NetApp (NTAP, Financial) provides various storage solutions and has been constantly acquiring a sizeable chunk in the global storage market share. The growth of the company is illustrated by the fact that it is one of the top five storage solution providers in the world. Refer the table below for statistics.
Top 5 Vendors, global external disk storage, Financial for 4Q-2013 (in millions of dollars)
| Vendor |
Revenue 4Q-2013 |
Market Share (4Q -2013) |
Revenue 4Q-2012 |
Market Share (4Q -2013) | YoY Growth |
| EMC | $2,276 | 32.9% | $2,071 | 30.7% | 9.9% |
| IBM | $901 | 13.0% | $1,009 | 14.9% | -10.6% |
| NetApp | $791 | 11.5% | $780 | 11.6% | 1.5% |
| HP | $667 | 9.6% | $626 | 9.3% | 6.5% |
| Hitachi | $558 | 8.1% | $590 | 8.8% | -5.6% |
| Others | $1,716 | 24.8% | $1,670 | 24.8% | 2.7% |
| Cumulative | $6,909 | 100.0% | $6,746 | 100.0% | 2.4% |
Top 5 Vendors, global total disk storage, Financials for 4Q-2013 (in millions of dollars)
| Vendor |
Revenue 4Q-2013 |
Market Share (4Q -2013) |
Revenue 4Q-2012 |
Market Share (4Q -2013) | YoY Growth |
| EMC | $2,276 | 25.8% | $2,071 | 23.8% | 9.9% |
| HP | $1,441 | 16.3% | $1,382 | 15.9% | 4.3% |
| IBM | $1,240 | 14.0% | $1,397 | 16.0% | -11.2% |
| DELL | $875 | 9.9% | $983 | 11.3% | -11.0% |
| NetApp | $791 | 9.0% | $780 | 9.0% | 1.5% |
| Others | $2,202 | 25.0% | $2,095 | 24.0% | 5.1% |
| Cumulative | $8,825 | 100.0% | $8,708 | 100.0% | 1.3% |
Source: IDC Worldwide Quarterly Disk Storage Systems Tracker, March 6, 2014
Bottom Line Growing
The company recently reported its first quarter earnings for fiscal 2015. Total revenue was down by 1.8% year-over-year to $1.49 billion. Revenue did decline, but it beat the consensus estimate of $1.47 billion. The drop in revenue was mainly due to 22.7% decline in OEM revenue but branded revenue was up by 0.8%. The falling price of flash drives in the global market is also another factor for consolidated decline in the revenue.
Product revenue comprises 59% of total revenue which recorded $882 million, 5.2% down from the year-ago quarter. Software revenue contributes 15% of the total revenue and was down 3.2% year-over-year to record $221.3 million. But 26% of revenue is from the Services, which was the only segment which recorded a growth by 7.9% year-over-year to record $385.3 million.
Revenue might have witnessed a decline as compared to same quarter last year, but income rose. This is due to the company's various overhead cost-cutting measures and higher gross margin products, which had a positive influence on the bottom line for the company. Net income was up 8.3% year-over-year, to record $88.4 million as compared to $81.6 million for same quarter last year. Diluted EPS increased by 17%, to record $0.27 compared to $0.23 in the same period last year. Non-GAAP income was up by about 3% year-over-year, to record $197.5 million compared to $191.9 million in same period last year. Non-GAAP earnings were $0.60 per share on revenue of $1.49 billion.
Journey Ahead
In the current quarter, NABARD signed up a contract with NetApp for providing various storage solutions and disaster recovery solutions. NABARD is one of the leading banks in India, for giving and managing credit facilities to different offices for the advancement and improvement of agribusiness, small businesses, handicraft and various growth initiatives schemes for rural India. This bank also covers various government-sponsored programs for business development in rural areas of the country. This is good news for NetApp as it further firms its grip for data storage solution in Asian countries, and India is a huge market for this business.
NetApp is focused on the high margin product portfolio like flash array and converged storage solution. These products have already been witnessing sustained growth for NetApp. In 2012, Non-GAAP gross margin for storage products was 51.8% which increased to 54.8% in 2013. Furthermore, the growth improved to 58% in the previous quarter as a result of high margin products portfolio. The company anticipates that growth momentum will further continue in the future.
For the second quarter of 2015, the company expects net revenues to be in the range of $1.49-$1.59 billion. The non-GAAP earnings are likely to be in the range of $0.66-$0.71 per share, much more than the consensus estimate of $0.52 per share. Anticipated non-GAAP gross margin is expected to be in the range of 64% to 64.5%, and non-GAAP operating margin to be in range of 17.5% to 18%.
Conclusion
The increasing demand for cloud will benefit NetApp for providing storage solution in hybrid cloud environment. Its various strategic alliances with bigger players like Oracle (ORCL, Financial) also endorse the company’s brand name in the storage market.
Currently, we observe that YTD growth is 4.43%, and on a six-month basis, this growth has increased to 8.15% which does show the growth trend of the stock after performing miserably last year. Analyst anticipates consolidated revenue of $6.36 billion in fiscal 2015, which can grow to $6.53 billion in fiscal 2016, indicating growth trend. The forward P/E ratio of 13.5 and its earning is expected to grow from 3 in fiscal 2015 to 3.23 in fiscal 2016. With healthy valuation metrics, this stock is worth being in an investor’s portfolio for sustained long term returns.
