NetApp's Best Hope Is Probably Its Wallet
Stephen Simpson, CFA
Stephen Simpson, CFA
NetApp Grinding Out Cash-Rich, Growth-Poor Quarters
Stephen Simpson, CFA
Stephen Simpson, CFA
Dec. 22, 2015, 9:16 AM
Dec. 21, 2015, 4:13 PM
- NetApp: "SolidFire combines the performance and economics of all-flash storage with a webscale architecture that radically simplifies data center operations and enables rapid deployments of new applications ... Over time, SolidFire products will be incorporated into NetApp's data fabric strategy, delivering seamless data management across flash, disk and cloud resources."
- For now at least, NetApp indicates it will continue supporting its All Flash FAS (AFF) and EF Series arrays. It argues AFF targets traditional enterprise buyers, the EF Series high-performance applications, and SolidFire the "next-generation infrastructure buyer" seeking "seamless scalability, white-box economics, and radically simple management."
- The acquisition, the biggest in NetApp's history, puts the company on better competitive footing in the flash array market relative to leaders EMC (XtremIO and soon DSSD), HP (3PAR), IBM, and Pure Storage. It follows an October quarter in which NetApp's product revenue, pressured by share loss (including to flash array platforms) and cloud storage adoption, fell 12% Y/Y to $819M.
- NTAP +1.2% after hours to $27.92.
- Earlier: The CRN report/details about SolidFire's products
Dec. 21, 2015, 3:57 PM
- CRN reports NetApp (NTAP - unchanged) will announce today it's acquiring flash storage array provider SolidFire for $1.2B. It adds Cisco, EMC, and Samsung "were also in the hunt" to buy the Boulder-based startup.
- SolidFire's arrays have received high marks for their scalability and clustering support, as well as for delivering high flash endurance. The company also sells a software-only version of its platform called Element X (aimed at hyper-scale Web/cloud data centers).
- A SolidFire acquisition would raise questions about the future of NetApp's existing FlashRay and EF-Series flash array offerings. SolidFire rival Pure Storage (PSTG -5.2%) has sold off today on moderate volume.
- Gartner placed SolidFire near the border between its flash array "Leaders" and "Visionaries" quadrants earlier this year. Pure, EMC, IBM, and HP were classified as Leaders; NetApp was near the border between "Challengers" and "Niche Players."
- Update: NetApp has announced it's buying SolidFire for $870M in cash.
Nov. 18, 2015, 4:37 PM
- Though it beat FQ2 estimates, NetApp (NASDAQ:NTAP) is guiding for FQ3 revenue of $1.4B-$1.5B and EPS of $0.66-$0.71, in-line with a consensus of $1.48B and $0.70 and below at the midpoints. The revenue guidance implies a 6.5% Y/Y sales drop at the midpoint.
- FQ2 financials: Boosting EPS: Job cuts led non-GAAP operating expenses to drop 8% Q/Q and 6% Y/Y to $684M. $183M was spent on buybacks, down from $430M in FQ1. Gross margin fell to 62.5% from 63.6% in FQ1 and 65% a year ago, with product GM at 51.8%. NetApp ended FQ2 with $4.8B in cash, and $1.5B in long-term debt.
- Top-line performance: Product revenue (hardware/software, drives future maintenance revenue) fell 12% Y/Y to $819M as competitive and cloud-related pressures continued weighing (it was nonetheless up 23% Q/Q).. Software maintenance fell 1% to $223M. Hardware maintenance/other services rose 2% to $397M.
- 23% of revenue was from direct sales, and 77% from indirect channels. Unit shipments of all-flash FAS storage systems rose 246% Q/Q, with shipped flash capacity rising 80%.
- After initially rising post-earnings, NetApp is now down 0.1% after hours to $31.00.
- FQ2 results, PR
Nov. 18, 2015, 4:04 PM
- NetApp (NASDAQ:NTAP): FQ2 EPS of $0.61 beats by $0.04.
- Revenue of $1.45B (-5.8% Y/Y) beats by $20M.
- Shares +5%.
Nov. 17, 2015, 5:35 PM
Nov. 13, 2015, 12:23 PM
- Cisco (NASDAQ:CSCO) has fallen towards $26 after beating FQ1 estimates, offering soft FQ2 guidance, and reporting 3% Y/Y product order growth (less than expected) due to a 3% drop in enterprise orders. Several firms have cut their targets, but no downgrades have arrived.
- "While weaker macro trends certainly played a role, we believe there is more to the story," writes Guggenheim's Ryan Hutchinson (Neutral). "Our checks suggest that, despite management’s statements to the contrary, the weak enterprise outlook is partially a result of uncertainty around future network architectures as more workloads migrate to the cloud. With this added risk to Cisco’s top-line outlook, we see little reason for shares to move higher"
- Macquarie's Rajesh Ghai (Underperform) thinks Cisco's 8% Y/Y routing revenue decline reflects "secular pressures" seen as carriers consider adopting network functions virtualization (NFV - allows networking functions to be delivered via software installed on commodity hardware) at the network edge.
- Meanwhile, Credit Suisse's Kulbinder Garcha (Underperform) believes Cisco is "increasingly making a trade off in optimizing margins versus pursuing growth" as rival software-defined networking (SDN) platforms encroach. "We acknowledge that the adoption of SDN will take time, but will shrink gross profit dollars for the networking stack."
- Those more bullish often highlight Cisco's strong software/subscription growth. Raymond James' Simon Leopold (Outperform): "The 36% y/y growth in software and subscription deferred revenue, and 10% y/y growth in total deferred revenue highlights Cisco’s shift towards a more software-centric business." Software growth drove a 31% increase in security deferred revenue.
- BMO's Tim Long (Outperform): "There were many positives in the quarter, including very strong margins, uptake of new products, impressive growth in subscription-based product deferred, switching, data center, and a rebound in emerging markets." Drexel Hamilton's Brian White (Buy) notes Cisco plans to announce a co-developed project with a major web-scale data center owner next week.
- On the earnings call (transcript), Cisco stated emerging markets orders grew a healthy 11% Y/Y, with China (weak in recent years) and India up over 40%. Service provider and commercial (SMB) orders respectively grew 6% and 7%, while public sector orders were flat. Asia-Pac markets outside of China and India were weak.
- Separately, CEO Chuck Robbins says Cisco won't be responding to the Dell/EMC deal with a giant acquisition of its own, and would only look for "small strategic" deals. "My personal opinion is that the market is moving too fast for these big mergers to be effective." There has been speculation Cisco would respond to Dell/EMC by acquiring EMC rival NetApp (NTAP -1.7%), which is currently worth $9.2B.
- Prior Cisco coverage
Oct. 26, 2015, 2:52 PM
- Stating his firm's latest storage reseller checks point to "continued weakness for NetApp (NASDAQ:NTAP)," UBS' Steve Milunovich has downgraded to Sell and cut his target by $4 to $30.
- Milunovich: "All FAS [storage] products scored below zero on a strong-weak scale. NetApp's FlashRay all-flash offering is still not generally available. Most concerning, the Dec quarter outlook registered the lowest score ever." He adds Gartner has lowered NetApp's position in its disk array Magic Quadrant - NetApp is still one of seven firms in the "Leaders" quadrant.
- On the bright side, Milunovich likes NetApp's Clustered Data ONTAP software solution for its FAS arrays, is pleased with new CEO George Kurian's efforts to redeploy resources, and thinks the Dell/EMC deal could present near-term opportunities to grab share. However, he's worried EMC could grab share long-term as it begins selling through Dell channels, and believes Office 365's growth is also a threat, given NetApp filers are often used for e-mail storage.
- Separately, storage analyst Mark Peters provides a fairly positive take on NetApp's Data Fabric strategy (involves pairing NetApp arrays with software for managing both on-premise and cloud storage) after attending the 2015 NetApp Insight conference.
- Peters: "Now of course the Data Fabric isn’t a simple SKU – but then neither is it simply PowerPoint-ware; it is one of the most compelling and comprehensive 'data anywhere and everywhere, single management, cloud-inclusive' constructs you’ll find ... the idea is in line with some of the more forward thinking startups that you would've thought of. Really, NetApp seems to have the right technology and the right strategy ... It's just in their court to execute."
Oct. 8, 2015, 4:43 PM
- While EMC finished up 4.7% following reports the company is in merger/LBO talks with Dell, VMware (NYSE:VMW) went in the opposite direction. Driving the selloff: Speculation Dell will sell or spin off part of EMC's 80% VMware stake to make a deal easier to digest.
- Though reporting Dell wants to maintain control of VMware (growing much faster than core EMC, and also much faster than Dell was before it was taken private), CNBC's David Faber states there might also be "a distribution of some of [EMC's] VMware stake to shareholders."
- Likewise, Bloomberg reports Dell "may sell off some of EMC’s VMware shares in order to raise money," while keeping VMware publicly-traded. It adds Dell is talking with JPMorgan, BofA, and other banks about raising at least $40B in financing, and that "the current plan" is for Michael Dell to run the combined company.
- Macquarie's Rajesh Ghai: "Such a deal structure would be agreeable to Elliott, considering it is in essence a version of its earlier demand that EMC spin off (VMware) to unlock value in its undervalued (ex-VMware) stub. We believe such a structure would involve EMC issuing shares to Dell's shareholders for the initial merger with Dell, and then executing a tax-free spinoff of (VMware) as a second step."
- As VMware slumped, EMC/Dell storage rival NetApp (NASDAQ:NTAP) rose 2.4%, aided by M&A hopes and perhaps also a belief NetApp could take share as EMC and Dell work to integrate their storage lines and remove duplicate products. Longbow's Joe Wittine: "We think the [EMC/Dell] rumor is encouraging for NTAP, which would see a similarly-underperforming competitor in Dell EqualLogic lose importance and likely donate share. While NetApp would still have its product issues, it becomes easier to make a case as NetApp as takeout fodder from Cisco or others."
- Also rallying: HP, which is about to split its enterprise IT ops from its PC/printing ops
Sep. 22, 2015, 8:38 AM
Sep. 21, 2015, 10:13 AM
- Mark Bergman, most recently the CTO of book-discovery service SkywriterRX (uses machine learning to recommend books), has been named NetApp's (NTAP +0.5%) CTO.
- Bergman's resume also includes stints at IBM and Symantec. At NetApp, he'll be responsible (among other things) for leading the company's product portfolio strategy and driving its Data Fabric vision, which revolves around enabling seamless data migration and management between on-premise and cloud storage assets.
- Bergman's predecessor, Jay Kidd, announced his retirement this spring. At the time, NetApp said it had no plans to field a replacement. But the company has changed CEOs since then.
- NetApp's CTO change comes amid ongoing share losses - IDC estimates the company respectively had 7% and 10.9% of the total and external disk storage system markets in Q2, down from 8.8% and 13% a year ago.
Aug. 20, 2015, 9:14 AM
Aug. 19, 2015, 5:37 PM
Aug. 19, 2015, 4:54 PM
- Though NetApp's (NASDAQ:NTAP) revenue fell 10% Y/Y in FQ1, the company managed to post a gross margin of 63.6%, down just 70 bps Y/Y and up 160 bps Q/Q. Product GM fell 590 bps Y/Y to 51.2%, but services margins held up well.
- Also lifting EPS: $430M was spent on buybacks, up from $246M in FQ4. Meanwhile, thanks to job cuts, operating expenses rose a modest 3% Y/Y to $746M.
- Segment performance: Thanks to a mixture of share loss and weak enterprise storage demand, product sales (hardware/software, drives future maintenance revenue) fell 25% Y/Y to $664M. Software maintenance revenue rose 12% to $248M. Hardware maintenance/other services revenue rose 10% to $423M.
- Other numbers: The Americas were 56% of revenue, EMEA 31%, and Asia-Pac 13%. 22% of revenue came from direct sales, and the rest from indirect sources (channel partners/OEMs). NetApp ended FQ1 with $5B in cash, and $1.5B in debt.
- Shares have pared their after hours gains, but remain up sharply. Summit's pre-earnings downgrade isn't looking great.
- FQ1 results, PR
- Update (6:10PM ET): On its earnings call, NetApp guided for FY16 (ends April '16) revenue to fall ~5%. That's slightly better than a consensus for a 5.5% drop. Shares are now up 7% AH.
Aug. 19, 2015, 4:05 PM
- NetApp (NASDAQ:NTAP): FQ1 EPS of $0.29 beats by $0.06.
- Revenue of $1.34B (-10.1% Y/Y) beats by $20M.
- Expects FQ2 revenue of $1.4B-$1.5B and EPS of $0.55-$0.60, above a consensus of $1.39B and $0.46.
- Shares +14.5% AH.
- Update (5:10PM ET): NetApp has pared its gains: Shares are now up 5.2% AH. More details on the report here.
- Update 2 (7:20PM ET): The roller coaster continues: Shares are now up 11.3% AH.
Aug. 18, 2015, 5:35 PM
NetApp, Inc. provides storage and data management solutions that help increase IT efficiency and flexibility. It provides a broad portfolio of application, cloud, and service provider solutions that help customers streamline operations and lower the costs associated with storing and managing... More
Industry: Data Storage Devices
Country: United States
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