Analyst: NetApp layoff about cutting costs amid slowing revenue growth

May. 22, 2013 @ 06:18 PM

NetApp’s layoff of about 7 percent of its global workforce may have happened as part of an effort by the company to cut costs as revenue growth has slowed, according to an analyst from the investment research firm Morningstar.

The Sunnyvale, Calif.,-based company announced Tuesday a global restructuring affecting 900 workers. Its workforce in the Research Triangle Park was affected by the job cuts, which were made last week, but company officials did not disclose how many jobs would be eliminated here.

NetApp has about 1,500 employees in the Research Triangle Park, and had more than 12,000 workers globally in April of last year. Last summer, the company announced a plan to add 460 workers and to invest about $75 million across four years here. An official said Wednesday in an emailed statement that the company is continuing its growth plans.

 “This week, we announced a global organizational realignment to support critical growth priorities,” Rich Clifton, senior vice president of customer success operations at NetApp, said in a statement. “To support these priorities, and help us meet our business objectives, we continue our plans to grow our operations in the RTP region, and to attract, hire and retain our industry’s best talent.”

The layoff was announced as part of the release of the company’s fourth-quarter financial results. The company reported net income for the quarter of $174 million on revenues of more than $1.7 billion. Its revenues in the quarter were up by less than a percent compared with the same period in the prior fiscal year. Its revenues for the full fiscal year 2013 were up by about 1.5 percent to more than $6.3 billion.

Previously, the company had seen its revenue grow about 22 percent year-over-year from fiscal year 2011 to fiscal year 2012. From fiscal year 2010 to fiscal year 2011, its revenue total was up 30 percent.

Grady Burkett, an analyst who tracks NetApp for Morningstar, said in an interview Wednesday the company’s growth rate – and the growth in the broader data storage market --  has decelerated in the past several years. He said he believes the company’s cost structure up until this year was meant to support a higher growth rate.

“I think that management is recognizing there are some opportunities to improve its cost structure,” he said. “Once (they) start to see revenue decelerate, companies start to look more closely at the different projects they’re undertaking,” he added.

Burkett said he believes the restructuring, coupled with a recently announced launch of a quarterly cash dividend and increases in its share repurchase program, send positive signals about the company’s management decisions.

He said he believes it shows management is not going to spend their cash on “ill-advised opportunities,” adding that some tech companies can make acquisitions that don’t generate a positive return, or pursue markets in which they can’t compete.

“Sometimes you’ll see tech companies, once their core markets mature, they’ll look into markets that may seem like adjacencies that really aren’t adjacent markets,” he said. “It’s very difficult for a tech company who competes in one specific area…to move into another area and try to be competitive.”

He said the data storage market is still healthy. He said it should see continued growth, as companies still have to store and manage a growing amount of digital data. NetApp is a provider of data storage and management technology.

“It’s still a good market, there are a lot of opportunities…,” he said. “This quarter just highlights that the company is just making good, smart decisions.”