NetApp to Chop 600 Jobs, Blames Sluggish Sales

Data storage vendor NetApp (NTAP) said it will chop 600 jobs, or 5 percent of its employee rolls, blaming a “constrained IT spending environment” for the layoffs.

NetApp disclosed the layoffs, which are expected to extend through Q1 FY 2015, in a May 12 8-K SEC filing, in which it said it plans to execute a “business realignment plan” to focus on key strategic initiatives. An initiative to “streamline its business” prompted the job cuts, the vendor said. NetApp, which employs about 13,000 people, said the layoffs will cost it $35 million to $45 million in cash for employee terminations and other associated costs, the majority of which it will record in FQ4 2014.

Last year, NetApp laid off 900 employees, smaller than the expected 1,300 but still a significant number, under pressure from activist investor Elliott Management to deliver more shareholder value. Those layoffs mostly involved NetApp’s OEM efforts.

In its recently completed FQ3, NetApp posted solid earnings of $192 million, or 55 cents a share, on sales of $1.61 billion but forecast Q4 revenue at $1.62 billion to $1.72 billion, slightly below Wall Street’s expectations. The company projected non-GAAP earnings at 77 cents to 82 cents, with analysts forecasting 80 cents a share.

Similar to other hardware-dominant companies, NetApp’s challenges are clear, starting with adjusting to the new technology realities of the cloud, software-defined storage and virtualization. Whether it can reposition itself as a significant software competitor or make hay on hybrid cloud deployments without harming its on premises sales is open to question.

In addition, the company will have to continue to strengthen its channel profile with relationships similar to the distribution deals it landed last year with Avnet (AVT) and Arrow (ARW), and strategic partnerships along the lines of its converged infrastructure agreement with Cisco Systems (CSCO).