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How Will NetApp Streamline Its Business?

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Develop strategic solutions

NetApp’s (NTAP) CEO, George Kurian, has stated that the firm will focus on strategic solutions “that represent our pivot to the growth segments of the market and are the foundation of how we enable customers’ success in the data-powered digital era.”

Clustered ONTAP, all-flash arrays, hybrid cloud solutions, branded E-series, and OnCommand Insight are the set of strategic solutions that are the basis of NetApp’s pivot to the growth segments of the market. The transition to clustered ONTAP should be completed by fiscal 2017.

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Focus on execution and cost reduction

NetApp (NTAP) plans to focus on execution as well as reduce its cost base and manage trends in the storage industry. During NetApp’s earnings call, Kurian stated that the company plans to make “transformational moves to become more focused, efficient and effective while fundamentally lowering the cost structure of the company even as we invest in strategic opportunities.”

NetApp is also looking to provide greater visibility into its business and revenue mix, thereby demonstrating the firm’s confidence to capitalize on strategic solutions. As the reduction in costs could expand operating margins, NetApp has also launched a comprehensive program to reduce its cost base of the business by $400 million annually.

NetApp has been consolidating its hardware engineering and manufacturing operations teams, implement tighter controls on indirect spending, and improve supply chain efficiency. This has enabled the company to lower its fiscal 3Q16 operating expenses by 8% quarter-over-quarter.

NetApp’s operating margin in fiscal 3Q16 is 11.9%. In comparison, operating profit for peer companies such as Hewlett-Packard (HPQ), EMC (EMC), and Seagate (STX) stand at 3.5% 11.35%, and 7.7%, respectively, in their last reported quarters.

EMC constitutes 4% of the First Trust ISE Cloud Computing Index ETF (SKYY).

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