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NetApp (NTAP) Scraps Fiscal Q4 & 2020 View on Coronavirus Fears

Zacks Equity Research

NetApp NTAP is the latest casualty of the coronavirus–induced crisis. The company in a recent 8K filing announced the withdrawal of fiscal fourth-quarter and 2020 guidance provided on Feb 12. The company cited uncertainty about the impact of the coronavirus outbreak on its business operations as the reason behind the withdrawal.

NetApp joins a long list of tech bigwigs like Apple, Microsoft and Twitter who either withdrew their guidance or warned of lagging expectations due to the coronavirus pandemic.

Notably, for the fiscal fourth quarter, this Zacks Rank #3 (Hold) stock projected net revenues in the range of $1.455-$1.605 billion. Moreover, non-GAAP earnings were expected between $1.28 and $1.36 per share. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Further, for fiscal 2020, NetApp anticipated net revenues to decline 8% from fiscal 2019. Non-GAAP earnings were projected to decline 5% to 8% on a year-over-year basis, excluding contribution from buybacks.

Earnings Estimates Going South

Markedly, the Zacks Consensus Estimate for fiscal fourth-quarter earnings has decreased 10.5% to $1.19 per share in the past month, indicating a decline of 2.5% from the year-ago quarter.

The consensus mark for fiscal fourth-quarter revenues is pegged at $1.46 billion, suggesting a decline of 8.5% from the year-ago reported figure.

Moreover, the Zacks Consensus Estimate for fiscal 2020 has moved south by 3.1% to $4.06 per share, indicating a decline of 10.2% from the prior-year figure. Moreover, the consensus mark for revenues is pegged at $5.46 billion, suggesting a fall of 11.2% from the year-ago reported number.

The stock has been down 33% on a year-to-date basis, compared with the industry’s decline of 27.9%.

Coronavirus Crisis Hurts Storage Market Growth Trends

Apart from instability related to the coronavirus outbreak, NetApp’s underperformance can be attributed to declining product revenues on account of lower enterprise spending. Moreover, stiff competition from bellwethers HP Inc. HPQ, Dell Technologies DELL and IBM is a concern.

In fact, per a latest IDC report cited by CRN, worldwide external enterprise storage revenues will drop 5.5% year over year to $28.7 billion in 2020. Coronavirus pandemic is expected to hurt sales significantly in the first half of 2020.

IDC’s projection does not bode well for NetApp and its peers including HP, Dell and IBM. In fact, HP anticipates coronavirus to adversely impact its top line, bottom line and free cash flow in the fiscal second quarter. Dell also withdrew its fiscal 2021 guidance due to the coronavirus impact on its operations.

Solid Partner Base & Strong Portfolio to Aid NetApp

Nevertheless, NetApp’s solid partner base and expanding portfolio are expected to drive the top line in the long haul. It is expected to benefit from improvement in adoption of cloud-integrated all-flash solutions and hybrid multi-cloud offerings.

Moreover, partnerships with Alphabet’s GOOGL Google Cloud Services and NVIDIA are noteworthy. Further, the recent acquisition of Talon Storage, a dominant providerof next generation software-defined storage solutions, expands NetApp's cloud data services portfolio.

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