
But we believe that NetApp will be able to sustain its growth
story and remain a key player in the virtualization and network
storage market based on product launches and strategic
acquisitions. With its latest Engenio takeover, NetApp will now be
able to address the video storage market as well as high
performance computing applications like genomics sequencing.
We are also positive on the company's tie up with
Cisco Systems Inc.
) for the purpose of introducing a new cloud product expected to
help more customers accelerate their transition to the cloud.
NetApp is performing impressively, despite stiff competition
from technical behemoths such as
) in the data storage and management software segments.
Currently, NetApp shares carry a Zacks Rank #3, implying a Hold
rating in the short-term (1-3 months).
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