NetApp Plummets Despite Job Cuts

The storage specialist's plans to cut 6% of its workforce do little to ease jittery investors.
Publish date:

Shares of storage company


(NTAP) - Get Report

plunged in Tuesday trading as investors responded to the increasingly tough tech spending climate.

NetApp's stock fell $1.37, or 8.4% to close at $14.93, a day after the Sunnyvale, Calif.-based firm announced plans to cut around 480 jobs.

The data storage manufacturer, which reports its third-quarter results Wednesday, has typically been one of the

few bright spots

in an otherwise bleak tech sector, but is starting to show the strain of the spending slowdown.


We took a number of steps to better align our resources with the business outlook," said a spokeswoman, in an email to the

. "This restructuring includes a reduction of about 6% of the global workforce, as well as the reallocation of other resources to initiatives designed to increase operating efficiency."

NetApp, which experienced

huge call volume

Monday, is clearly looking to combat deteriorating demand for storage products. Last year, for example, NetApp


its 2009 user conference in a clear indication of the impact of the economic slowdown.

At least one analyst thinks that the job cuts should help the firm's margins.

"NetApp's plan to reduce its headcount by roughly 500 employees should enable the company to move closer to its margin targets sooner," wrote Min Park, an analyst at Goldman Sachs, in a note released Monday.

In November NetApp reiterated a desire to return to a 16% operating margin, compared to 11% in the second quarter.

Given deteriorating demand, however, Park thinks that much of NetApp's cost savings will be needed to offset a weakened top line, and maintained his 'neutral' rating on the company's shares.

NetApp did not issue third-quarter guidance when it reported its second-quarter results in November, although analysts are expecting earnings of 28 cents and revenue of $912.36 million.

Goldman Sachs' Park, however, that the Street's revenue estimate is too high and urged caution on the part of investors.

"Given the tough macro economic backdrop combined with the margin sensitivity to the top line,

we would wait until expectations and Street estimates move down further before becoming constructive on the stock," he wrote.

NetApp is not the first storage company to announce


, and its

cost-cutting efforts


similar moves



(STX) - Get Report


Western Digital

(WDC) - Get Report

, and




Despite all the doom and gloom surrounding the tech sector, however, NetApp may still surprise the industry when it releases its third-quarter results Wednesday after market close.

After bottoming at bottomed at $10.39 in early November, NetApp's shares have climbed steadily and reached $16.74 Monday after a Barron's article called the company recession-resistant. It quoted an analyst as saying that NetApp could see its sales rise 15% to 20% as demand for data storage remains strong even as the personal computer market weakens.