UPDATE 2-NetApp revenue misses forecasts, shares fall
* Q3 adj EPS 28 cts vs Wall street view of 28 cts
* Q3 rev $746 mln vs Wall Street view of $905 mln
* Plans to cut 6 pct of workforce, take charge
* Shares fall 8 percent (Adds comments from CFO, analyst, earnings details, byline)
By Jim Finkle
BOSTON, Feb 11 (Reuters) - NetApp Inc (NTAP.O), a data storage equipment maker, reported an almost 16 percent drop in quarterly revenue, missing Wall Street forecasts as customers cut spending, sending its shares down 8 percent.
The company said it is cutting 540 workers, or about 6 percent of its 8,383 employees, to maintain profitability at a time of falling sales. It will take about $30 million to $35 million in restructuring charges during the current quarter.
"This macroeconomic situation is here to stay for a while and it's a lot worse than people thought it would be," Chief Financial Officer Steve Gomo said in an interview. "We want to make sure we have a business model that yields a reasonable result at a lower level of revenue."
Deutsche Bank analyst Chris Whitmore said the results suggest that other hardware makers, including International Business Machines Corp (IBM.N), EMC Corp (EMC.N), Hewlett-Packard Co (HPQ.N) and Dell Inc (DELL.O), may also face a tougher-than-expected 2009, especially because it comes on the heels of a disappointing earnings forecast from top networking equipment maker Cisco Systems Inc (CSCO.O).
"This tells you that IT budgets and IT spending in 2009 got off on a wrong foot. I do think it has implications for most of the enterprise hardware names," Whitmore said.
The company's revenue shortfall during the third quarter ended Jan. 23 was exacerbated by a $128 million accrual that it took related to a previously disclosed dispute with the U.S. government over its discounting policies from 1995 to 2005.
NetApp reported third-quarter profit, excluding items, of 28 cents per share, meeting the average Wall Street projection, according to Reuters Estimates.
But revenue fell to $746 million from $884 million a year earlier. Without that accrual it would have had revenue of $874 million, missing the $914 million average analyst forecast.
"Even backing out the accrual, it was a huge miss on the revenue line," Whitmore said. "It suggests that demand really deteriorated through the quarter and towards the end of the quarter."
Gomo said that most of the jobs that it is cutting are in administration and support. Very few of them are in sales, a group that NetApp has expanded over the past year in a bid to boost revenue.
Over the past year NetApp has boosted its workforce by 18 percent, mostly adding sales people as it looks to sign up new customers. Even after the layoffs announced on Wednesday, the company's workforce will be about 10 percent bigger than the 7,123 employees it had a year ago.
"We didn't want to let all of those guys go. Those folks are helping us call on new customers," Gomo said.
The company did not issue a revenue forecast.
Gomo declined to comment on whether he expects sales to fall again in the current quarter, saying that it is too hard to predict where technology spending is headed.
Gomo said that about 90 percent of NetApp's sales shortfall was due to macroeconomic conditions. The other 10 percent represents areas where the company could improve its performance, he added.
The Sunnyvale, California-based company reported a third-quarter net loss of $75 million, or 23 cents per share, versus net income of $102 million, or 29 cents, a year earlier.
Shares of NetApp fell to $13.99 in extended trading from a Nasdaq close of $15.20. (Reporting by Jim Finkle; editing by Richard Chang)
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