Editor’s note: NetApp is planning to cut 12 percent of its work force and is restructuring after another quarter of financial decline. Those layoffs will hit NetApp’s campus in RTP, the company confirmed Thursday. Will the plan work? And what impact will the recent acquisition of SolidFire have? Technology Business Research Analyst takes a look.

HAMPTON, N.H. – NetApp (Nasdaq: NTAP) continues to navigate challenges as customers transition away from legacy storage technologies, and peers such as Dell, HPE, Pure Storage and Nimble Storage apply more aggressive pricing pressures. Revenue from NetApp’s strategic solutions, which include its Clustered Data ONTAP (CDOT), all-flash and hybrid cloud offerings, grew 26% year-to-year to contribute nearly 55% of NetApp’s product revenue during C4Q15 – a key inflection point in the company’s business towards some of the highest-growing segments of the storage market.

However, revenue from mature solutions including NetApp’s OEM and ONTAP 7-Mode offerings declined 40% YTY, continuing to weigh on corporate financials. As a result, NetApp’s total revenue declined for the ninth consecutive quarter, slipping 10.6% year-to-year to $1.4 billion.

George Kurian, who has been NetApp’s CEO since June 2015, has a vision for stabilizing the company during the coming year through “comprehensive and sustained transformation.” During the company’s 4Q15 earnings call, Kurian outlined four strategic pillars for the company moving through 2016: pivoting toward strategic portfolio segments; substantially reducing costs; providing increased visibility into its revenue mix; and reallocating capital to long-term growth segments. NetApp has already begun executing on these initiatives, evidenced by its $870 million acquisition of all-flash array provider SolidFire in February 2015.

However, the company’s tempered financial forecast and five consecutive quarters of year-to-year operating margin declines despite ongoing cost cutting initiatives underscore the challenges inherent in evolving the company’s long-standing business model. NetApp plans to reduce 12% of its total headcount and execute other initiatives including centralizing resources to stem declines – initiatives that TBR believes are necessary to stabilize NetApp’s bottom line during 2016 as the company integrates SolidFire and continues to bear the, albeit lessened, impact of legacy product declines.

NetApp’s transformation plan will accelerate CDOT sales

Data storage demands from analytics, mobility, cloud, and other modern IT initiatives cause customers to seek simplified storage management. NetApp responds to this demand with its Data Fabric vision, which centers on providing comprehensive data management solutions spanning increasingly heterogeneous storage resources. NetApp benefits from historically software-led differentiation and continues investing to modernize its portfolio, including its next-generation CDOT operating system (OS).

NetApp reported CDOT node unit shipments increased 69% year-to-year in 4Q15 – a downtick from the 95% growth achieved in 3Q15 as the benefits of the transition acceleration program enacted earlier in 2015 began to lessen. As customers evaluate IT modernization campaigns, including the shift to software-defined storage models, with a sharp focus on total cost of ownership (TCO) and business value, it becomes increasingly imperative that NetApp becomes a strategic advisor for customers. The company noted some marketing challenges in 2014 and 2015 that TBR believes were especially troublesome as customers sometimes turned to other IT providers to accelerate real-world business outcomes.

As NetApp goes up against multiplatform peers including HPE, IBM and, later in 2016, an expected combined Dell and EMC entity, we believe it will be critical for NetApp to amplify its marketing initiatives with channel partners and technology partners such as Cisco. This combined with the NetApp’s transformation plan and new leadership will facilitate a more aggressive and focused organization, better poised to drive this go-to-market transformation to accelerate CDOT and broader software-defined storage sales.

SolidFire provides new fuel for NetApp’s flash storage and CDOT strategies

Customers increasingly turn to flash storage to accelerate mission critical workload performance, as solid state drive (SSD) prices decline and niche and mainstream pureplay vendors alike invest heavily in solution development. For its part, NetApp has struggled to capture fast-growing demand for flash solutions against delayed and mismanaged product rollouts, leading to the discontinuation of its Flash Array offering. In February 2016, NetApp closed its $870 million acquisition of all-flash systems provider SolidFire.

SolidFire will help NetApp accommodate the flash storage requirements of large-scale, multitenant data centers. As a result, it carries the opportunity to rejuvenate NetApp’s storage business and provide critical fuel to revenue and profits as demand for stand-alone spinning disk arrays declines.

SolidFire brings to NetApp a scalable, software-defined flash storage architecture that has gained traction with large service providers, including Rackspace, globally. TBR believes the integration of SolidFire with NetApp’s mature brand cachet creates accretive opportunity for NetApp to capitalize on the creep of hyper-scalability into large enterprises.

The SolidFire architecture will augment NetApp’s CDOT-led Data Fabric strategy, which centers on providing seamless data integration and management and accelerated workload performance across hybrid clouds. As customers turn to hybrid cloud models to increase the performance and agility of business critical workloads, TBR believes that NetApp will find many opportunities to differentiate with SolidFire.