(NTAP) is trading lower in early trading this morning after reporting earnings
for Q4 (Apr) last night and guiding for Q1 (Jul). NTAP is a supplier of data
storage systems used by businesses for archiving and backup.
NTAP provides a full range of hybrid cloud data services that simplify management of applications and data across cloud and on-premises environments. Its FAS storage platform uses the NetApp Data ONTAP storage operating system to deliver integrated data protection, data management, and built-in efficiency software for virtualized, shared infrastructures, cloud computing, and mixed workload business applications.
NTAP supplies both hardware and software for data storage and management. Basically, NTAP helps customers extend their IT infrastructure to the cloud. Its total addressable market is comprised of three segments:
1) The networked storage market (NTAP's traditional market) is large but declining at a rate of 4% CAGR over the next three years.
2)The hyper-converged segment may grow at a rate of 29% over the next three years.
3) The cloud storage segment is a large market and may grow at a rate of 13%.
Although declining in aggregate, there are sub-segments of the legacy networked storage segment market that are growing very quickly. The hard disk drive-based segment is shrinking but the all-flash array segment is growing substantially at about 21% CAGR. NTAP says it's clearly outpacing competitors in all-flash arrays with more than 50% of its configured systems revenue coming from all-flash arrays. Its market share in flash is greater substantially than it was in the disk-based business segment. As this market grows to be a bigger part of the overall storage market, this positions NTAP to capture aggregate market share gains in the overall market.
Not only that, as new workloads get created, like artificial intelligence and machine learning, these workloads run on high-performance NFS systems. NTAP is very well-positioned in all-flash arrays and NFS to be able to capture those new workloads, whether they run on-premises or in the public cloud. Overall, networked storage still represents an opportunity for NTAP.
Turning to the Q4 (Apr) results, non-GAAP EPS rose 22% year/year to $1.05, which was above prior guidance of $0.95-1.03. Revenue rose 10.8% year/year to $1.64 bln vs the $1.525-1.675 bln prior guidance. Looking ahead, the guidance for Q1 (Jul) was basically in-line with market expectations: non-GAAP EPS of $0.76-0.82 and revenue of $1.365-1.465 bln.
In sum, NTAP has been making changes over the past couple of years with a much sharper focus on growing markets like flash. At the same time, it seems that NTAP's legacy businesses have stabilized and its growth segments are doing well. So why is the stock down today? It's not entirely clear but it's possible that the size of this EPS beat was not as large as the last three quarters which were huge beats. Even so, the stock has been making a strong move over the past year, up more than 60%. That shows that investors are buying into NTAP's transformation efforts.
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