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How Did NetApp Reduce Its Costs in Fiscal 2Q17?

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Focus on cost reduction

NetApp (NTAP) plans to reduce its cost base in fiscal 2017, which ends on April 28, 2017. In an effort to expand its operating margins and reduce costs, NetApp is embarking on a comprehensive initiative to trim its cost base by $400 million by the end of fiscal 2017.

NetApp noted that it plans to reinvest a portion of these savings into strategic initiatives such as SolidFire, saving ~$130 million by the end of fiscal 2017.

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NetApp’s CFO, Ron Pasek, stated during the fiscal 2Q17 earnings call, “We have made meaningful progress against this plan by implementing tighter cost controls over indirect spending, improving supply chain efficiency, streamlining our product portfolio, evolving business processes, and reducing head count. Given the progress we’ve made to-date, we remain confident in our ability to achieve our goal on schedule.”

Gross margin in fiscal 2Q17

NetApp’s fiscal 2Q17 gross margin was 62.7%, which was within its guidance range. Its product gross margin was 48.2% and fell 3.5% YoY (year-over-year). Operating expenses fell 7% YoY in fiscal 2Q17 to $636 million.

NetApp’s operating margin was 15.2%, above its previous guidance. Its operating margin was 13.4% in fiscal 2Q16 and 12.1% in fiscal 1Q17, as shown in the chart above. On November 3, 2016, NetApp announced that it plans to lay off 6% of its workforce, which could result in a one-time charge of ~$60 million in fiscal 3Q17.

A number of tech companies such as Cisco (CSCO), Hewlett-Packard Enterprise (HPE), and IBM (IBM) are looking to cut costs and improve profit margins.

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