NetApp Takes a Nap

Shares of Network Appliance Inc. (Nasdaq: NTAP) took a hit this morning after the company announced last night that revenues from its second quarter had fallen 25 percent compared to the same period last year -- and company executives said they saw no new growth on the horizon.

NetApp shares fell 2.57 (14.13%) to $15.62 in midday trading. The 14 percent drop in stock price comes after the data storage systems maker saw its shares soar from a year low of $6 in September to yesterdays $18.19 at closing.

While the company’s revenue dropped from $260.8 million in last year's second quarter to $194.7 million in the same period this year, observers say that it was the flat revenue guidance for the next two quarters that made the stock come down this morning.

"The shares fell because the guidance wasn’t what people were looking for,” says Dan Renouard, an analyst with Robert W. Baird & Co. Inc.. "It was lower than expected."

Dan Warmenhoven, CEO of Network Appliance, blamed a faltering economy for the company’s falling revenues and the transformation of its 2000 second-quarter net income of $34.4 million, or 10 cents per share, into a net loss of $11.2 million, or -3 cents per share. He couldn’t raise guidance for the next two quarters, he said, because he didn’t think the economy was going to get any better: “I don’t see a general rebound in the tech sector. I just don’t see it.”Renouard, however, thinks the company will probably do better than it will admit through the rest of the fiscal year. “Things are really looking up for them,” he says. “Business is better. Their gross margin is up to 58 percent, up sequentially from last quarter. I think they're trying to get into a situation where they can beat numbers again.”

“The management is being prudent,” First Albany Corp. analyst Mark Kelleher says. “There was nothing in the numbers that was alarming. I hope they’ll do better than flat [next quarter].”

In addition to lost revenues, the company that counts AT&T Corp. (NYSE: T), Ford Motor Company, General Electric, the U.S. Department of Energy, and Verizon Communications Inc. (NYSE: VZ) among its customers reported that pro forma net income for the second quarter dropped to $7.7 million, or 2 cents per share, from $36.9 million, or 10 cents a share, during the same period a year ago.

The company also took $8 million in restructuring charges that it had announced last quarter, including a 200-headcount reduction. And it had to pay $13 million to write down the value of equity investments and $7 million for the amortization of certain charges.

Still, Warmenhoven's happy with the results. “We’re much more confident sitting here today than last quarter,” he said in the quarterly conference call. “And we feel very good about our business. Much better than the last two quarters.”Thomas Mendoza, president of Network Appliance, agreed. “Globally, our people are pumped up and motivated. It feels a lot the way it did last year, except for the economy.”

— Eugénie Larson, special to Light Reading
http://www.lightreading.com