Network Appliance Sees Revenue Downturn, Stock Tumbles

Network Appliance, a maker of data network storage gear, on Wednesday unexpectedly forecasted a downturn in revenue, blaming a slowdown in U.S. technology spending. This sent its shares tumbling 20% in after-hours trading.

Network Appliance said it expects fiscal first-quarter revenue to decline 6% to 7% from the fourth quarter after large U.S. corporations cut spending in March. Its shares slumped $7.60 in extended trading following the earnings report from a close of $38.06 in regular-session trading on Nasdaq.

Analysts, on average, were forecasting fiscal first-quarter revenue of $811.9 million, according to Reuters Estimates. That would be up $10.7 million or 1.3% from the just-reported quarter.

The company also scrapped its earlier forecast for full-year revenue growth of 28% to 30% over 2007 and said it would update investors about revenue growth on a quarterly basis this year.

"We saw a slowdown in information-technology spending in U.S. enterprise accounts," Chief Executive Officer Dan Warmenhoven said in an interview after the earnings report. "We're not confident that we are back in a normal spending pattern."

The company has cut back on hiring because expenses will grow faster than revenue in the first quarter, he also said.

Stock of Network Appliance's larger competitor EMC slipped nearly 2% to $15.75 in after-hours trading after closing 1.5% higher at $16.05 on the New York Stock Exchange.

The revenue shortfall comes at a time of increased spending at Network Appliance as it seeks to gain market share in the fast-growing data storage business. Operating expenses rose 52% to $410.6 million in the fourth quarter.

Expenses grew "significantly faster than revenue in both sales and marketing and general-and-administrative, raising questions about NetApp's aggressive spending targets," Goldman Sachs analyst Laura Conigliaro said in an investor note after the earnings report.

Warmenhoven told analysts on a conference call that bookings by U.S. corporate customers slumped in March, leading to lower-than-expected revenue in the current quarter. Bookings picked up in April, he added, but not enough to make up for March's shortfall.

Warmenhoven noted that other technology companies including International Business Machines and network equipment maker Cisco Systems also reported weak U.S. corporate technology spending in the early part of the year. "This was not unique to NetApp," he told analysts.

Fourth-quarter net income at Network Appliance increased to $89.6 million, or 23 cents per share, from $59.2 million, or 15 cents per share, a year earlier. Revenue rose 34 percent to $801.2 million from $598 million.

Not counting certain items such as 10 cents per share for employee stock-based compensation, earnings were 30 cents per share, in line with the company's earlier forecast. Revenue also was in line with the company's forecast of growth of 32% to 34%, or $789.4 million to $801.3 million.

Analysts, on average, were expecting revenue of $798.1 million, according to Reuters Estimates.

For its fiscal first quarter, Network Appliance forecast net income of 14 cents per share to 15 cents per share and per-share earnings before certain items of 24 cents to 25 cents.

Wall Street has been forecasting first-quarter net income of 20 cents per share, the average of nine estimates compiled by Reuters Estimates.