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NetApp Sees Solid Quarter but Outlook Uncertain

Data storage equipment maker NetApp on Wednesday forecast quarterly earnings below Wall Street targets, sending its shares down nearly 5 percent despite its higher quarterly profit.

Customers continued to expand their storage infrastructures despite "economic uncertainty," NetApp (NASDAQ: NTAP) said, but its earnings forecast range for the fiscal second quarter dipped below the Wall Street average, according to Reuters Estimates.

Net income for the first quarter of fiscal 2009 was $38 million, or 11 cents a share, compared with $34 million, or 9 cents a share, in the same quarter a year ago.

Excluding items, profit was $76 million, or 22 cents a share, in line with the average analyst forecast, according to Reuters Estimates.

"I don't think the results lived up to the expectations and upside scenarios that some investors had," Pacific Crest analyst Brent Bracelin said. "That said, it is a solid quarter. Guidance was slightly above where we thought it would be on revenue, and storage fundamentals look pretty healthy."

Some analyst expectations were a bit inflated, but the company has not deviated from the forecasts that it laid out earlier this year, CEO Dan Warmenhoven told Reuters in an interview.

"Certainly I've seen a number of analysts say they expect us to 'beat, beat, beat'," he said. "We met, met, met."

NetApp forecast second-quarter per-share net income of 16 cents to 19 cents, and income before items of 27 cents to 30 cents a share. Analysts are expecting 30 cents a share, on average. It forecast revenue of $910 million to $940 million, ahead of many analyst forecasts, which averaged $918.6 million.

"This is a company that continues to invest and expand its sales force," Bracelin said. "That's limiting the magnitude of upside flowing through to the bottom line."

NetApp also is hiring aggressively now, something that highlights their execution risk if a slowdown hits the business, he said.

Warmenhoven said the company does not expect any significant change in macroeconomic conditions, which means other companies will keep spending tight on information technology -- but not compress it.

He still sees the storage sector growing at about 6 percent this year and the company growing at 2.5 to 3 times the market's rate, he added.

NetApp shares fell to $24.48 in after-hours trading from a NASDAQ close of $25.69.



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