NetApp: Q1, Q2 sales light amid 'challenging' economy

NetApp said its first quarter sales took a hit from a challenging economy. It also lowered its second quarter sales view.

NetApp said a "challenging macroeconomic environment" hampered its fiscal first quarter sales. The company also projected lower-than-expected second quarter sales, but expects to roughly hit its earnings targets.

With the news, NetApp became the latest hardware company to call the demand environment challenging. Like Dell, which cut its sales outlook on Tuesday, NetApp is preserving its bottom line.

In a statement, NetApp CEO Tom Georgens said NetApp won enterprise customers, exceeded expectations for its E-series gear and sold a record number of FAS600 systems. The rub is that "the challenging macroeconomic environment" is hampering growth.

NetApp reported first quarter earnings of $139.5 million, or 34 cents a share, on revenue of $1.46 billion, up from $1.15 billion in the same quarter a year ago. Non-GAAP earnings were 55 cents a share in the first quarter. Wall Street was expecting NetApp to report first quarter earnings of 55 cents a share on revenue of $1.51 billion.

The storage company also followed up its weaker-than-expected sales with an outlook that disappointed. NetApp projected second quarter revenue between $1.5 billion and $1.6 billion. Wall Street was expecting second quarter revenue of $1.61 billion.

In addition, NetApp projected non-GAAP earnings of 58 cents a share to 62 cents a share. That projection was in line with the 60 cents a share expected by analysts.

Georgens broke down how the quarter unfolded:

We entered the month of July with forecasts and results well ahead of our expectations despite the geographical balance being uneven. APAC and EMEA bookings were especially strong. America's commercial was on track, but U.S. federal was behind. Over the course of July the international business remained strong, but the federal business struggled to catch up with the backdrop of the debt ceiling dispute. However, July also brought some weakness in our business in the US, particularly in the financial services sector. We have 23 U.S. firms in our major accounts program. Six of them are in financial services. All six of them saw bookings declines from Q1 of last year. Despite the weakness in US federal and financial services we did see strength in other parts of the Americas with very strong growth in our state, local and higher education group, our Telco and service provider group and in the channel.

The trajectory weakened as the last month was roughly half the growth rate of the first causing us to come in lower than where we had anticipated. Economic conditions remain uncertain, but they are clearly different than they were 90 days ago. It is in the context of the July and early August business climate that we base our Q2 guidance.

Separately, NetApp said CFO Steve Gomo planned to retire effective Dec. 31. Nicholas Noviello, NetApp's current global controller, will take over for Gomo.

NetApp shares dived in afterhours trading.

By the numbers for the first quarter:

  • Product revenue was $965.7 million with software maintenance sales of $198.2 million. Services revenue was $294.3 million.
  • Research and development spending was $198.6 million, up from $149.5 million a year ago.
  • The company had cash, equivalents and investments of $4.71 billion.

Related: Dell cuts sales outlook, cites 'uncertain demand environment'