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NetApp: Focused on Software Defined Storage for Its Growth

April 08, 2014 | About:
mitu77

mitu77

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The cloud and the cloud computing technologies are witnessing a major boom, and the market is predicted to continue growth. The growth of this market is due to the fact of more and more businesses are now moving into the cloud environment as the cloud matures. It won’t be a myth to say that various IT organizations are into a metamorphosis by adopting cloud technologies in their product portfolio. One such company is NetApp (NTAP), which is focused on delivering ground-breaking solutions to broaden its customer base and to influence its top and bottom line. NetApp is now primarily focusing the storage and cloud computing technologies and is striving to acquire a wider market.

Financials

The company recently released its third quarter 2014 results. It recorded a sequential quarterly growth by 4% for total revenue of $1.61 billion. But on a year-over-year basis it was down by 1%. The revenue even missed the consensus estimate of $1.64 billion but was in the range of management's estimate of $1.575 billion to $1.675 billion. The year-over-year decline was mainly due to a decline of 22.3% from the OEM revenues. This was partly offset by an increase of 1.8% branded revenue. On a year-over-year basis, earnings improved 14.5%.

Per segment, Product revenue comprises 63% of total revenue at $1.02 billion, 4.3% down from the year-ago quarter. Software revenue contributes to 14% of the total revenue and was marginally down by 0.7% year over year to a record $227 million. Twetny-three percent of revenue is from the Services, which was the only segment which recorded a growth by 7.9% year over year to record $368 million.

Growth Area for NetApp

NetApp’s storage business seems to be growing and is broadening its horizon and gaining market share. NetApp is confident of growth in market share, based on its differentiated product portfolio.

NetApp is market leader in flash and converged infrastructure with innovative solutions. The company is focused to provide cloud and software defined storage solution with a different approach which enables it to attain new customer and also customers shifting to NetApp solution.

NetApp Tapping the High-Growth Market

ONTAP, a unified storage platform and a storage operating system enables to provide secured data movement across multiple cloud environments. This product finds a wide market in software defined storage systems and software defined data centers (SDDC). Server clustering capabilities enables it to be embraced by various cloud customers and data centers that are moving to SDDC. Analysts and market research companies anticipate SDDC market to be worth $5.51 billion by 2018.

Journey Ahead

The company expects net revenues to be in the range of $1.62 billion to $1.75 billion in next quarter. This is a sequential growth of around 4%. The non-GAAP gross margins is anticipated to be in range of 62.5% and non-GAAP earning are likely to be in the range of $0.77 to $0.82 per share which again is up from $0.69 as reported in fourth quarter last year.

Various strategies for cost saving measures are being implementing by NetApp. One such strategy is reducing manpower to save operating cost. Last year the headcount was decreased by 900, and it further plans to reduce the count by 600 this year.

The company is also going to incur heavy expenses to realign its business and the expense is projected to be in the range of $35million  to $45 million. Such expenditures will have a negative impact in the next quarter earnings, but we can expect the bottom line to perform much better.

Competitor

HP (HPQ) has been in the market of Software defined storage for almost six years and has been increasing its market share there. HP is one of the biggest competitors for NetApp in this segment. The company is increasing its grip on the storage market and its market share increased to 9.6% in the previous quarter this. This an increase by 1.6% from the year-ago quarter which was 8%.

HP’s VSA (Virtual Storage Application) with its latest release features sub-LUN (Logical Unit Number) storage tiers with higher Vmware and Microsoft integration and enhanced performance. It also provides a flexible licensing policy which enables customers to deploy it and use as per workload requirement with growth in the future. It also has introduced additional plug-ins for integrating it with VMware and SAP. This enables a customer to deploy complicated application with ease of management.

Conclusion

The company has been focused with its innovative strategies and has a diversified product portfolio. The product portfolio of NetApp is a part of a tremendous growth prospect looking into the compounded annual growth market of each product globally. Moreover, its synergistic tie up with bigger players like Verizon and Oracle is also going to be prolific for NetApp.

Currently the stock is being traded at a cheap price, around $37, close to its lower price band ($32.75 to $45.96) of 52 weeks. The forward P/E ratio of 12.5 the stocks can be considered as cheap and its earnings are expect to grow in next five years. It can be a wise decision of an investor showing interest to invest in NetApp which is benefiting from the growth of storage data industry.


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