NetApp Announces Yet another Layoff Plan to Streamline Business

Networking giant to lay off 6% of its workforce, or about 640 employees, by end of 2017

n1It appears that the czar of the networking storage industry has been dethroned. NetApp Inc. (NASDAQ: NTAP) announced on November 3rd, 2016, in a regulatory filing that it would lay off 6% of its workforce, or about 640 employees, based on its total headcount of 10,700 workers. NetApp said that the layoffs were part of an effort to streamline its core business and cut expenses, triggering a 6% fall in its stock prices. The company will take a charge of about $50 million to $60 million for the layoffs and the related costs, the filing said.

The layoffs, which will take place through the end of 2017, come on top of another round of 1,500 job cuts announced in February 2016. Those layoffs, in addition to yet another layoff plan in 2015, have been substantially completed as of July 2016, according to a September 2016 regulatory filing.

NetApp’s recent layoff has followed the trend of other big enterprise hardware companies like Hewlett Packard Enterprise Company (NYSE: HPE) and Cisco Systems Inc. (NASDAQ: CSCO), which have recently laid off staff to focus on fast-growing areas of the cloud such as software-defined networking and converged and hyper-converged infrastructure. n2To add to its woes, NetApp has to rejig its game plan amid a slowing market and tech shifts such as cloud computing. The rise of cloud computing has hurt NetApp’s core business of selling data center storage hardware due to customers’ preference for software-as-a-service (SaaS) subscriptions. Instead of buying hardware, businesses are paying for computing resources on demand from technology giants like Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT).

The Sunnyvale, California-based data-storage equipment company has been struggling with increasing competition during its transition to cloud-based storage. Hence, NetApp is looking to become more of a software player, competing against the likes of VMware Inc. (NYSE: VMW), which is owned by EMC Corp. (NYSE: EMC) and is in the process of being acquired by Dell. Moreover, the firm is faced with a slowdown in sales due to a drastic fall in demand from US federal agencies.

Converged infrastructure market

The networking storage industry in which NetApp operates is witnessing a major shift to the cloud, with vendors of servers, cloud platforms, and business critical software technologies looking to differentiate themselves through solutions that offer higher efficiency, lower operational complexity, and rapid scaling capability. This in turn has led to various degrees of convergence in the areas of computing, storage, and increasingly, networking resources.

n3Keeping with this market trend, companies such as EMC are offering fully integrated solutions, where it also provides all the components, or includes components made by other technology vendors, which are designed to work in combination. NetApp dominates the multi-vendor segment of the converged infrastructure market, with major vendors such as Dell, Oracle Corp. (NYSE: ORCL), HPE, and Cisco.

Launch of new products

To prop up sagging sales, NetApp introduced new data fabric solutions and services that improve the secure movement of data across the hybrid cloud on November 3rd, 2016. The company also introduced new versions of NetApp AltaVault, StorageGRID Webscale, and SnapCenter technologies to enable customers to extract the value of their data from anywhere in the hybrid cloud. Building a hybrid cloud using NetApp’s data fabric solutions and services allows customers to efficiently control and secure their data while capitalizing on its value for maximum business benefit. The new data fabric solutions also enable customers to control, manage, secure, and move data across on-premises and public cloud resources to architect the IT environment that best suits their needs.

AltaVault, a cloud-integrated storage solution speeds recovery and reduces risk, enabling customers to securely back up data to on-premises and public clouds at up to 90% lower cost compared to traditional on-premises solutions. NetApp’s object-based storage solution for web applications, StorageGRID Webscale, is designed for the hybrid cloud to store and manage massive datasets in a single global namespace.

The latest release of SnapCenter centralizes data protection and clone management with new application plug-ins, including the capability to create custom plug-ins for third-party applications and databases. The company also announced Cloud sync service, NetApp private storage (NPS) as a Service, cloud control for Microsoft Office 365, and cloud backup solution. NetApp is also partnering with Zaloni, which specializes in data lake management, to manage the information lifecycle as companies use Hadoop, NoSQL, and tools like Splunk.

Growth in all-flash business

In its Q1 FY17 earnings released in August 2016, NetApp reported a 3% Y-o-Y decline in revenue to $1.29 billion on net income of $64 million. To spur revenue growth, NetApp is seeking to refocus as a company on emerging flash memory technology as the storage industry undergoes a major transformation with cloud computing and appliance virtualization impacting traditional server technology. With the acquisition of SolidFire for $870 million in December 2015, NetApp has gained SolidFire’s flash storage technology. Instead of traditional spinning disc storage arrays, flash storage is faster and used by companies for cutting-edge data crunching tasks.

NetApp CEO George Kurian said that companies can use its flash storage to replicate what companies like Amazon, Alphabet Inc. (NASDAQ: GOOG), and Facebook Inc. (NASDAQ: FB) use in their data centers. He also said that NetApp’s flash storage products will be the major focus of the Company’s business going forward. NetApp said that it is starting to see progress with higher growth product sectors like flash arrays and so-called hybrid cloud solutions, in which companies use a combination cloud computing resources and their own internal data centers that have been outfitted with advanced data-center management software.

As part of its new focus, NetApp launched a new version of its SANtricity storage software and entry-level all-flash array designed to cater to mid-sized businesses that are looking to manage data lakes in September 2016. With these initiatives, it remains to be seen whether NetApp can return to moderated growth by May 2017.

Stock Performance

n4NetApp’s stock finished the day at $30.45, plunging 6.16%, at the close on Friday, November 4th, 2016, having vacillated between an intraday high of $31.51 and a low of $30.36 during the session. The stock’s trading volume was at 8,309,901 for the day. The Company’s market cap was at $8.48 billion as of Friday’s close.

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