We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
NetApp's Q2 Gross Margin Guide: Is Another Sequential Dip Ahead?
Read MoreHide Full Article
Key Takeaways
NetApp expects Q2 FY27 gross margin of 67-68%, down from 70.6% in Q1, amid a higher product revenue mix.
NTAP projects Q2 revenues of $2.1 billion, up 23% year over year at the midpoint, despite margin pressures.
NetApp forecasts FY27 gross margin of 68.1-69.1%, with pricing gains helping offset higher component costs.
NetApp, Inc. (NTAP - Free Report) expects its gross margin to decline sequentially in the second quarter of fiscal 2027, primarily due to a higher contribution from product revenues. Despite strong business momentum and improving pricing realization, the company continues to navigate rising component costs and a changing revenue mix, which are influencing its profitability outlook.
For the fiscal second quarter, NetApp expects non-GAAP gross margin between 67% and 68%, compared with 70.6% reported in the fiscal first quarter. The company anticipates revenues of $2.1 billion, plus or minus $75 million, representing 23% year-over-year growth at the midpoint. The expected margin contraction primarily reflects a higher proportion of product revenues in the overall revenue mix.
In the fiscal first quarter, NetApp's gross margin declined 50 basis points year over year to 70.6%, despite exceeding the high end of management's guidance. The decline was primarily attributable to product revenues accounting for 49% of total revenues, up from 42% in the year-ago period. However, year-over-year margin improvements across product, support, professional services and public cloud partially offset this pressure.
Product gross margin declined 150 basis points sequentially to 54.6%, mainly due to higher component costs, partially offset by improved pricing. Meanwhile, Hybrid Cloud gross margin slipped 20 basis points sequentially to 68.8%. In contrast, Public Cloud gross margin improved 70 basis points sequentially to 86.4%, remaining above its long-term target range of 80-85%.
In the last earnings call, management stated that product gross margin exceeded its initial expectations in the fiscal first quarter, supported by favorable product mix and pricing actions. Although the company expects pricing benefits to help recover higher component costs, it does not anticipate the same level of benefit witnessed in the fiscal first quarter.
For fiscal 2027, NetApp projects gross margin between 68.1% and 69.1%, reflecting a higher anticipated product revenue mix. Nevertheless, management slightly improved its product gross margin expectations for the remainder of the year, while maintaining a largely unchanged underlying margin outlook for other businesses.
Taking a Look at NTAP’s Competitors
Seagate Technology Holdings plc (STX - Free Report) is gaining from sustained demand and pricing strength amid robust sales. Its HAMR-based Mozaic roadmap supports higher drive capacities, while long-term supply agreements provide visibility into demand and pricing. Disciplined production and favorable product mix are lifting margins and cash generation. STX expects another quarter of strong sequential growth, driven by sustained demand, higher exabyte shipments and continued execution of its value-based pricing strategy. Management anticipates fiscal second-quarter revenues of $4.8 billion (+/- $100 million). At the midpoint, this indicates a 70% year-over-year improvement.
Hewlett Packard Enterprise (HPE - Free Report) is benefiting from a broader shift toward AI infrastructure, networking modernization and hybrid cloud, with Juniper expanding its addressable market and integration synergies supporting earnings growth. Record orders and backlog show demand is running ahead of shipments, while Private Cloud AI, Alletra and GreenLake deepen HPE’s exposure to software, services and recurring consumption. Management has raised its fiscal 2026 and fiscal 2027 outlooks as profitability, free cash flow and deleveraging advance. For the fourth quarter of fiscal 2026, HPE expects revenues of $13.9-$14.8 billion. For fiscal 2026, the company raised its revenue growth outlook to 34-37% and non-GAAP earnings per share guidance to $3.75-$3.85. For fiscal 2027, management raised its revenue growth framework to 13-17%. The company expects a 14-15% non-GAAP operating margin.
Image: Bigstock
NetApp's Q2 Gross Margin Guide: Is Another Sequential Dip Ahead?
Key Takeaways
NetApp, Inc. (NTAP - Free Report) expects its gross margin to decline sequentially in the second quarter of fiscal 2027, primarily due to a higher contribution from product revenues. Despite strong business momentum and improving pricing realization, the company continues to navigate rising component costs and a changing revenue mix, which are influencing its profitability outlook.
For the fiscal second quarter, NetApp expects non-GAAP gross margin between 67% and 68%, compared with 70.6% reported in the fiscal first quarter. The company anticipates revenues of $2.1 billion, plus or minus $75 million, representing 23% year-over-year growth at the midpoint. The expected margin contraction primarily reflects a higher proportion of product revenues in the overall revenue mix.
In the fiscal first quarter, NetApp's gross margin declined 50 basis points year over year to 70.6%, despite exceeding the high end of management's guidance. The decline was primarily attributable to product revenues accounting for 49% of total revenues, up from 42% in the year-ago period. However, year-over-year margin improvements across product, support, professional services and public cloud partially offset this pressure.
Product gross margin declined 150 basis points sequentially to 54.6%, mainly due to higher component costs, partially offset by improved pricing. Meanwhile, Hybrid Cloud gross margin slipped 20 basis points sequentially to 68.8%. In contrast, Public Cloud gross margin improved 70 basis points sequentially to 86.4%, remaining above its long-term target range of 80-85%.
In the last earnings call, management stated that product gross margin exceeded its initial expectations in the fiscal first quarter, supported by favorable product mix and pricing actions. Although the company expects pricing benefits to help recover higher component costs, it does not anticipate the same level of benefit witnessed in the fiscal first quarter.
For fiscal 2027, NetApp projects gross margin between 68.1% and 69.1%, reflecting a higher anticipated product revenue mix. Nevertheless, management slightly improved its product gross margin expectations for the remainder of the year, while maintaining a largely unchanged underlying margin outlook for other businesses.
Taking a Look at NTAP’s Competitors
Seagate Technology Holdings plc (STX - Free Report) is gaining from sustained demand and pricing strength amid robust sales. Its HAMR-based Mozaic roadmap supports higher drive capacities, while long-term supply agreements provide visibility into demand and pricing. Disciplined production and favorable product mix are lifting margins and cash generation. STX expects another quarter of strong sequential growth, driven by sustained demand, higher exabyte shipments and continued execution of its value-based pricing strategy. Management anticipates fiscal second-quarter revenues of $4.8 billion (+/- $100 million). At the midpoint, this indicates a 70% year-over-year improvement.
Hewlett Packard Enterprise (HPE - Free Report) is benefiting from a broader shift toward AI infrastructure, networking modernization and hybrid cloud, with Juniper expanding its addressable market and integration synergies supporting earnings growth. Record orders and backlog show demand is running ahead of shipments, while Private Cloud AI, Alletra and GreenLake deepen HPE’s exposure to software, services and recurring consumption. Management has raised its fiscal 2026 and fiscal 2027 outlooks as profitability, free cash flow and deleveraging advance. For the fourth quarter of fiscal 2026, HPE expects revenues of $13.9-$14.8 billion. For fiscal 2026, the company raised its revenue growth outlook to 34-37% and non-GAAP earnings per share guidance to $3.75-$3.85. For fiscal 2027, management raised its revenue growth framework to 13-17%. The company expects a 14-15% non-GAAP operating margin.
NTAP Price Performance, Valuation & Estimates
Shares of NetApp have lost 7.8% in the past three months compared with the Computer-Storage Devices industry’s decline of 35.3%.
Image Source: Zacks Investment Research
Regarding the price/book ratio, NTAP is trading at 23.12, significantly higher than the industry’s multiple of 8.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NTAP’s earnings for fiscal 2027 has remained unchanged over the past 60 days.
Image Source: Zacks Investment Research
NTAP stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.