Investors’ dim view of NetApp brightened a bit Thursday after the data storage giant posted better-than-expected quarterly results and upped its forecast, but some analysts caution the company continues to face challenges.
NetApp shares, which were down 28 percent for the year through Wednesday, were up as much as 8 percent on Thursday after the company released its fiscal first-quarter results. The stock closed at $30.78, up $1.
NetApp executives, while upbeat, acknowledged that the company, one of the Triangle’s largest employers, isn’t out of the woods yet.
“We are confident that we are on the right path, but clearly have more work to do,” CEO George Kurian said during a conference call with analysts.
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The task of turning the business around was handed to Kurian in June. He succeeded CEO Tom Georgens, who departed less than two weeks after the company issued disappointing quarterly earnings and unveiled plans to lay off 500 workers, or about 4 percent of its workforce of 12,800.
NetApp hasn’t disclosed how those job cuts affect specific sites. A year ago the company, which is headquartered in California, employed more than 1,600 workers in Research Triangle Park. The company received a state incentives package in 2012 that calls for it to receive up to $11.8 million, which is contingent on it having 1,910 employees by 2016.
NetApp reported after the markets closed on Wednesday that its fiscal first quarter revenue totaled $1.34 billion. Although that was down 10 percent from a year ago, it exceeded the $1.32 billion analysts were expecting, according to Bloomberg News.
Adjusted net income of $89 million, or 29 cents per share, also was better than anticipated – as were the company’s projections for fiscal second quarter revenue and earnings per share.
NetApp’s critics say its eroding market share stems from falling behind the technology curve as businesses shifted to cloud computing. Analysts have speculated the company could be an attractive acquisition target for a private equity firm.
“We must manage the business to drive efficiency and profitability from the mature parts of our portfolio so we can afford investment in emerging high-growth areas to deliver innovation ahead of the market, drive increased awareness and expand our footprint,” Kurian said.
Baird Equity Research analyst Jayson Noland noted that NetApp’s financial results benefited from “very low expectations.”
“We continue to believe the company is in a difficult position given pressure on the overall market, increased competitive dynamics, and challenges with a key product cycle transition,” Nolan wrote in a research note. He has a neutral rating on NetApp stock.
Jason Adler, an analyst at William Blair, rates the stock “underperform,” which is equivalent to a sell recommendation.
“Notwithstanding the CEO’s confident rhetoric ... we continue to view NetApp as a ‘melting ice cube’ at this point given its poor positioning in key storage growth areas and substantial attrition of ‘A’ players from the workforce,” he wrote.
Adler also noted that NetApp’s revenue has declined for seven consecutive quarters.