NTAP's conference call...
See the following for a transcript of NTAP's conference call:
investors.netapp.com
The gross margins remain above 60%, days sales outstanding dropped
to 49 from 60 days last quarter and inventory turns were around
17, roughly the same as previous quarter. All good.
The big negative was still revenue being light from "product
transition" and this might be the best description of the problem
I've heard so far, from the conference call Q&A:
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Q: Joel Wagonfeld - First Albany - Analyst:
"Just a quick clarification. It wanted to make sure I heard you correctly.
You said that the majority of last quarter's miss was cannibalization rather
than push outs, and that is essentially why the sequential guidance doesn't
seem to reflect recoupment of any meaningful level of delayed orders, if you
will?:
A: Dan Warmenhoven - Network Appliance, Inc. - CEO:
"I think there is two factors. One is cannibalization. The second one though
is lower dollar deal size. We're selling systems that were an ASP of 120 K,
and now they are replaced by systems their ASP is 90 to 100. And it is very
difficult to make that up. So essentially we impacted sales productivity by
reducing the cost. And the question is how many deals can we be in? How many
units can we transact, etc.? The cannibalization is less of a factor going
forward than the recovery on productivity."
--------
The new product's average selling price (ASP) is lower (more storage for less
$$) and apparently, they didn't predict as many customers wanting to
put off purchases to evaluate the new product. Those customer buying
the new product would contribute less $$ to the revenue top end because
of the lower average selling price and wouldn't be buying the current system
(the "cannibalization" meaning better to eat your own business than have
your competitor do it).
NTAP says that they didn't predict that customers would put off purchases
waiting to evaluate and they didn't have enough units available in the
field for evaluation.
Now, you can take this as a legitimate reason for the problem or a timely
excuse. I don't know which it is.
What we do know is that they've lowered expectations on revenue, but that's
in line with what all the other storage manufacturers have been saying.
The current business still looks good, it's just that growth in storage
purchases aren't as strong as they predicted. The storage market looks
a little soft.
It'll be interesting to see if calendar Q4, which straddles NTAP's Q2
and Q3 looks better. If IT spending is not being reigned in, companies
and organizations that budget on the calendar year will be flushing what's
left of their budgets for the year - it *should* be a good revenue period. |
