NetApp profit rises on higher enterprise spending

By Soham Chatterjee and Lehar Maan

(Reuters) - NetApp Inc reported better-than-expected first-quarter profit as businesses spent more to replace their ageing storage equipment.

The company's shares rose as much as 3 percent after the bell.

Increased sales of products sold under the NetApp brand assuaged some investors' concerns that the company was losing business to newer and cheaper flash-based storage technology vendors such as Nimble Storage Inc and Pure Storage.

"What's different (this quarter) overall is we got some rebound in enterprise spending in our larger U.S.-based accounts," Chief Executive Tom Georgens told Reuters. "We saw a much larger number of $1 million-plus transactions this quarter than we saw in Q1 a year ago."

NetApp and larger rival EMC Corp are trying to boost growth by focusing on products such as flash-based storage and software-based technologies as businesses cut spending on high-end storage products for cheaper alternatives.

EMC last month reported better-than-expected revenue helped by higher sales of newer flash storage products.

Analysts expect NetApp to benefit from the launch of its flash-based storage system, FlashRay, in late 2014.

NetApp has overhauled its Data Ontap operating system, which protects and manages data at both its customers' data centers and cloud vendors such as Amazon.com Inc, to drive product sales.

Revenue from NetApp's branded product business, which accounts for 91 percent of total sales, rose 0.7 percent in the quarter ended July 25.

"Branded revenue is going to continue improving on a year-over-year trajectory and I think a lot of investors were doubtful to whether or not that would happen," Technology Insights Research analyst Nehal Chokshi told Reuters.

NetApp said it expects current-quarter adjusted profit of 66-71 cents per share on revenue of $1.49-$1.59 billion.

Analysts were expecting second-quarter adjusted profit of 69 cents per share on revenue of $1.53 billion, according to Thomson Reuters I/B/E/S.

In the first quarter, adjusted profit rose 13 percent to 60 cents per share, beating analysts' average estimate of 57 cents per share.

Revenue fell about 2 percent to $1.49 billion, but topped the average Wall Street estimate of $1.47 billion.

Adjusted gross margin rose to 64.3 percent from 61.3 percent a year earlier.

"Their service gross margin came in quite a bit better than they had guided for," Piper Jaffray analyst Andrew Nowinski told Reuters, adding that he viewed NetApp's outlook as lightly conservative.

NetApp also said it would pay a dividend of $0.165 per share on Oct. 22.

NetApp's shares were marginally up at $39.43 after the bell.

(Additional reporting by Lehar Maan; Editing by Saumyadeb Chakrabarty and Feroze Jamal)