NTAP NetApp Inc

By Maria Armental 

NetApp Inc. swung to a loss in the first quarter as product revenue dropped sharply amid a major product overhaul and the data-storage company logged $27 million in costs tied to a previously announced restructuring.

Product revenue fell to $664 million, down 27% from the previous quarter and 25% from the year-ago period, largely tied to a decline on Data ONTAP 7-Mode sales. NetApp is trying to shift customers to its latest storage operating system, what is calls clustered Data ONTAP or cDOT.

Company officials, who called this a transition year, said product revenue would pick up in the second quarter and return to its target operating margin of 8% to 20% in the second half of the year.

"The IT industry as a whole is going through fundamental change as enterprises transform themselves with digital capabilities. Data is at the heart of these transformations," Chief Executive George Kurian said. He added: "Our first fiscal quarter marks the beginning of a new chapter for NetApp."

Mr. Kurian, who previously oversaw strategy and development of the company's product and solutions portfolio, became the chief executive in June, less than two weeks after the Silicon Valley company said it would lay off 500 workers, or about 4% of its global workforce. NetApp said it expected to complete the overhaul by the third quarter and estimated the cost at $25 million to $35 million.

Shares, which set a 52-week-low during regular trading Wednesday, rose 10% to $32.85 in late trading.

For the current quarter, NetApp projects 55 cents to 60 cents a share in profit on $1.4 billion to $1.5 billion in revenue, compared with the consensus of 46 cents a share on $1.39 billion in revenue, according to analysts surveyed by Thomson Reuters.

Over all, for the quarter ended July 31, NetApp reported a loss of $30 million, or 10 cents a share, compared with a year-earlier profit of $88 million, or 27 cents a share. The most recent quarter had 7.6% fewer shares outstanding than the year-earlier period.

Excluding stock-based compensation and other items, earnings fell to 29 cents a share from 60 cents a share a year earlier.

Net revenue fell 10% to $1.34 billion.

NetApp had projected profit of 20 cents to 25 cents a share on $1.28 billion to $1.38 billion in revenue.

Gross margin narrowed to 61.1% from 63% a year earlier.

The Sunnyvale, Calif., company ended the quarter with $5 billion in cash.

Through Wednesday's close, the company's stock was down 28% for the year.

Write to Maria Armental at maria.armental@wsj.com

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(END) Dow Jones Newswires

August 19, 2015 19:45 ET (23:45 GMT)

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