Editor’s note: In its latest earnings report, NetApp (Nasdaq: NTAP) reported less than expected revenue but higher earnings. However, revenue projections were below Street consensus. Kris Macomber of Technology Business Research analyzes what’s up with NetApp, which has a huge campus in RTP. Two rounds of cost cutting have led to more than 1,000 layoffs over the past year across the company.

HAMPTON, N.H. - NetApp remains true to its data management roots to navigate cloud disruption, but cost cutting will challenge long-term differentiation.

NetApp closed its FY14 with fourth-quarter revenue down 4.7% year-to-year to $1.64 billion — close to the low end of its guidance range for the quarter, led by continued OEM revenue declines.

Branded revenue dipped slightly, approximately 1% year-to-year, but rose 4% for the full fiscal year, in-line with the vendor’s increased emphasis on branded revenue streams in an increasingly commoditized marketplace. Software-led functionality and the race to the bottom on cloud storage services prices is dampening industry-average storage array prices and profitability, and NetApp faces competitive pressures from a technology perspective as key competitor EMC continues to innovate around its midrange VNX portfolio.

As a result, NetApp is investing in its flagship ONTAP and OnCommand data management capabilities, building a message of seamless data management across public and private cloud environments, and leveraging its expanded flash storage portfolio to better compete to support accelerated workload performance to emphasize high-margin, long-term growth opportunities.

Historically entrenched in the midtier with more limited presence in larger data centers, NetApp’s clustering capabilities continue to increase opportunities for NetApp to climb the value chain into larger accounts (e.g., participating in an alliance with SAP to build the world’s largest database).

In 1Q14 NetApp announced that Clustered ONTAP attach rates for high-end storage systems was approximately 50%, with the FAS8000 systems reaching a 60% attach rate. However, as NetApp’s shifting revenue base causes the vendor to increase focus on SG&A and R&D efficiencies,

TBR believes NetApp’s pricing differentiation, important in the midmarket, will be challenged. Additionally, as customers move to software-defined storage solutions, increasing the need for heterogeneous storage management capabilities, NetApp’s rivals will increase their efforts to earn competitive displacements from NetApp’s install base.

  • NetApp enters FY15 armed with a holistically refreshed data management framework to protect its install base and target new customer segments

Historically, data management has been NetApp’s core differentiator, and the vendor continues to refine its broad capabilities in the space, ranging from workflow automation to performance management. In April NetApp enhanced its data management capabilities for improved control, automation and analysis of customers’ data environments.

Updates to the OnCommand suite in April 2014 focus on faster storage provisioning, automation of repetitive tasks, and increased availability and efficiency — which NetApp is tying back to meeting service-level agreements, reducing risk and downtime and improving cost-efficiencies of the IT infrastructure.

NetApp has the opportunity to link from a go-to-market standpoint these augmented data management capabilities to its recently enhanced Clustered Data ONTAP operating system and its recently launched FlexArray Virtualization Software as well as scale out FAS8000 architecture.

This will help solidify NetApp’s value to customers, as competitors ranging from Red Hat to EMC infringe on NetApp’s core competencies through investments in software-defined storage. By extending its new data management capabilities to key platforms, NetApp will more effectively challenge these competitors while earning more sales from larger enterprises and cloud service providers that are struggling to efficiently manage increasingly diverse and rapidly growing data pools.