Why JPMorgan Just Downgraded NetApp

In a report published Thursday, JPMorgan downgraded the rating on

from Neutral to Underweight, with a price target of $29, after the company guided to weak F1Q revenues. NetApp is expected to report its FQ1 revenues 10.9 percent below the JP Morgan estimate. The company has also guided to FY2016 revenues that would be "flat at best" year on year. NetApp attributed the weak revenues to slow customer adoption of Cluster ONTAP for need of process and equipment changes. "We believe that Cluster ONTAP adoption in the base is low though we equally feel NetApp has a reasonable chance to convert a lot of the base," the analysts mentioned. "The problem is that the company is saying they missed this issue with customers due to inadequate sales coverage. Given this we believe that conversion is likely to take longer than NetApp expects and that this opens the door to competitors looking to regain share," the analysts added. In the report JP Morgan noted, "We see the H2 recovery timing as optimistic with the potential that NTAP takes longer to gain traction. Because of this transition hiccup we also believe the door opens wider for potential competitive disruption of NTAP's core customer base." The EPS estimate for FY16 has been reduced by 8 percent to $2.39.