Net App Announces Flat Q1, Layoffs

Network Appliance Inc. (Nasdaq: NTAP) announced its first-ever layoffs, a cost-cutting measure the company said was "very difficult" but necessary, as it tries to cope with the continued worldwide slowdown in storage-related IT spending.

When the network-attached storage vendor announced its first-quarter fiscal 2002 results Tuesday, it said it would cut 200 jobs worldwide, from its current headcount of 2,400 employees. The company lost $500,000 during the quarter, which it said resulted in a break-even performance on a per-share basis. In the same period a year ago, Network Appliance earned $5 million, or 1 cent per share.

Revenues for Net App's first fiscal quarter were $200.4 million, compared to revenues of $231.2 million for the same period a year ago, according to the company. Earlier this month, consensus analyst estimates from First Call had predicted revenues of about $214 million for the quarter (see Goldman Wary on Net App).

In a conference call announcing the results, CEO Dan Warmenhoven said the company hopes to see a spending recovery sometime soon but isn't ready to say it's happening yet.

"At the risk of sounding like a recording from last quarter, we think we've found the bottom," said Warmenhoven. Net App, however, doesn't think customer spending will get off the ground within the next quarter, as the company said it expects flat or slight revenue growth, in the zero to 5 percent range, for the ongoing second quarter."Business across all geographies is slow," Warmenhoven said. Though the company said it closed 475 new accounts during the past quarter, the new deals were generally smaller in size than similar contracts signed in the past, leading Net App to remain conservative in its predictions.

"Our customers finally have budgets they can trust, but we're not ready to call it a trend, or a rebound to IT spending," Warmenhoven said of the new contracts. Net App also said it will take a restructuring charge in the range of $6 million to $8 million during the second quarter, related to the layoffs, which the company said will be completed by the end of the next fiscal period.

Though the company wanted to blame the economic slowdown for most of its shortcomings, Net App is also feeling more competitive pressure, from players like Hitachi Data Systems (HDS), which recently announced a cross-licensing deal with Sun Microsystems Inc. (Nasdaq: SUNW) (see Sun Shines on Hitachi). Warmenhoven said that Network Appliance will cut prices if necessary to keep from losing market share.

"We are not going to lose anything on price, and our sales force understands that," Warmenhoven said. Net App's stock closed Tuesday at $12.76 per share, down $1.23 on the day.

- Paul Kapustka, Editor at Large, Light Reading
http://www.lightreading.com