600 Firings at NetApp: More of the Death of Growth

NetApp submitted an SEC filing on Wednesday saying that it is committed to a business realignment plan “designed to focus its resources on key strategic initiatives and streamline its business in light of the constrained IT spending environment.” The company said that, as a part of its realignment plan, it will reduce its headcount by approximately 600 employees.

The company further said that it expects this business realignment to be implemented through the end of the first quarter of fiscal 2015. That really means by the end of July 2014, as its fiscal year-end is in April.

To prove the point on why this is a further evidence of the death of growth, the Thomson Reuters consensus estimate is looking only for revenue growth of 0.3% for 2014 to $6.35 billion, followed by growth a year out of 3% to $6.54 billion. Thomson Reuters is expecting the quarter ending in April to have a revenue decline of 2.5% to $1.67 billion.

Now go ask yourself how many companies are going to come out and say, “We have started to see unexpected growth in the immediate future, so we decided to fire a bunch of workers.”

The bull market just turned 5 years old in the last week, but that is not the case for NetApp. Its bull market ended at the start of 2011, just two years after the end of the massive bear market ended in March of 2009. This stock has been unable to recover its prior gains and its last year with any real top-line growth was its fiscal year ending in April of 2012.

NetApp expects that its charge will be roughly $35 million to $45 million for employee terminations and other costs associated with the business realignment plan. It also said that all of those charges will be cash expenditures, and most will be recognized in the current quarter.

NetApp must be handing some sizable severance checks. the baseline of $35 million for 600 employees is an average of over $58,000 per employee, and the $45 million averaged out for 600 employees comes to a whopping $75,000 per employee. With just over 13,000 employees (according to Yahoo!), this does not sound like NetApp is simply cutting what it considers to be its dead weight that it has been hanging on to.

When NetApp gave guidance for the current quarter with earnings back on February 12, it projected that its total revenue would be in the range of $1.62 billion to $1.72 billion. At the time, the consensus estimate was for revenues to be $1.73 billion. For some reason after such a disclosing SEC filing today, we are simply far less confident of that figure even one month later.

At least the company still has over $5 billion in cash (against a $12.5 billion market cap) that it can use to keep buying back stock and paying dividends. NetApp shares closed up 1.1% at $37.85 on Wednesday, against a 52-week trading range of $32.75 to $45.96.

Wednesday, March 12, 2014, just became National Employee Morale Day at NetApp.