Tags: NetApp | warns | economy | NTAP

NetApp Says Difficult to Forecast Spending On Economy

By    |   Monday, 02 July 2012 02:49 PM

NetApp (NTAP) was a pioneer in the now-hot market of IT virtualization, a field closely related to the cloud storage business. Now that pressure is on corporations to lower costs as never before, there should be a growing pie for companies in this market. Nevertheless, NetApp management says it is difficult to forecast corporate spending due to the economy ahead.

NetApp is a provider of storage systems and data management solutions. It is an original equipment manufacturer (OEM) storage provider with a 15-year track record of enabling OEMs to offer IT and storage solutions that serve specific markets and customer requirements.

The company operates in the hot cloud storage space, as well as virtualized IT infrastructure and backup systems, analytics and business applications.

“As always, there are many factors that influence our numbers,” NetApp CFO Nicholas R. Noviello said on a recent conference call. “Currently, the increasing uncertainty about the broader macro-environment plays a prominent role. This lack of clarity about the global economy limits our visibility at this time to accurately forecast our customer buying patterns going forward.”

NetApp has a market cap of $11.68 billion in a sector, computers and peripherals, where the average company size is $11.03 billion. Its trailing 12-month P/E ratio is 20.27 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.56, compared to 0.92 for the sector.

Its projected earnings per share growth for the coming year is 17.79 percent, compared to a sector average of 17 percent.

Increased competition

Analysts are mostly positive on NTAP, with buy or outperform calls from Needham & Company, Deutsche Bank, Stifel Nicolaus, RBC Capital Markets, Piper Jaffray, UBS, Citigroup Investment Research and Cantor Fitzgerald.

Standard & Poor’s Equity Research and Zacks Investment Research rate the stock underperform.

“Our sell recommendation reflects our view of NTAP's slowing organic revenue growth. We see increased competition in the mid-tier market segment coming from EMC (EMC). We think the competitor's more aggressive pricing and NTAP's higher sales of lower gross margin products following its acquisition of Engenio will pressure operating margins,” S&P analysts wrote in late May.

“We are also concerned about a slowdown in Europe and weaker IT spending growth in 2012. While we continue to believe in NTAP's long-term growth potential, we see significant near-term risks.”

NetApp next reports on Aug. 15.

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