NetApp
NTAP
is slated to report second-quarter fiscal 2021 earnings on Dec 1.
The company anticipates non-GAAP earnings for second-quarter fiscal 2021 between 66 cents and 74 cents per share. The Zacks Consensus Estimate for earnings stands at 72 cents, suggesting a decline of 33.9% from the year-ago reported figure. Notably, the figure has remained stable in the past 30 days.
Moreover, net revenues are anticipated to be $1.225-$1.375 billion. The consensus for fiscal second-quarter revenues is pegged at $1.31 billion, indicating a decline of 4.4% from the prior-year quarter.
Notably, the company beat estimates in three of the trailing four quarters and missed the same once, the average surprise being 27.59%.
Factors Likely to Have Influenced Q2 Results
Broad-based macroeconomic weakness led by coronavirus crisis has been compelling enterprises to trim capital expenditure, which is anticipated to have weighed on NetApp’s storage business’ performance in the to-be reported quarter.
For the fiscal second quarter, the Zacks Consensus Estimate for Product revenues is pegged at $652 million, indicating a year-over-year decline of 15.4%.
Nevertheless, increased momentum of the company’s HCI (or hyper converged infrastructure) and cloud partnerships with
Amazon
’s
AMZN
Amazon Web Services, VMware, and
Alphabet
’s
GOOGL
Google Cloud may have contributed fiscal second quarter performance.
Besides, coronavirus crisis has triggered work-from-home wave that has led to increasing adoption of cloud-based storage, which in turn is likely to have driven adoption of NetApp’s hybrid multi-cloud offerings, cloud data services and private cloud offerings. It is expected to get reflected in the fiscal second-quarter revenues.
Also, incremental adoption of Microsoft Azure NetApp Files is expected to have bolstered Public Cloud Services business’ annualized recurring revenues (ARR) in the fiscal second quarter. Notably, the metric was $178 million in the last reported quarter, up 192% on a year-over-year basis. Buyouts of Spot, Cloud Jumper and Talon contributed $44 million in ARR as of the end of the quarter.
Markedly, during the quarter under review, NetApp made Azure NetApp files available on Microsoft Azure in the government region data centers. This high-performance file storage service will enable federal, state, and local agencies to easily conform with the stringent government security and regulatory compliance requirements.
For the fiscal second quarter, the Zacks Consensus Estimate for Hardware Maintenance & Other Services revenues stands at $357 million, suggesting year-over-year improvement of 3.2%.
Meanwhile, the consensus for Software Maintenance revenues is pegged at $286 million, indicating year-over-year growth of 12.6%.
Further, improvement in NAND flash pricing owing to coronavirus-led supply chain constraints is likely to have driven revenue growth, which in turn might have favored Product gross margin performance in the fiscal second quarter.
During the fiscal first quarter, the company’s all-flash revenues totaled $567 million, up 34% on a year-over-year basis.
Key Developments in Q2
During the quarter under review, NetApp rolled out a new solution for containerized applications under its Spot by NetApp portfolio that facilitates organizations to make multi-cloud management easier along with lowering of costs.
Moreover, Spot’s Elastigroup is enabling customers to accelerate production workloads in Microsoft Azure Spot Virtual Machines (VMs), with up to 90% cost savings. Notably, NetApp concluded acquisition of Israel-based cloud services startup –– Spot on Jul 13, whose suite of tools includes Elastigroup.
The company also added advanced capabilities to its NetApp ONTAP data management software to help organizations to accelerate digital transformation and optimize costs and improve security. The company also unveiled a new NetApp SolidFire Enterprise SDS solution and announced a flexible NetApp Keystone Flex Subscription service.
Growing expenses on expansion of product portfolio and product enhancements via acquisitions or otherwise, bode well in the long term. However, increasing expenditure amid stiff competition from fellow storage peers including
Pure Storage
PSTG
is likely to have limited margin expansion in the fiscal second quarter.
For the fiscal second quarter, NetApp expects non-GAAP gross margin to be 66-67%. In fiscal first quarter, non-GAAP gross margin was 68%.
Currently, NetApp carries a Zacks Rank #3 (Hold).
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