NetApp Inc. (NTAP) reported fourth quarter 2010 EPS of 40 cents, exceeding the Zacks Consensus estimate of 34 cents per share.
Revenue
The company reported fourth quarter 2010 revenue of $1.17 billion, up 33.2% from $879.6 million reported in the year-ago quarter. Revenue growth can be mainly attributed to the significant increase in product revenue, while other revenue segments also increased on a year-over-year basis.
Product revenue for the quarter was $758.8 million, up 50.0% from $506.2 million reported in the year-ago quarter. Products represented around 64.8% of total revenue. Software Entitlement & Maintenance revenue for the quarter was $173.8 million, up 5.6% from $164.6 million reported in the year-ago quarter.
Service revenue for the quarter was $239.2 million, up 14.2% from $209.5 million reported in the year-ago quarter. The company’s server virtualization and cloud computing segment are driving significant growth for the company’s business, as the company experiences more customer flow in these segments.
Gross margin for the quarter was 63.9%, up from 60.7% reported in the year-ago quarter. Gross margin benefited from a better mix of business in the last quarter.
Operating Results
Income from operations for the quarter was $172.9 million (14.8% of revenue), compared to $33.9 million (3.9% of revenue) in the year-ago quarter. Substantial increase in the company’s sales, as well as a tight control on cost and expenses led to the increase in operating profits.
GAAP net income for the fourth quarter of 2010 was $145.0 million, or $0.40 per share, compared to GAAP net income of $68.0 million, or $0.21 per share, for the same period in the prior year.
On a non-GAAP basis, net income for the fourth fiscal quarter of 2010 was $183 million, or $0.50 per share, compared to non-GAAP net income of $103.0 million, or $0.31 per share, in the same period one year ago. Excluding stock-based compensation, the adjusted EPS for the quarter comes to $0.40.
Balance Sheet, Cash Flow & Capex
The company exited the fourth quarter with cash and short-term investments of nearly $3.72 billion, or an increase in cash and short-term investments of around $494.0 million over the third quarter. Long term deferred revenue was $779.5 billion at the end of the quarter, a sequential decline of approximately $0.3 billion. Cash from operations for the quarter was $474.6 million, which more than doubled compared to the previous quarter.
Guidance
The company expects first quarter 2011 revenue in the range of $1.10 billion to $1.14 billion. NetApp expects first quarter 2011 GAAP earnings per share in the range of approximately $0.31 to $0.35 per share and non-GAAP earnings per share of $0.43 to $0.47 per share.
The company is constantly growing through acquisitions and new partnership programs, and has good business fundamentals. This apart, the enterprise storage and data management business is expected to benefit from the overall revival in IT spending.
Moreover, NetApp’s customers from the Government, financial services and high-end technology verticals are experiencing a revival in their business and are expected to generate stronger orders in the future.
This apart, NetApp’s, proposed acquisition of Bycast is expected to augment its leadership position by enhancing its product portfolio with an object-based storage software offering. The company believes that this acquisition will enable it to expand its customer base to new markets including digital media, cloud service providers, healthcare and Web 2.0.
The company is doing well, despite the stiff competition from technical behemoths like International Business Machines (IBM) and EMC Corporation (EMC) in the data storage and management software space.
Consequently, the shares have a Zacks #2 Rank, implying a short-term Buy recommendation.
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