NetApp In A '50-Year Storm'

Pacific Crest’s Brent Bracelin maintained a Sector-Weight rating for NetApp Inc. NTAP, while reducing the estimates to factor in a persistent revenue decline over the next 18 months.

Analyst Brent Bracelin pointed out that there is increasing evidence that the IT industry is undergoing the biggest transition in 50 years, with a secular shift to Cloud and flash technologies. He added that the 40 percent y/y decline in NetApp’s 3Q15 mature product revenue “exemplifies an accelerating pace of change in the enterprise, in our view.”

NetApp also reported a 19 percent y/y decline in its 3Q15 product revenue, which was negatively impacted by a sharp fall in its mature product revenue, although being partially offset by a mix shift towards strategic products. An uncertain macro environment resulted in delaying some deals overshadowing robust flash demand, which increased 67 percent q/q.

A conservative guidance for April and a 12 percent workforce reduction indicate further erosion within NetApp’s mature product segment. Bracelin expects NetApp’s margins and EPS to remain under pressure until a broader industry shakeout occurs and results in reduced competition and stabilized pricing.

The core EPS estimates for 4Q15 and FY15 have been reduced from $0.76 to $0.72 and from $2.32 to $2.28, respectively.