Shares of the data storage company NetApp Inc. were trending down in after-hours trading today after the company reported revenue that came in below analyst’s estimates and followed with soft guidance for the coming quarter.
The company reported fiscal third quarter earnings before certain costs such as stock compensation of $1.37 per share, beating Wall Street’s target of $1.31 per share. However, its revenue for the period came to just $1.53 billion, down 5% from a year earlier and below the analyst’s consensus estimate of $1.62 billion. Net income for the quarter came to $65 million, down from a $252 million profit it netted in the same period last year.
The disappointment of investors was compounded by NetApp’s soft guidance. For its fiscal fourth quarter, the company said it’s expecting earnings of between $1.30 to $1.40 per share, versus the analyst consensus of $1.34. In terms of revenue, it’s eying a range of between $1.475 billion and $1.625 billion, some way below Wall Street’s forecast of $1.67 billion.
NetApp’s stock was down more than 3% in extended trading, having stayed flat during the regular session.
NetApp Chief Executive George Kurian (pictured) put on a brave face, telling investors that the company executed well on elements under its control. However, he said the company was faced with a weakening spending environment and ongoing cloud cost optimization that’s impacting its sales. “We are confident that we remain well positioned to take advantage of the secular growth trends of data-driven digital and cloud transformations,” he added.
NetApp made a name for itself as a provider of high-end enterprise storage systems, but in recent times it has been trying to reinvent itself as more of a hybrid cloud data services and data management player. Indeed, these days the bulk of its sales can be attributed to the cloud. The company works closely with public cloud infrastructure players such as Amazon Web Services, Google Cloud and Microsoft Azure. In addition, it also sells its NetApp Ontap file storage software as a managed service on the cloud.
While NetApp’s public cloud business continued to grow at a positive rate, Kurian admitted that NetApp failed to meet its internal targets. On the other hand, the mainstream storage business was headed in the opposite direction, with its all-flash storage line showing significant declines.
Steve McDowell, an analyst with NAND Research, told SiliconANGLE that NetApp’s missed target is partly due to a spending slowdown. He noted that all of the major public cloud providers have forecast reduced spending for the first half of 2023. “But there is also growing competition in public cloud storage,” he added. “This competition is going to naturally temper NetApp’s growth in the space.”
NetApp’s problems were made all too apparent last month, when it announced that it would be laying off 8% of its workforce as a cost-cutting measure. The job cuts came amid a broader wave of layoffs in the technology industry. However, McDowell said it is notable that NetApp is, so far, the only storage company to make such a drastic move.
“There’s a definite slowdown in both cloud and enterprise spending that’s impacting NetApp’s revenue numbers,” McDowell said. “It’s also facing some of the strongest competition it has ever faced, and some of the downturn is no doubt due to NetApp losing business to competitors like Pure Storage. None of this is a product problem. NetApp has the right portfolio. It’s just having a hard time selling it.”
NetApp recently added to its portfolio with the launch of a range of new storage programs designed to help customers cost-effectively future-proof their on-premises environments. At the same time, it introduced its latest QLC-flash arrays, the high-capacity NetApp AFF C-Series that’s designed as a new workhorse for corporate data centers, and the entry-level AFF A-Series that’s aimed at distributed storage deployments in support of remote workers.
“This broadens NetApp’s addressable market for flash storage and we should start to see some growth as that takes hold,” McDowell said of the new arrays. “Only NetApp, IBM, and Pure Storage are competing in this space so far, so there’s tremendous potential to bring flash into nearline storage.”
McDowell also praised NetApp for once again beating profit estimates, noting that the company excels at managing its bottom line. “The company’s operational discipline is some of the best in the industry,” he said.