LOS ANGELES (Reuters) - Network Appliance Inc <NTAP.O> gave a better-than-expected quarterly profit and outlook on Wednesday as demand from the U.S. government, Europe and Asia offset sluggish North American corporate spending.
By Gina Keating
LOS ANGELES (Reuters) - Network Appliance Inc <NTAP.O> gave a better-than-expected quarterly profit and outlook on Wednesday as demand from the U.S. government, Europe and Asia offset sluggish North American corporate spending.
Shares in the data storage equipment maker rose more than 12 percent on the results, but erased their gains after NetApp forecast a fall in margins as it adjusts prices and hires more employees to spur additional growth.
Fiscal second quarter net income was $83.8 million, or 23 cents per share, versus $86.9 million a year ago, or 22 cents per share based on a higher number of shares outstanding.
!ADVERTISEMENT!Excluding acquisition-related costs and other items, profit was 32 cents per share for the quarter ended October 26, topping the average analyst forecast of 26 cents, according to Reuters Estimates.
Revenue rose 21 percent to $792.2 million, compared to Wall Street expectations of $760.3 million.
"We ... felt the slowdown early, in fiscal Q1, but we actually saw a pretty good rebound around the world except for large accounts in North America, which are dominated by large financial services companies," Chief Executive Dan Warmenhoven told Reuters. "The global economy is very strong ... the weakness is concentrated in the financial services sector."
The Sunnyvale, California-based company forecast fiscal third-quarter revenue of $872 million to $883 million, well above the average analyst forecast of $854.9 million.
The company said it expects net earnings of 23 cents to 24 cents per share and adjusted earnings of 33 cents to 34 cents. Wall Street was looking for net earnings of 21 cents and an adjusted 32 cents per share, according to Reuters Estimates.
On a conference call with analysts, NetApp Chief Financial Officer Steve Gomo said the company expected inventory turns to remain the same in the current quarter.
He said gross margin would decrease by 1 to 1.5 percentage points due to an increase in its mix of products sold through IBM <IBM.N> and due to some "selective pricing actions we are taking to spur additional growth."
NetApp also plans to add up to 350 new employees next quarter, which is expected to shave margins to 15 percent to 15.5 percent, below NetApp's targeted range.
The company said it does not expect the slimmer margins for the quarter to affect its long-term operating margin goal of 15.8 percent to 16.4 percent,
"We will let you know next quarter when we guide to Q4," Warmenhoven said.
The CEO said NetApp has not yet seen weakening in its U.K. business, which is heavily weighted toward financial services, but expects "to see the pipeline to the U.K. soften up a bit near the end of the year."
Shares NetApp were down at $26.46 in late after-hours trade, having closed on Wednesday at $26.61 on Nasdaq.
(Reporting by Gina Keating; Editing by Marguerita Choy)
