Despite strong Q1 results and an upbeat full-year outlook, NetApp's stock fell due to a warning that Q2 gross margins will decline. This is primarily attributed to a higher mix of lower-margin product revenue, indicating a shift in sales composition that is concerning investors.
NetApp reported impressive Q1 results, beating analyst estimates for both earnings and revenue, and raised its full-year guidance significantly. However, the market reacted negatively to the company's forecast for a sequential decline in Q2 gross margin, from 70.6% to 67-68%. This decline is attributed to a higher mix of lower-margin product revenue and less benefit from pricing actions. While the overall outlook is positive, the immediate concern for traders is the potential impact on profitability, leading to a short-term negative reaction despite long-term growth drivers like AI and cloud storage.