Death of Growth in Silicon Valley: NetApp to Slash 600 Jobs

Edited by Vani Rao

Submits SEC filing to realign its business plan and streamline operations

It appears that the czar of the networking storage industry has been dethroned. NetApp Inc. (NASDAQ:NTAP), in a filing with the US Securities and Exchange Commission on 13 March 2014, plans to cut 600 jobs, or about 5% of its workforce. According to Bloomberg, the Sunnyvale, California-based data-storage equipment firm is faced with a slowdown in sales due to a drastic fall in demand from US federal agencies. The company did not specify where the layoffs would occur.

While the manpower reduction will enable NetApp to streamlines its operations and focus on tools like its OnTap software given the constrained IT spending environment, it would result in charges of $35-45 million in the quarter ending April 30, according to Bloomberg. The recent job cuts comes after NetApp shed 900 jobs last year under pressure from activist investor Elliott Management Corp., the hedge fund run by billionaire Paul Singer, which held a significant stake in the company.

NetApp slid to $37.16 on 14 March 2014 after the announcement. They have fallen 8% so far in 2014.

Source Bloomberg
Source Bloomberg

Intense Competition from Cloud Computing Players

According to Bloomberg, NetApp’s revenue growth slowed to 1.6% in FY2013, compared with an average 22% gain in the previous three years. To further prove that NetApp’s growth is indeed on a downward path, the Thomson Reuters consensus estimate is looking only for revenue growth of 0.3% for 2014 to $6.35 billion, followed by growth a year out of 3% to $6.54 billion. Furthermore, Thomson Reuters is expecting the company to post a revenue decline of 2.5% to $1.67 billion quarter ending in April 2014.

shutterstock_125411825NetApp said that the drying up of federal IT spending was weighing down on its revenue, and analysts estimate that this scenario would continue during the remaining part of 2014. To add to its woes, NetApp has to rejig its game plan amid a slowing market and tech shifts such as cloud computing. In a similar vein, IBM Corp. (NYSE:IBM) is also going ahead with job cut in its hardware unit and unloaded its x86 server business to Lenovo. Other enterprise hardware giants such as Cisco are emphasizing software capabilities.

NetApp is also facing technology transitions such as the emergence of cloud computing in a big way. For this, it has partnered with Amazon Web Services and others to create a strong hybrid cloud lineup. In the area of software-defined storage and virtualization, NetApp plans to broadbase its OnTap operating system and management tools. What’s more, NetApp is targeting large enterprises while keeping its core mid-tier customers, which means that it will have to take on giants like EMC Corp. (NYSE:EMC), IBM Corp. (NYSE:IBM), and Hitachi.

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