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EMC's Storage Networking Business Poised for Recovery

EMC (NYSE: EMC) is expected to return to double-digit growth when it reports its quarterly results later this month, as the storage networking market continues to recover from the worst recession since the 1930s.

Stifel Nicolaus analysts Aaron Rakers and Matthew Mahorski said this morning that they expect EMC to report 19 percent sales growth for the first quarter when the data storage giant releases earnings on April 21. The Wall Street consensus estimate for EMC is 17 percent sales growth to $3.69 billion, according to Thomson Reuters.

That would be a sharp turnaround from EMC's 9 percent sales decline a year ago and a return to the double-digit growth rates that the company enjoyed from 2003 to 2008.

Rakers and Mahorski also expect earnings of 24 cents a share from EMC, a penny better than the consensus forecast.

Piper Jaffray analyst Troy Jensen also said today that he expects good things from EMC and that the company is poised to gain market share. "EMC’s product portfolio has never been stronger and the current valuation looks compelling," Jensen wrote in upgrading the stock from "neutral" to "overweight."

Rakers and Mahorski, who rate EMC shares a "buy," said they expect a strong year from EMC. "We continue to believe that we have yet to see the full impact of EMC's high-end Symmetrix product cycle," they wrote. "We expect EMC's Symmetrix V-Max product cycle to be a positive driver throughout 2010."

EMC is "very well positioned competitively in the high-end storage market," the analysts said, but they added that they expect a high-end USP-V refresh from rival Hitachi Data Systems (HDS) in the third quarter.

The Stifel Nicolaus analysts said they expect EMC's midrange Clariion product refresh to be another source of growth this year, along with continued strong growth in EMC's deduplication product line.

Rakers and Mahorski said recent strong results from LSI (NYSE: LSI), Xyratex (NASDAQ: XRTX) and Avnet (NYSE: AVT) "have supported the notion of improving demand in the storage market. Part of our positive thesis on EMC is the return to larger enterprise data center upgrades in which we believe EMC's product portfolio is well positioned."

The analysts noted a couple of points of caution. Europe may be stabilizing, they said, but "continues to lack meaningful signs of a sustainable recovery."

And they are also cautious on EMC's long-running partnership with Dell (NASDAQ: DELL). While Dell's decision to resell EMC Data Domain duplication systems is a positive for EMC, the two are competing more and more in the midrange, thanks to Dell's EqualLogic iSCSI storage arrays.

While EqualLogic's lack of support for Fibre Channel is a plus for EMC, "We continue to believe that the possibility exists that EMC's Dell Clariion business could face downward pressure as the company pushes its EqualLogic solutions deeper into competition against EMC's Clariion solutions, which we view to be part of Dell's increased focus on building out its proprietary portfolio around enterprise hardware, software, and services," they wrote.

EMC shares gained 2.4 percent today on the positive analyst comments.

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