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A Look at NetApp’s Profit Margins in Fiscal 3Q18

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Mar. 22 2018, Updated 1:00 p.m. ET

Gross margin of 62.6% in fiscal 3Q18

As seen in the table below, NetApp (NTAP) reported non-GAAP[1. generally accepted accounting principles] gross margins of 62.6% in fiscal 3Q18. Its Product segment’s gross margin rose 4.5 basis points YoY (year-over-year), driven by reduced promotions, one-time items, and currency fluctuations.

Its operating expenses rose 11.0% YoY to $644.0 million in 3Q18, driven by higher variable compensation expenses and currency.

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During the company’s 3Q18 earnings call, NetApp’s CFO, Ronald Pasek, stated, “Excluding these items, OpEx would have been flat year-over-year, reflecting our continued strong discipline. As a percentage of net revenue, operating expense of 42% were roughly flat compared to the same period last year. Operating margin of 20.4% was flat year-over-year as well.”

The operating margins for peers IBM (IBM), Hewlett Packard Enterprise (HPE), and Seagate Technology (STX) stood at 16.1%, 6.3%, and 13.8%, respectively, in their most recent fiscal years.

Bottom line expected to outpace top-line growth

One of NetApp’s top strategic priorities is a focus on execution and improving its operational efficiency. NetApp’s revenues are expected to rise 7.9% YoY in fiscal 4Q18, 6.4% YoY in fiscal 1Q19, 6.3% YoY in fiscal 2018, and 4.1% YoY in fiscal 2020.

NetApp’s non-GAAP earnings per share (or EPS) are estimated to rise 16.3% in fiscal 4Q18, 21.0% in fiscal 2018, 26.0% in fiscal 2018, and 10.0% in fiscal 2019, indicating a reduction in costs.

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