NetApp profit falls on lower sales to OEMs

Reuters News
Posted: Nov 12, 2014 4:22 PM

By Sai Sachin R and Anya George Tharakan

(Reuters) - Data storage equipment maker NetApp Inc reported a 4 percent fall in quarterly profit, hurt by lower sales to original equipment manufacturers, and forecast a third-quarter profit below market estimate.

The company's shares were down about 3 percent in extended trading.

The company's OEM business includes revenue from the sale of NetApp's products by other companies under their brands, including IBM Corp and Fujitsu Ltd.

OEM revenue fell 21.5 percent in the second quarter, contributing 8 percent to total revenue.

"IBM has their own storage solutions and they want to get more in-house as opposed to reselling a competitor's products," FBN Securities analyst Shebly Seyrafi said.

The company is also facing competition from larger rival EMC Corp and newer and cheaper flash-based storage technology vendors such as Nimble Storage Inc and Pure Storage.

A stronger dollar will hurt revenue from Europe in the third quarter, Chief Executive Tom Georgens told Reuters.

Europe, Middle East and Africa (EMEA) region contributed 28 percent to NetApp's revenue in the second quarter.

EMC also cut its full-year profit and revenue forecast in October, hurt by lower bookings at its VMware Inc unit and a strong dollar.

NetApp expects current-quarter adjusted profit of 74-79 cents per share on revenue of $1.56 billion-$1.66 billion.

Analysts were expecting third-quarter adjusted profit of 80 cents per share on revenue of $1.62 billion, according to Thomson Reuters I/B/E/S.

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The company's net income fell to $159.8 million, or 49 cents per share, in the quarter ended Oct. 24, from $166.8 million, or 48 cents per share, a year earlier.

Excluding items, the company earned 70 cents per share, matching expectations.

Revenue fell marginally to $1.54 billion from $1.55 billion.

Analysts on average had expected $1.55 billion.

(Reporting By Sai Sachin R and Anya George Tharakan in Bangalore; Editing by Sriraj Kalluvila and Don Sebastian)