NetApp's Growth a Good Sign for EMC -

NetApp's Growth a Good Sign for EMC

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After NetApp (NASDAQ: NTAP) raised its financial outlook last week, it's hard to find an analyst who isn't optimistic heading into EMC's (NYSE: EMC) quarterly earnings report next week.

"We believe NetApp's guidance is an industry-driven dynamic, and therefore a positive for EMC," Stifel Nicolaus analyst Aaron Rakers wrote after NetApp said it expects to return to year-over-year growth by the end of the year, as the effects of the "Great Recession" on IT spending continue to dwindle.

At least a half-dozen analysts have had nice things to say about EMC in the last week, among them analysts from Stifel Nicolaus, RW Baird, Wedbush Morgan, Broadpoint AmTech, Credit Suisse and Barclays Capital.

Analysts expect EMC to post a 7.5 percent year-over-year sales decline to $3.44 billion when it reports results on Oct. 22, according to Thomson Reuters, but most analyst now seem to believe the data storage giant's revenues will come in higher than that.

And some are saying that EMC could join NetApp in returning to year-over-year sales growth by the end of the year, as comparisons begin to get easier thanks to a dismal end to 2008.

"In our view, the company has definitely turned the corner and has the opportunity to start posting Y/Y revenue growth once again in the December '09 quarter," wrote Broadpoint AmTech analyst Brian Marshall, who added that "the strategic nature" of EMC's VMware (NYSE: VMW) subsidiary "cannot be overstated."

Analysts said EMC's Data Domain deduplication products and high-end Symmetrix arrays could help results, and they also expect solid numbers from VMware when it reports earnings the night before EMC.

Rakers rates EMC shares a "hold," while Marshall rates EMC a "buy."

Channel Could See Year-End Boost

RW Baird analysts Jayson Noland and Sonya Banerjee released their third-quarter survey of resellers today, which painted a mixed picture.

"Feedback for Q3 is basically split, with 54 percent of respondents above or on plan and 46 percent below plan," the analysts wrote.

Noland and Banerjee said VMware, NetApp and Cisco (NASDAQ: CSCO) were strongest in the survey, with IBM (NYSE: IBM), Sun (NASDAQ: JAVA) "and other 'big iron' vendors" weighing on results. The end of the Federal Government's fiscal year helped third-quarter results, they said.

The picture improves greatly for the fourth quarter. "Resellers are generally optimistic about Q4, with 81 percent expecting the quarter to be flat to up, while 9 percent believe it will be more negative, and 10 percent feel it is too early to tell," the Baird analysts wrote. "This is the most positive feedback we have received for an upcoming quarter since our Q2'08 survey."

Looking ahead to 2010, "respondents overwhelmingly point to enterprise storage" as the strongest category, they wrote, followed by networking, servers and PCs. "Some VARs noted PC virtualization proof-of-concepts could delay an enterprise PC refresh," they said.

VMware, Cisco, NetApp, EMC and HP (NYSE: HPQ) — which was seen as strong in servers but weak in storage — are expected to benefit in 2010, while IBM, Dell (NASDAQ: DELL) and Sun "received lukewarm feedback."

"Many resellers mentioned pent-up demand across the IT hardware landscape," the Baird analysts said.

Brocade (NASDAQ: BRCD), QLogic (NASDAQ: QLGC) and Emulex (NYSE: ELX) "should benefit from a data center server/storage refresh," they added.

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