NetApp’s gross margin in fiscal 4Q17
NetApp (NTAP) has reduced its cost base so far in fiscal 2017. In order to offset declining revenues, NetApp had outlined a comprehensive program to reduce its cost base by $400 million in fiscal 2017.
The company’s gross margin in fiscal 4Q17 rose by one percentage point QoQ (quarter-over-quarter) to 62.5%, which was above the firm’s guidance range. Its product gross margin rose two percentage points YoY (year-over-year) to 48.9%, driven by sales discipline and fewer promotions.
By comparison, NetApp’s gross margin was 64% in fiscal 4Q15 and 62.5% in fiscal 4Q16. NetApp’s gross margin of 62.3% in fiscal 2017 was higher than its guidance of 60.5%. The firm also expects a gross margin between 62% and 64% from fiscal 2018 to fiscal 2020.
Rising operating expenses
NetApp’s operating expenses rose 7% QoQ, “reflecting higher variable compensation due to the higher than expected revenue growth,” according to the company’s management. Its operating margin rose from 15.6% in fiscal 4Q15 and 13.4% in fiscal 4Q16 to 20.7% in fiscal 4Q17.
To improve its operating margins, NetApp aims to cut SG&A (selling, general, and administrative) expenses from 35% of revenues in fiscal 2016 to ~32% of revenues in fiscal 2017.