Per a SEC filing by
), the network storage provider is set to downsize its employee
strength by 600 as part of its business realignment plan. The
company expects to complete the global workforce reduction
program by the end of fiscal first-quarter 2015. The current
spate of job cuts comes after the company slashed 900 jobs last
NetApp cited soft demand from the U.S. Federal agencies and
constricted IT spending as the primary reasons behind rightsizing
the workforce. The majority of the charges related to the job
cuts, approximately $35.0 to $45.0 million, will be incurred in
the fourth quarter of fiscal 2014. The company expects to pay
these charges in cash.
However, the current one-time cash charges related to employee
severance will have a near-term impact on the company's operating
expenses in turn lowering profitability. Nonetheless, NetApp has
a strong cash flow generating ability and healthy cash balance of
over $5.0 billion. Moreover, the company has a regular buyback
plan which would lend support to the earnings per share.
For the current quarter, NetApp expects non-GAAP earnings in
the range of 77 to 82 cents per share, up from 69 cents reported
in the year-ago quarter. The Zacks Consensus Estimate is pegged
at 62 cents.
It is worth noting that NetApp's revenues in the third quarter
decreased 1.2% primarily due to decline in original equipment
manufacturer (OEM) revenues. Product revenues were also down on a
year-over-year basis. However, driven by efficient cost
management and share repurchase initiatives, the company's
earnings improved year over year.
Nonetheless, we believe NetApp's innovative product line-up,
frequent updates and shareholder-friendly activities will boost
profitability, going forward. Moreover, the company's partnership
), and rapid adoption of its ONTAP system are the positives.
However, we believe uncertain IT spending outlook and stiff
) remain the primary headwinds, going ahead. Moreover, tepid
revenue guidance for the coming quarter will remain an overhang
on the stock.
NetApp, currently, carries a Zacks Rank #3 (Hold).
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