NetApp disappoints as US government shutdown bites

Storage vendor's revenue came in $10m lower than it expected, disappointing Wall Street

Last month's US federal government shutdown has left NetApp disappointed with its second-quarter results after its sales for the quarter crept up by just one per cent.

The storage giant claims the partial government shutdown – which was driven by debt concerns – was partly to blame as sales for the three months to 25 October came in $10m (£6.2m) below what it had expected. A larger-than-expected slump in its OEM business, which saw revenue slump 138.7 per cent annually to $151.1m (£94.4m), also hit its top line.

Overall, NetApp's GAAP net profits rocketed 52 per cent annually to $167m but sales rose only one per cent over the same period to $1.55bn. Wall Street was also disappointed with the sales figure, according to Reuters, whose analysts expected it to come in at about $1.6bn.

Nicholas Noviello, NetApp's chief financial officer, said it had factored US government uncertainty into its guidance but had not gone far enough.

"Despite the conservatism we built into our Q2 guidance to account for uncertainty in US federal business related to sequestration and looming budget deadlines, we did not predict the degree to which sequestration – combined with the government shutdown – would impact our ability to close business in our pipeline," he said on an earnings call transcribed by Seeking Alpha. "In addition, though we expected OEM business to be down in Q2, ordering patterns from our largest partners were off plan, reflecting their exposure to market dynamics."

Its US public sector revenue slumped eight per cent annually – the largest year-on-year dip ever recorded in the business since it began tracking in 2007 – but overall its Americas commercial arm's revenue climbed three per cent year on year. In EMEA, its business arm was up two per cent compared to last year's second quarter.

Indirect sales through OEM partners and the channel made up 83 per cent of NetApp's overall business, with Arrow and Avnet contributing 23 per cent and 16 per cent of net revenue respectively.

Despite its disappointing results, NetApp chief executive Thomas Georgens remained upbeat.

"Though we face an ongoing uncertain macroenvironment, our solid branded revenue growth and share gains are evidence of the value customers place on our innovative, best-of-breed solutions," he said.

For its third quarter, NetApp expects its revenue to come in between $1.58bn and $1.68bn.