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NTAP reported F2Q20 EPS yesterday (11/13/19) after the close, posting a $0.15 beat to our $0.89 estimate on improved margins. But focus was rightfully on slight revenue miss and inline forward guide, which netted to stock trading flat in the aftermarket. NTAP has runup 28% over the past three months and as we detailed in yesterday’s VAR survey, relative performance through the end of the year is likely predicated on flash recovery and ELA timing/achievability. Flash sequential improvement (and ~ flat YoY) was likely enough to clear first hurdle. Lack of any ELAs signed in the quarter reads negatively at first glance, but we read the overall probability of getting to 2% as unchanged.
We detail our quarterly VAR survey, where we queried 51 value-added storage resellers globally in October for business in July-September. We provide both industry and company level results and walkthrough the stock related takeways.
VARs see overall IT budget spend likely growing, albeit in the low single digits. One reseller mentioned that business had a sudden stepdown entering July. Another touched on global uncertainty; European deals stepped up CIO supervision in 70% of cases, leading to 20% uptick in sales cycle length. Overall, VARs recognize that 2018 provides a tough compare for enterprise spending, potentially exacerbated by recent signals of weakness, but they continue to see IT capture a larger share of overall corporate budgets.
NTAP reported F1Q20 earnings yesterday (8/14/19) after the close posting a slight beat on improved gross margins. The stock was up 4% in Friday’s trading. Two weeks removed from the 8/1 preannouncement, there was little room for surprise; FY revenue growth guide was maintained at -10% to -5%. Negatives included AFA business down 24% in the quarter, contrary to most of our checks; C-suite churn (including the CMO) will likely take some time to equilibrate. Positives included solid growth trajectory for private cloud and CDS as well as firm guidance on ELAs—vast majority back half weighted might provide further upside to gross margin.
We surveyed 50 value-added resellers of storage in the US, Europe, and APAC. The survey was taken in July, asking about April-June business though we may have picked up some July views. Takeaways include (1) the outlook for overall IT spending in 2019 improved over last quarter; (2) storage spending stepped down sequentially with nearly 75% reporting fair/ok sales strength; (3) NTAP’s outlook worsened vs. the prior period, while DELL sales and outlook remained steady (4) discounting ticked down across our coverage with DELL & PSTG seeing the largest changes.
NTAP negatively preannounced F1Q20 last Thursday (8/1/19) after the close, reporting revenue of ~$1.25bn (down 17% YoY) vs. guidance of ~$1.390bn (down 6% YoY) and a gross margin above 65% on resulting mix. The stock traded down 20% on Friday. The company further issued F20 revenue growth guidance of down 10% to down 5% (vs. our prior estimate of up 3%). Management cited macro concerns causing a spending pullback amongst its largest global enterprise accounts as providing two-thirds of the miss and execution issues in the Americas making up the balance.
John Treadway has worked with large enterprises considering both private and public cloud implementations, first at Cloud Technology Partners, which was acquired by HPE, and now at Symphony Solutions, where he is CEO. Although hyperscaler revenue growth is moderating, he argues it is mostly due to tough comparisons as cloud approaches $70bn of revenue. He says AWS’s Andy Jassy might be right that only 3% of workloads are in the cloud by dollars.
In addition to tracking the five major tech sectors—Hardware, Semis, Software, Internet, and Services—we have added 2-3 subsectors for each for greater granularity. We show their performance in our weekly Wolfebytes.
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