Credit: Shutterstock photoNetApp ( NTAP ) announced its fiscal Q4 earnings, reporting a 10% annual decline in net revenue to just under $1.4 billion. The last few quarters have been tough for the company in terms of product sales, with its core hardware sales stagnating. The trend continued in the fourth fiscal quarter, with product sales facing the largest decline.
While product revenues were down by 17% y-o-y to $757 million, NetApp witnessed growth in its software maintenance business. Additionally, low product sales led to discounted selling prices, which ultimately drove down product margins significantly. Comparatively, the gross margin for hardware maintenance improved by over 5 percentage points due to a sustained improvement in services infrastructure and product quality. A similar trend has been seen across most large storage hardware vendors across the industry, seeing weak product sales while services drive much of the growth (read: ODM Storage Vendors Gain Share From Giants: EMC, HP, IBM, NetApp Lose Market Presence ).
The company made efforts to improve operational efficiency by reducing cash operating expenses through its fiscal 2016. This resulted in lower sales & marketing and research & development costs through the year. However, the reduction in expenses wasn't enough to make up for the revenue declines through the year. NetApp's management aims to lower its selling, general and administrative expenses in the coming quarters to improve profitability. Earlier this year, NetApp's management indicated that it will cut 1,200 jobs by July, which is roughly 12% of the company's total workforce.
Have more questions about NetApp ( NTAP )? See the links below:
- What Lies Ahead For NetApp's Software, Entitlements & Maintenance Sales?
- What Will NetApp's Revenue And EBITDA Look Like In 5 Years?
- How Crucial Is Hardware Maintenance To NetApp's Product Sales?
- What Is NetApp's Presence In The Storage Systems Market?
- ODM Storage Vendors Gain Share From Giants: EMC, HP, IBM, NetApp Lose Market Presence
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
