UPDATE: NetApp Sales Hurt By Economic Factors, Names New Financial Chief

Storage maker NetApp Inc. (NTAP) said Wednesday the weak U.S. economy weighed on its federal and financial services businesses, cutting into the company's fiscal first-quarter revenue growth and second-quarter guidance.

Separately, NetApp said Chief Financial Officer Steve Gomo will retire at the end of the year and be replaced by Nicholas R. Noviello, senior vice president of finance and global controller. Gomo, 59 years old, joined NetApp in 2002. The company said the change resulted from a planned management succession.

The Sunnyvale, Calif., company has benefited from the growing need for space to store data at businesses and organizations, but competition is intensifying as tech giants scoop up smaller players and gain a stronger foothold in the market. Now, macroeconomic worries are causing customers to be more cautious with spending.

President and Chief Executive Tom Georgens said in an interview that while NetApp entered the fiscal first quarter "really strong," macroeconomic conditions hurt its U.S. federal and financial services businesses in July.

"International stayed very strong, but federal just couldn't catch up," Georgens said. "And financial services is a bit more cautious."

He added that while the environment remains uncertain, NetApp still is maintaining its bullish guidance for the year.

"We are not anywhere close to giving up or punting our yearly guidance," Georgens said.

Shares, down 24% in the year-to-date through Wednesday's close, slumped 12% to $36.80 in after-hours trading.

The move to cloud computing and virtualization, which makes data centers more efficient by running multiple computers' operations on a single server, has helped NetApp post one of the strongest growth rates in the tech industry and take share from rivals. But it has experienced some hiccups of late, with results hurt by component shortages in the latter half of the previous fiscal year.

Earlier this calendar year, the company bought LSI Corp.'s (LSI) external storage systems business, Engenio, for $480 million to broaden its offering of high-end products and expand customer base.

Georgens said Engenio performed "quite well" in the first quarter, better than the company had anticipated.

For the quarter ended July 29, NetApp posted a profit of $139.5 million, or 34 cents a share, down from $150.7 million, or 40 cents a share, a year earlier. Excluding stock-based compensation and other impacts, per-share earnings rose to 55 cents from 51 cents. Revenue grew 26% to $1.46 billion.

NetApp's May guidance projected a bullish profit between 52 cents and 57 cents a share with revenue of $1.46 billion to $1.55 billion.

Gross margin narrowed to 61.5% from 64%.

Product sales jumped 31%, while revenue from the much-smaller software and service segments increased 14% and 22%, respectively.

NetApp also projected a second-quarter profit of 58 cents to 62 cents a share and revenue of $1.5 billion to $1.6 billion. Analysts polled by Thomson Reuters, on average, expected earnings of 60 cents a share on revenue of $1.61 billion.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

(Drew Fitzgerald contributed to this report.)

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