NetApp: We're OK

Network Appliance made it clear today that it will not stumble this quarter as EMC did last quarter -- and as a few analysts suspected NetApp would. (See NetApp Confirms Guidance.)

Network Appliance confirmed the forecast it gave in May that its revenue for this quarter would grow 2 percent to 4 percent sequentially to a figure between $610 million and $622 million. The company also confirmed previous guidance that fiscal year revenues will grow around 28 percent to 30 percent, reaching $2.65 billion to $2.7 billion. The quarter runs through the end of July, and NetApp will officially announce its earnings August 16.

It's unusual for a company to repeat prior guidance, but it was an unusual week for NetApp from a share price standpoint. An SEC filing last week raised questions in Wall Street analysts' and investors' minds, and predictions followed that NetApp might not meet its previous forecast. (See NetApp Filing Prompts Concern.) Further, last Friday, EMC's poor results and a drop in that company's annual forecast raised concerns about the entire storage industry. (See Tucci: EMC's Problems 'Self-Induced'.) Morgan Stanley downgraded NetApp Monday. By the end of the day its share price had dropped more than 18 percent in a week.

NetApp confirmed guidance today to let everyone know things are sunny in Sunnyvale. According to one technology analyst, the announcement was overdue. "I've been waiting for the last week to hear something from Netapp," says Josh Farina of Technology Business Research. "They didn't specifically say in this announcement it was because of the analysts' reactions, but they're trying to do damage control."

Wall Street analyst Dan Renouard of Robert W. Baird & Co. agrees NetApp was reacting to speculation about the company. "We are encouraged by NTAP's confirmation, quelling rumors the company was having a difficult quarter," Renouard wrote in a note to clients today.Inventory problems formed the link between EMC's disappointing quarter and possible NetApp woes. EMC claims it mishandled inventory last quarter after upgrading its Symmetrix SAN system, and NetApp cited an inventory buildup in its SEC statement last week. (See EMC Makes Good on DMX-3.)

The 36.5 percent rise in inventory for finished goods that NetApp reported is often a sign of trouble, but Analyst Farina believes the company has good reasons for the growing inventory. He points to NetApp recently launching new high-end FAS6000 and low-end StoreVault systems, its building extra product to ensure availability for its IBM OEM deal, and its acquisition of Decru encryption products. (See NetApp Scales Up, NetApp Zeroes In on SMBs, IBM, NetApp Ink OEM Pact, and NetApp Buys Decru.)

"While uncontrolled inventory growth and stalling or declining revenue signals serious problems at a company, NetApps revenue has continued to grow as its inventory has risen during the prior fiscal year," Farina says.

NetApp's shares rose $1.19 (4.39 percent) to $28.28 today.

— Dave Raffo, News Editor, Byte and Switch