NetApp (NTAP) likely to post weak Q3 earnings on Feb 12

NetApp Inc. (NASDAQ: NTAP) is set to report its third-quarter 2020 earnings results on Wednesday after the market closes. The results will be impacted by weak hardware budget and increasing memory prices despite growing competition and a shrinking market, which is backed by a decline in spending by the storage players.

The top line will be driven by software, hardware maintenance and other services including professional services, global support solutions, and customer education and training. However, the company is likely to incur a decline in the top line due to the weakness in both the Strategic and Mature sub-divisions as well as the unfavorable impact of foreign exchange rate fluctuations.

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Region-wise, the general macroeconomic conditions and go-to-market execution issues with certain large customer accounts are likely to hurt the Americas’ revenues. There remained continued weakness due to macroeconomic and enterprise spending indicators. The company is expected to maintain pricing discipline despite the soft environment.

The cloud services will continue to aid NetApp in attracting new customers, reach new buyers, and expand the workload’s managed at existing customers. The company continues to return capital to shareholders while investing for the long term health of the business and capitalizing on unique ability to help customers navigate the complexities of the hybrid multi-cloud.

Analysts expect the company’s earnings to decline by 1.70% to $1.18 per share and revenue will decrease by 6.4% to $1.46 billion for the third quarter. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters. The majority of the analysts recommended a “strong-buy” or “buy” rating with an average price target of $62.94.

For the second quarter, NetApp posted stronger-than-expected earnings while revenues declined and missed the view. Product revenues fell by 16% due to weakness in both the Strategic and Mature sub-divisions. Region-wise, the Americas accounted for about 56% of total revenue and EMEA 29%. Around 14% of the revenues came from Asia-Pacific.

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For the third quarter, the company expects revenues in the range of $1.39-1.54 billion, unadjusted earnings in the range of $0.96-1.04, and adjusted earnings of $1.14-1.22 per share. For the full year 2020, net revenue is predicted to decline by around 8% year-over-year. The gross margin is projected to be 66-67% and the operating margin is anticipated to be 18-19%.

NetApp stock opened lower but changed course to the green territory in the early start of trading on Monday. The stock has been trading between $44.55 and $78.35 in the past 52 weeks. The moving average stood at $60.45 for the 50-day and $56.21 for the 200-day.

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