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NetApp Shares Nosedive on Tech Spending Worries

Shares of NetAppfell 14 percent on Thursday, a day after the data-storage equipment maker's weak revenue outlook further confirmed anemic technology spending by the U.S. government and large companies.

NetApp
Source: NetApp.com
NetApp

At least eight brokerages cut their price targets on Sunnyvale, Calif.-based NetApp's shares .

The dismal forecast dragged down stocks of many companies that manage networks and handle large amounts of data, including Riverbed Technology, Informatica, Aruba Networks and Tibco Software.

NetApp's forecast followed a huge cut in revenue forecast by the world's second-largest PC maker, Dell, on Tuesday.

The stock lost $5.85, or 14 percent, to close at $35.80 Thursday. The tech-heavy Nasdaq Composite Index fell 5.2 percent.

Sales to the U.S. federal government, NetApp's biggest customer, slowed dramatically in July during the deficit impasse.

Chief Executive Tom Georgens said he was not sure if the company would be able to recoup that lost business.

"We think public sector weakness was well-understood heading into earnings, but the magnitude of growth deceleration in July was unexpected," Bank of America Merrill Lynch said in a note.

The brokerage said it expects organic revenue growth to slow in the rest of calendar 2011 and maintained its "neutral" rating on the NetApp stock.

Excluding Thursday's losses, the shares have lost nearly a fifth of their value since NetApp reported fourth-quarter results on May 25.

"We expect shares to be under pressure in the near term, creating an attractive entry point for long-term investors ... the stock's recent sell-off had been pricing in a miss," JP Morgan said in a research note to clients.

The brokerage cut its price target on the stock to $55 from $63, but maintained its "overweight" rating.

NetApp reported first-quarter revenue of $1.46 billion, below analysts' expectations of $1.51 billion, and forecast second-quarter sales of $1.5 billion to $1.6 billion, against estimates of $1.61 billion, according to Thomson Reuters I/B/E/S.

Silver Lining?

NetApp reported slightly better-than-expected first-quarter gross margins, helped by a rise in high-margin hardware maintenance contracts.

The company also forecast strong second-quarter margins, which suggested that it is competitively well placed, analysts said.

"We expect the company to reverse market share losses in network-attached storage (NAS) longer term with the release of a new version of its GX operating system," BofA Merrill said.

NAS devices can be accessed over a computer network rather than directly being connected to the computer like internal hard drives or external USB drives.

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