Because of how NetApp Inc.’s fiscal quarters fall, it was the first storage vendor to report results that included the month of January this year. As its second fiscal-quarter earnings call approaches May 20, Wall Street analysts are paying close attention to see what NetApp’s earnings will say about March and April.
So far much of the speculation is derived from other vendors’ reports on their January quarters, which in EMC‘s case included a prediction that storage spending will remain flat in the second calendar quarter of this year, and probably in the third quarter, too.
This week, however, financial analysts revised estimates in notes to clients, predicting that NetApp’s revenues will be down, not flat, well below the Street consensus of $863-$865 million for the quarter (which would be down from $873 million for the previous quarter). Stifel Nicolaus analyst Aaron Rakers predicted the number will be closer to $830 million, while RBC Capital Markets analyst Jared Rinderer pegged his estimate at $840 million.
According to Rakers, “Derivative data points and our channel checks leave us to believe that NetApp will miss Street revenue estimates by a far margin, albeit likely offset by another quarter of better-than-anticipated [operational expense] management.”
(1) EMC reported CLARiiON revenue declined by 18% [year over year (yr/yr)] and we estimate 33% sequentially. EMC did report that its Celerra revenue grew double-digits yr/yr during 1Q09 (vs. +42% yr/yr in 2008). (2) IBM, which accounted for 6% of NetApp’s Jan 09 revenue (seasonal strength relating to IBM’s 4Q08), reported that its storage revenue declined by 20% yr/yr, or we estimate as much as 40% sequentially. (3) Arrow and Avnet, which account for 20% of NetApp’s total revenue (~30% of indirect revenue) both highlighted continued weak enterprise spending trends over the past few weeks, (4) Europe has been consistently highlighted as the weakest geography in terms of IT spending trends. NetApp generated 36% of its revenue from EMEA last quarter.
Rinderer said the channel had executed well, and focused more on regional weakness in EMEA. Rakers placed emphasis on NetApp’s continued efforts to cut costs; if that’s truly the only bright spot for NetApp this quarter, that’ll make it the second quarter in a row. CFO Steve Gomo opened NetApp’s previous earnings call by saying, “The financial highlight of our quarter was strong expense management.”