Data storage equipment maker NetApp Inc. (NTAP) Wednesday said its second quarter profit more than doubled from last year, driven by higher demand. Quarterly non-GAAP earnings breezed ahead of the analysts' expectations, as did its revenues. Looking ahead, the company provided its revenue outlook for the third quarter, expected to come in ahead of Street consensus.
The Sunnyvale, California-based company posted GAAP net income of $96 million or $0.27 per share for the second quarter, up from $43 million or $0.13 per share in the prior year quarter.
Excluding items, non-GAAP net income grew to $130 million or $0.37 per share from $92 million or $0.28 per share in the year-ago quarter. On average, 30 analysts polled by Thomson Reuters expected the company to report earnings of $0.30 per share for the second quarter. Analysts' estimates typically exclude special items.
Gross margin for the quarter rose 11% to $606.7 million from $546.2 million in the previous year quarter.
Second quarter revenues declined slightly to $910 million from $912 million in the same quarter last year. Thirty-one analysts had a consensus revenue estimate of $881.03 million for the second quarter.
"NetApp delivered a strong quarter with record gross margins, record revenue from our SAN products, and overall revenue that exceeded our expectations," said Tom Georgens, president and chief executive officer of NetApp.
Software entitlements and maintenance revenue for the second quarter grew 11% to $169.82 million, and Service revenue rose 14% year-over-year to $215.06 million. However, product revenues fell 8% to $525.15 million over a year ago.
Total operating expenses for the quarter increased to $491.31 million from $480.55 million in the prior year quarter.
During the quarter, NetApp unveiled its cloud strategy and introduced several new products and solutions to help customers transform their data center architectures to achieve greater storage efficiency through data management techniques.
In an effort to help customers maximize the value of their existing storage investments, NetApp unveiled a program to help customers achieve greater storage efficiency in their data centers.
Under the terms of the Zero Investment Promise Program, customers with EMC and HP SANs that deploy NetApp V-Series can reduce storage capacity and the associated costs of their existing third-party storage investments. If after 90 days the customer files an approved claim that the storage savings are not achieved, the customer will keep the equipment at no charge.
For the first-half of fiscal year 2010, NetApp reported GAAP net income of $147 million or $0.43 per share, compared to $78 million or $0.23 per share in the previous year period.
Non-GAAP net income for the quarter rose to $206 million or $0.60 per share from $168 million or $0.50 per share in the prior year period.
Revenues for the period declined 2% to $1.75 billion from $1.78 billion in the year-ago period.
For the third quarter of fiscal year 2010, NetApp anticipates GAAP earnings of $0.24 to $0.25 per share, and non-GAAP earnings of $0.36 to $0.37 per share. Revenue is estimated to be in the range of $935 million to $955 million.
The Street currently expects the company to report earnings of $0.36 per share on revenue of $920.91 million for the third quarter.
Owing to the higher demand, NetApp said it is expecting record level of revenues for the third quarter.
Early this week, Credit Suisse reiterated its "Neutral" rating on NetApp's stock. The brokerage believes that storage industry conditions continued to improve in October and that the budget flush is in full effect for this segment. "This, coupled with strength in the government, should lend to strong revenue momentum for NetApp," the firm added.
As corporate customers continued to scale back IT spending in the deteriorating economic scenario, the technology sector in general has been experiencing a lean period. However, of late, there are indications that demand is stabilizing, with Germany, France and Japan having managed to pull out of the recession.
Among others in the industry, EMC Corp. (EMC) last month reported a lower profit for the third-quarter, as sales slid 5% from last year, reflecting lower IT spending. Additionally, the company said, "customers are signaling more comfort spending their IT budgets" and raised its full-year outlook. Credit Suisse expects NetApp to echo EMC's comments on budgetary easing, unsustainably high storage utilization rates, and improving macro conditions.
NetApp closed Wednesday's regular trading session at $29.62, down 10 cents on a volume of 8.04 million shares. In the after-hours, the shares gained $1.07 or 3.61%.
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