Hardware hurts: NetApp to cut 600 jobs

NetApp said that it will cut 600 employees, or 4.6 percent of its workforce, as it streamlines its operations and focuses on tools like its OnTap software "in light of the constrained IT spending environment."

In a regulatory filing, NetApp said it would make the cuts in its first quarter and take a charge of $35 million to $45 million in its fourth fiscal quarter.

As of April 26, NetApp had 13,060 employees. Last year, NetApp cut 900 jobs.

In a nutshell, NetApp is like most hardware makers these days---it has to retool amid a slowing market and tech shifts such as cloud computing. IBM is shedding workers in its hardware unit and unloaded its x86 server business to Lenovo. Other enterprise hardware giants such as Cisco are emphasizing software capabilities.

NetApp's third quarter results were solid, but sales were a bit light. NetApp's revenue projections also disappointed some analysts. The company is facing a bevy of technology transitions. First, there's cloud computing. Some storage will move off of hardware into the cloud. NetApp has partnered with Amazon Web Services and others to create a strong hybrid cloud lineup.

Then there's software-defined storage and virtualization. NetApp has a good play there with its OnTap operating system and management tools, but needs to be viewed more as a software player. And finally, NetApp is moving up market to target large enterprises while keeping its core mid-tier customers. That move will mean NetApp has to battle giants like EMC, IBM and Hitachi.

On NetApp's recent third quarter earning conference call, CEO Tom Georgens said:

I have spoken before about the challenging setting in which we are operating. Budgets are compressed, customers are extending the life of their assets, and they are delaying purchases while they evaluate new technologies.

Analysts were mixed on NetApp's layoffs. Wells Fargo analyst Maynard Um said:

We believe these actions are likely a reflection of the soft demand environment and indicative of the pressures particularly in light of the fact that the company did a larger resource alignment just 10 months back impacting 900 employees globally.

Janney Capital Markets analyst Bill Choi said NetApp's competition, partnership with Cisco and execution is worrisome. He said:

While IT spending remains under pressure, we believe projects are starting to thaw as CIOs get their arms around hybrid cloud and how to future-proof near-term purchases. For NetApp, we suspect competition (e.g., Nimble, Pure) may be having an impact, as well as potential displacement at Cisco where FlexPods may be deemphasized in favor of internal/acquired Whiptail products. Our contacts indicated that the Cisco sales force received their Whiptail quota a few months ago.