) is scheduled to announce its first quarter 2013 results on August
15, 2012. We see limited upward movement in analyst estimates over
the past 7 days.
Fourth Quarter Overview
NetApp reported decent fourth quarter 2012 numbers, with earnings
per share (EPS) of 55 cents surpassing the Zacks Consensus Estimate
by 6 cents.
Revenue grew 19.2% from the year-ago quarter to $1.70 billion. The
reported revenue was within the company's guidance and modestly
above the Zacks Consensus Estimate of $1.68 billion.
The increase from the year-ago quarter was driven by a surge in
demand for its storage products across geographies, which was
partially offset by slowing demand from its biggest customer and
budget constraints at the U.S. federal government.
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Despite a 7.2% increase in gross profit, unfavorable mix, high
warranty costs and price discounts led to a 660 basis point margin
contraction. Operating expenses were also on the rise.
Detailed analysis of fourth quarter earnings is available on:
NetApp Tops, Stock Falls on Outlook
First Quarter Outlook
For the first quarter of 2013, NetApp expects revenues in the range
of $1.4 billion to $1.5 billion, a decline of 12.0% to 18.0%
sequentially. Non-GAAP gross margins are expected to be in the
range of 60.0-61.0%, while non-GAAP operating margins are projected
at roughly 11.5% (+/- 5.0%). The GAAP EPS is expected to be between
10 cents and 15 cents, while non-GAAP EPS is expected to be between
34 cents and 39 cents.
Agreement of Analysts
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 spending
on storage, strong exposure to midrange systems and overall share
gains would help NetApp generate revenue upside.
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
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, thus limiting NetApp's revenue growth.
Although NetApp is well positioned in the enterprise storage
market, some analysts fear margin contraction and EPS erosion. The
reason for this concern is the weak macro-economic environment;
contraction in data storage spending, rise in competition and
launch of the attractively-priced EMC Corp (EMC) products.
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.
However, some analysts believe that cost control measures and lower
share count could give EPS a cushion.
Though we sense a mixed sentiment among analysts, estimate
revisions were limited. The majority of analysts preferred to
maintain their estimates. Out of the 11 estimates available for the
first quarter, 2 were raised and no downward revisions were made in
the last 7 days. But, among the 12 estimates for fiscal 2013, there
was 1 downward revision in the last 7 days.
Magnitude of Estimate Revisions
The magnitude of revisions has been minimal since the company
reported its fourth quarter results. The Zacks Consensus Estimate
for the upcoming quarter remained unchanged at 25 cents, while the
estimate for fiscal 2013 moved down a penny to $1.54 over the last
7 days. However, estimates declined a respective 44.4% and 29.0% in
the last 90 days reflecting NetApp's lackluster guidance.
Though we are confident about NetApp's long-term growth prospects,
the company's lackluster first quarter guidance, ongoing macro
uncertainty caused by the European debt crisis and federal budget
cuts keeps us on the sidelines.
We believe that NetApp will be able to hold its own in the
difficult operating environment 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
We are also positive about the company's tie up with
Cisco Systems Inc.
), for the purpose of introducing a new cloud product, which is
expected to help more customers accelerate their transition to the
NetApp is performing impressively, despite stiff competition from
technical behemoths such as
) and EMC 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).