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What to Expect from NetApp in Fiscal 4Q17

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Part 4
What to Expect from NetApp in Fiscal 4Q17 PART 4 OF 5

Will NetApp’s Profit Margins Improve in Fiscal 4Q17?

Cost savings of $400 million by the end of fiscal 2017

NetApp (NTAP) said earlier that it aims to achieve cost savings of $400 million by the end of fiscal 2017, which ended April 28, 2017. NetApp has reinvested a part of these cost savings in the first three quarters of fiscal 2017 in strategic initiatives such as SolidFire and expects savings of $130 million in 2017.

Improvement in profit margins

NetApp’s fiscal 3Q17 gross margin was 61.5%, which was at the lower end of its guidance range. It expects gross margin of approximately 60.5% in fiscal 2017. NetApp expects gross margin to reach 62% to 64% between 2018 and 2020.

Will NetApp’s Profit Margins Improve in Fiscal 4Q17?

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In fiscal 2017, NetApp has estimated operating expenses of approximately $2.5 million compared to $2.7 million in fiscal 2016 and over $2.8 million in fiscal 2017. The firm aims to reduce SG&A (selling, general, and administrative) expenses to 32% of revenue in fiscal 2017 from 35% of revenue in fiscal 2016.

NetApp’s operating margin came in 20.2% higher than its previous guidance. The company’s operating margin was 13.4% in fiscal 2Q16, 12.1% in fiscal 1Q17, and 15.2% in fiscal 3Q17. Its fiscal 2017 operating margin is expected to rise to 16.8% from 13.5% in fiscal 2016. Its operating margin is expected to rise to 18%–22% between 2018 and 2020.

Several tech companies like Cisco (CSCO), Hewlett Packard Enterprise (HPE), and IBM (IBM) are trying to cut costs and improve profit margins to offset declining revenue.

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