NetApp Cutting 600 Jobs Amid Slower Than Expected Sales, Heightened Competition

NetApp is planning to reduce headcount by about 600 people as part of a business realignment stemming from what it calls a "constrained IT spending environment."

NetApp, in a Wednesday SEC filing, said the realignment will give the company a chance to "focus its resources on key strategic initiatives and streamline its business in light of the constrained IT spending environment."

The realignment is expected to result in a $35 million to $45 million charge, most of which will be recognized in its fiscal fourth quarter, NetApp said in the filing.

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"This transition is a significant opportunity for NetApp to serve the needs of customers and to accelerate growth. Our strategy of providing cloud-integrated, flash-accelerated storage and data management solutions for shared, dedicated and hybrid IT environments is well aligned to top priorities of today's global enterprises," NetApp said in an emailed statement.

NetApp's channel partners said the pending layoffs appear to be related in part to slower-than-expected customer adoption of the company's Clustered Data Ontap technology, as well as competition in the lower-end of NetApp's product line.

Partners also said the headcount reduction should not impact the storage vendor's channel sales.

It's still business as usual for NetApp's channel partners, said John Woodall, vice president of engineering at Integrated Archive Systems (IAS), a Palo Alto, Calif.-based solution provider and long-time NetApp partner.

"It's NetApp's business to run," Woodall told CRN. "In a company of 12,000 people, while it is never easy to let people go, you have to rationalize the numbers. I don't expect any impact on us."

Churns is common in larger companies, and while some people may be let go, others may come in, Woodall said. "Headcount may actually rise," he said. "[Six hundred people] is not a big percentage. If 3,000 people in a 12,000-person company left, I would start to worry."

Gordon Martin, president of Peak UpTime, a Tulsa, Okla.-based solution provider and long-term NetApp partner, also said he expects no impact from the pending layoffs on NetApp's channels.

"We are passionately seeking to close as much business as we can," Martin said.

NEXT: Slower Clustered Ontap, More Entry Competition

Martin said there seems to be a slower-than-anticipated adoption of NetApp Clustered Data Ontap, but that customers are moving in that direction. "It will take some time," he said.

There also seems to be some disruption to NetApp's business by customers' transition to flash storage and the cloud, Martin said.

"This is causing customers to delay decisions," he said. "With our customers, we're seeing two things. The adoption of some of the technologies brought to the table can be slower than anticipated. And we are seeing longer sales cycles for them. Sometimes, new technology can be its own worst enemy."

Selling Clustered Data Ontap has been a challenge, said Scott Robinson, president of XIOSS, an Atlanta-based solution provider and NetApp partner. "The adoption is slower than NetApp expected," he told CRN.

NetApp is also facing growing competition and some pricing pressure at the entry level from several storage startups, Robinson said.

Woodall said that competition from companies like Nimble Storage at the entry level, or even special offers from EMC at the entry level, can impact channel sales on a deal-by -deal basis.

"But from my view of NetApp, that's just normal competition," he said. "Our job as a NetApp partner is to help customers understand the value of NetApp."

NetApp is not the only major storage vendor looking at headcount reductions.

Arch-rival EMC in January said it plans to lay off about the same number of people this year as it did last year, which according to reports was around 1,000 people. However, EMC also said it may still end 2014 with a higher headcount thanks to recruiting of personnel to fill positions in higher growth areas.