Network Appliance Shares Swim Upstream

SAN FRANCISCO -- Shares of Network Appliance (NTAP Quote - Cramer on NTAP - Stock Picks) tacked on new gains as investors overlooked rocky first-quarter financial results and cheered the company's outlook and its expanded stock buyback plan.

Late Wednesday, the data-storage gear maker reported first-quarter net income that fell 38% from a year earlier but was in line with reduced guidance that management issued earlier in the month. Excluding nonoperating costs and stock-based compensation, the company earned 20 cents a share, a penny better than analysts' revised expectations.

The company's problems stemmed largely from a difficult sales environment. Contracts worth $1 million or more fell 27% from the previous quarter. Chief Executive Dan Warmenhoven said several large clients, mostly financial services, manufacturing, telecommunications and life sciences customers, put off purchases. This exacerbated pressure on the bottom line, which was already ailing under the prior year's excessive hiring.

But investors focused on Network Appliance's rosy second-quarter sales and earnings forecasts and its plans to improve profitability. Shares were recently trading up $1.76, more than 7%, to $25.92, offering investors a bright spot amid another severe selloff in U.S. and foreign stock markets.

Network Appliance's bookings rose 27% compared with the same quarter a year earlier, giving the company a beefy backlog that can boost revenue in the coming quarter. Warmenhoven expects a pickup in orders in the second half of the year, according to normal patterns of seasonal spending. He forecast second-quarter sales between $752 million and $768 million, a rise 15% to 18%, which would reverse the sequential decline it experienced in the first quarter.

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