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Network Appliance Shares Stumble

Revenue jumps, but guidance sends shares tumbling.

Updated from May 23

Network Appliance

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recorded fourth-quarter earnings and revenue in line with expectations, but shares tumbled after the company forecast sales below views for the coming quarter.

In early Thursday trading, Network Appliance was off $4.42, or 11.6%, to $33.64, contributing to a slow start overall for tech issues.

The storage device maker's net income rose 51% to $89.6 million. Earnings per share rose 30% to 30 cents, excluding one-time items, matching Thomson First Call analysts' consensus estimate.

Sales rose 34% to $801.2 million, slightly above analysts' estimates.

"Network Appliance had a great finish to a great year," CEO Dan Warmenhoven said in a statement. "And while we weren't immune from the March macroeconomic spending slowdown, our competitive differentiation and business fundamentals have never been stronger."

Network Appliance pegged first-quarter earnings at 24 cents to 25 cents a share, below analysts' views of 31 cents.

The company expects revenue growth of 20% to 21%, or $745 million to $753 million, falling short of analysts' forecast of $814 million.

For the full year, net income grew 12% to $298 million. EPS rose 37% to $1.11, excluding one-time items and stock option expenses, a penny shy of estimates. Revenue for fiscal year totaled $2.8 billion, an increase of 36%, in line with analysts' estimates.

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During a conference call after the earnings release, Warmenhoven said that sales deals took longer to close than normal. This compounded the slowdown in spending on information technology and resulted in a lower backlog going into the first quarter, he said.

"This was an air pocket flowing through systems," the CEO said. "Everything else is very solid."

The company's rate of wins against



was unchanged, while it increased against


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, he added.

In the quarter, sales from services grew the most, rising 52%. Services also increased its contribution to total revenue. Sales of products, the company's largest source of revenue, rose 30%.

Gross margins remained unchanged at roughly 60%, but operating expenses increased as a proportion of sales and operating margins contracted. During the conference call, CFO Steve Gomo said he expects profit margins to fall as low as 12.5%, below the target rate of 16%.

"We will slow our rate of hiring and investment spending in order to return to our business model and more typical growth rate," said Gomo.