Network Appliance Taken Apart

It's uncertain how much the "air pocket" is responsible for Network Appliance's troubles. During the last quarter, the company hired new employees at a torrid pace. Analysts and investors faulted the company for aggressively expanding its workforce.

The company responded by ratcheting down its hiring from the nearly 490 new hires in the fourth quarter to a range of 200 to 250 for the first.

Even still, the company is clearly signaling to investors that its efforts to scale back expenses weren't sufficient to offset the slowdown that it continues to experience.

Chief Financial Officer Steve Gomo tried to end the conference call on a positive note, saying that he expects "absolutely expects sequential growth" from the first quarter to the second quarter, reversing the sequential decline forecast for the first quarter.

Gomo said that first-quarter bookings rose 27% from the same quarter a year ago and that the company has a significant backlog taking it into the second quarter, said Gomo.

He stressed that this differs from the fourth quarter in which Network Appliance had no backlog.

Gomo told analysts that they could expect the company to reach its target operating margin of 16% in the fourth quarter. At the end of the last quarter, he pegged the first-quarter margin at 12.5%.

The company plans to release its final first-quarter numbers Aug. 15.