As I noted earlier, Network Appliance provided a dramatic warning for the fiscal first quarter ending in July. The company’s earnings press release contained no real explanation for the significant shortfall. But on the company’s post-earnings conference call, NetApp execs tried to explain what happened. Mostly, they blamed it on slowing IT spending in the U.S.
“Our booking levels during March experienced the same IT spending delays that have been reported by other companies this spring,” said CFO Steve Gomo on the call.
Bookings were back-end loaded and finished lower than our forecast. In addition, in the last two weeks of the quarter, we experienced the shift in the mix of our bookings towards more deferred elements. As a result, we did not build our seasonally normal levels of non-deferred backlog at the end of the fourth quarter…While not impacting fourth quarter revenue levels, this has obvious implications for Q1 FY ‘08 given our typical business seasonality. Without the benefit of normal backlog, we do not expect our usual level of revenue during Q1 and as a result our expense levels will be ahead of our business model.
CEO Dan Warmenhoven insisted it was not a company specific problem.
“I’ll tell you what I believe,” he said on the call.
It had nothing to do with any competitor. It had nothing to do with anybody like IBM (NYSE:IBM). This is strictly macroeconomic. Our win rates, as I pointed out, stayed high…I can guarantee to you it was not competitive. I can guarantee to you it was not channels or partners, or any other kind of competitive forces in the marketplace…What happened here was the conversion rate from opportunity to booking took longer, and therefore, everything slowed down and the translated right to the system into not enough backlog coming into Q1.
It’s going to be interesting to see whether the Street decides this has meaning beyond NetApp itself.
In after hours trading, Network Appliance shares fell $7.54, or almost 20%, to $30.52.