Getty Images

NetApp to lay off 8% of workforce, blames economy

NetApp reduced its global workforce by 8%. Analysts said the layoffs are a combination of hardware buyer hesitancy and employee redundancies from acquisitions.

Enterprise storage vendor NetApp is planning to lay off 8% of its global workforce by the end of its 2023 fiscal year, which is in May.

In an 8-K SEC filing and a company-wide email from CEO George Kurian Tuesday, the company described the layoffs as part of a restructuring. At the end of its fiscal year 2022, the company stated that it employed 12,000 employees worldwide, the last time it publicly disclosed its headcount.

Kurian blamed a "challenging macroeconomic environment" and "more conservatism in IT spending" for the cuts.

"Against this backdrop, we must be agile, deliver on our near-term commitments, while positioning ourselves for long-term success," Kurian wrote.

Neither the SEC filing nor the NetApp employee email specified what departments will be affected but did note severance negotiations are taking place in EMEA and APAC regions. The company expects to pay between $85 million to $95 million in employee severance and benefits due to the cuts.

In a follow-up statement sent to TechTarget Editorial, NetApp added that it would seek alternative positions in the company for affected employees when possible. The company declined to comment further.

The storage hardware business hasn't met company metrics for NetApp and likely resulted in the need to cut costs, said Steve McDowell, principal analyst at NAND Research. NetApp, he added, is among the few traditional enterprise hardware vendor to make cuts similar to software powerhouses like Meta, Alphabet or Salesforce.

[NetApp's] mainstream storage business that pays the bills has been relatively flat lately.
Steve McDowellAnalyst, NAND Research

"Their mainstream storage business that pays the bills has been relatively flat lately," he said. "Their cloud business is growing gangbusters, but that pays less than mainstream storage products."

In a November earnings report, NetApp reported that its second-quarter fiscal year 2023 public cloud annualized revenue run rate was up 55% year over year, to $603 million.

In June, when it reported its end-of-year report for fiscal 2022, NetApp noted that it earned a net revenue of $6.32 billion through fiscal year 2022, a jump from $5.74 billion in fiscal year 2021.

Full house

The tech industry has engaged in personnel cuts to reduce overhead costs in the past several weeks, following the outsized revenue highs of the COVID-19 economy.

But it's still too soon to tell if NetApp is a bellwether for storage vendors, said Dave Raffo, an analyst at Evaluator Group.

"It's hard to say what NetApp layoffs mean for the big picture in storage," Raffo said. "We'll know more in the next few weeks when NetApp, Dell, Pure, VMware and Nutanix report earnings. Maybe NetApp had rough earnings, or maybe they're trying to be proactive. Some vendors have had poor guidance for this quarter, so companies could be trying to stay ahead of the game."

Compared with other tech companies, NetApp didn't go on a hiring spree during the pandemic, McDowell noted. Instead, NetApp's headcount grew due to its eight acquisitions since 2019, he said.

Along with bulking up the Spot by NetApp cloud portfolio, the acquisitions likely brought redundancies with them, both Raffo and McDowell said.

"[NetApp] hasn't said what departments will be hit by layoffs," Raffo said. "It's hard to know how this will impact specific product lines, or if it's a sign that certain products aren't doing well."

Earlier this month, NetApp said it was ending its Astra Data Store container storage project, which was in preview, McDowell said. That may be another sign of NetApp attempting to wrangle its numerous acquisitions and cloud products to uniformity and profitability.

"They've had a couple of fits and starts as they've tried to build their cloud business," he said.

Tim McCarthy is a journalist living on the North Shore of Massachusetts. He covers cloud and data storage news.

Dig Deeper on Storage system and application software

Disaster Recovery
Data Backup
Data Center
and ESG