For NetApp Inc., it was a bittersweet, ironic juxtaposition of events. On January 22, Fortune magazine rated the $3.3 billion data storage and management supplier as the best company to work for in the United States. Eighteen days later, the company announced plans to lay off about 6% of its 8,000-plus employees.
Idyllic workplace or no, NetApp was hardly immune to the effects of the recession. For its most recent quarter, which ended January 23, it showed a net loss of more than $75 million, compared to earnings of about $102 million for the same period a year ago and $49 million for its quarter that ended in October.
The company’s stock price has been battered too, trading at around $16 today after reaching a high of $41.56 in December 2006. The good news is that analysts expect strong revenue growth for NetApp through next year because of the strength of the storage market relative to the rest of the technology sector.
Steve Gomo, the company’s vice chairman and chief financial officer, spoke with CFO.com about the challenges of leading a company through tough economic times. An edited version of the interview follows.
How tough was it seeing your recent quarterly results?
It was in line with what people were expecting. Given the new realities, the challenge now is how to stimulate growth and invest to create more growth in the future. The other thing that’s important, though, is that I don’t believe, with the world deleveraging the way it is, that business will naturally go back to the old levels. If aggregate economic activity drops, you can expect it to impact everybody.
What can a CFO do about that?
It’s back to the fundamentals: reevaluating every aspect of the business model to see if it still applies. What’s going to have to be done differently? Do you have to go back and redo your working capital and create more variable expenses? Are you protecting your cash properly — are you too long, too short, do you have it in the right place?
What kind of shape are you in with your capital needs?
We’re in pretty good shape. We did a convertible debt offering last summer that worked out very well, and we have lots of cash on the balance sheet [about $1.7 billion at the end of NetApp's January quarter]. Cash is always king, but in these times it’s divine. A software-centric business tends to generate a lot of cash, which really helps at this time.
When we issued the convertible debt we made sure we had plenty of financing lined up in case things got bad, and we got that financing done on very good terms. I can’t take too much credit for it, because timing is everything — this was in July 2008, at the early stages of the credit crunch. We went with an aggressive call spread wrapped around the debt, which basically allows you to raise the price at which the debt converts to stock. On a normal convertible debt you might have something that would convert at $15. By using a call spread, you raise that to $20 or $25.