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» VIEW ALL POSTS Feb 12 2009   2:52PM GMT

NetApp feels recession’s sting



Posted by: Dave Raffo
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Judging by NetApp’s results, the spending slowdown storage vendors feared this year hit hard in January.

Because NetApp’s last quarter ended Jan. 23 instead of at the end of December, it became the first storage vendor to report earnings that included results from early 2009. And those results were ugly — NetApp Wednesday night said its revenues of $874 million were down year-over-year and sequentially, it lost $75 million last quarter, and executives refused to give guidance for coming quarters.

The loss was due mainly to $128 million payment to the General Services Administration (GSA) over NetApp discount policies to government agencies from 1995-2005. But revenue was down 1% from last year and 4% from the previous quarter, and NetApp executives say that’s because their largest customers stopped spending in January.

“We were tracking pretty good through November and December,” CEO Dan Warmenhoven said. “I think the focus was on the first three weeks in January. That is where things kind of really stalled out.”

For the most part, storage vendors reported decent results for last quarter but were wary of what 2009 might bring. Warmenhoven says despite the slip, he doesn’t think NetApp lost market share. Instead, customers just stopped buying any storage. When an analyst on NetApp’s earnings call suggested NetApp lost market share, Warmenhoven said, “My guess is when you see the other storage vendors report on their first calendar quarter which includes January, you may come to a different conclusion.”

NetApp president Tom Georgens said there were shifts in buying trends last quarter. NetApp’s 50 largest accounts were most impacted by the economy. Also, sales tended to turn more toward SAN than NAS than in the past. And while FAS2000 low end and midrange FAS3000 system revenue increased from last year, high-end FAS6000 sales declined.

“January is always tough for IT spending, and this year it’s awful,” said Enterprise Strategy Group analyst Brian Babineau, who suggests NetApp might have to diversify its product portfolio to help customers deal with data growth while trimming budgets. “Just selling storage and data management is tough,” he said. “They could get into archiving, for example. They need more quivers in the bow.”

NetApp cut loose a few products last quarter, discontinuing its StoreVault SMB storage system and SnapMirror for Open Systems replication software. Warmenhoven said StoreVault’s revenue never reached $5 million for a quarter and SnapMirror for Open systems failed to hit $1 million in a quarter.

Along with cutting those products, NetApp laid off around 540 employees – 6% of its workforce – this week. In a sign of the times, CFO Steve Gomo opened the earnings call by saying, “The financial highlight of our quarter was strong expense management.”

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