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NetApp plans more cuts as market share drops

NetApp is planning to cut about 600 employees over the next year, following a 900-headcount reduction in 2013.

The vendor disclosed its plans in an SEC filing Wednesday, claiming it will cost about $35 million to $45 million for employee terminations and other costs. The 600-person reduction would amount to about five percent of NetApp’s total employees, and follows NetApp’s disappointing earnings and even more disappointing forecast given last month. Like its larger rival EMC, NetApp is feeling the sting of cautious IT spending as well as storage buying patterns that are changing due to the cloud, flash and other new technologies.

NetApp is not alone in feeling the heat. EMC in January said it would cut its staff by around 1,000. But NetApp sales have taken a bigger hit.

According to IDC’s latest storage tracker numbers, NetApp grew revenue by 1.5 percent from the fourth quarter of 2012 to the fourth quarter of 2013. That was below the external storage industry growth of 2.4 percent. NetApp’s market share dropped from 11.6 percent to 11.5 percent – placing it third behind leader EMC and IBM. EMC grew 9.9 percent in the fourth quarter and had 32.1 percent of the market. NetApp did outperform IBM and No. 5 Hitachi Data Systems, which both declined in revenue from the previous year. No. 4 Hewlett-Packard gained 6.5 percent but remains behind NetApp with 9.6 percent of the market.

In a report on NetApp today, Wunderlich Securities analyst Kaushik Roy wrote that the vendor’s biggest challenge comes from new increased competition from cloud and flash vendors.

“The biggest risk to NetApp is the new technologies that are disruptive to its existing products and the emerging storage companies that are gaining traction,” Roy wrote. “A large part of the non-mission-critical storage market is moving to the cloud. SMBs are increasingly using cloud-based compute and storage infrastructure … provided by vendors such as Amazon, Google, Microsoft and others who are using commodity hardware to build the infrastructure as a platform.”

Roy also wrote that NetApp’s investment in new technology has lagged its rivals, pointing out that NetApp does not yet have an all-flash array built from the ground up. NetApp does sell E-Series all-flash arrays for the high performance market, but its general purpose FlashRay all-flash system is not yet generally available while all other major storage vendors and a bunch of startups are selling all-flash systems.

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