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NetApp's Turnaround Delivers, Raising Fair Value

The company's second quarter was marked by strong product revenue growth and impressive margin expansion.

Total revenue was $1.42 billion, up 6% year over year and 7% sequentially. Product revenue grew at a impressive clip, up 14% year over year and 12% sequentially as headwinds from legacy systems continued to dissipate. The firm also expects its services segment to turn to growth in the next fiscal year. Adjusted gross margin improved to 64.3% from 62.7% a year ago, due to better sales discipline, one-time items, and currency tailwinds. NetApp also improved its adjusted operating margin to 19.1% from 15.2% due to better leverage.

Third-quarter revenue guidance of $1.425 billion to $1.575 billion is above our expectations and we are raising our full-year revenue forecast. NetApp management expects adjusted gross margin to be in the 62.5% to 63.5% range and adjusted operating margin to be at 20%. Positively, the company expects the consolidated business to deliver low-single-digit revenue growth rate in the long run.

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About the Author

Ilya Kundozerov

Equity Analyst

Ilya Kundozerov is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers telecommunications companies.

Kundozerov has more than 15 years of experience in the field of information technology infrastructure. He has held IT positions in industries including local government, finance, retail, and advertising. He joined Morningstar in 2015.

Kundozerov holds a bachelor’s degree in electrical engineering from The Bonch-Bruevich Saint-Petersburg State University of Telecommunications in Russia and a master’s degree in business administration from Cornell University.

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