Analysts Expect Good Things from NetApp -

Analysts Expect Good Things from NetApp

NetApp (NASDAQ: NTAP) appears to be weathering the IT spending slump better than most data storage vendors, according to a couple of analyst reports this week.

NetApp, which will report its quarterly results on Aug. 19, is expected to post a 5 percent sales decline for its July quarter — that's less than half the revenue decline that industry leader EMC (NYSE: EMC) announced for the second quarter that ended in June.

Analysts expect a 6 percent decline in NetApp's October quarter before business begins to stabilize.

Brian Marshall, an analyst at Broadpoint AmTech, calls the company "an attractive vehicle to gain exposure to one of the few remaining secular growth markets today (enterprise storage)."

Marshall said in a research note on Tuesday that he expects NetApp to meet Wall Street estimates for the July quarter — and potentially exceed them for the October quarter.

"We reiterate our BUY rating on NTAP due to our belief the company is well-positioned in the growing mid-range segment of enterprise storage, possesses leverage in the model and continues to gain share," Marshall wrote.

NetApp, he said, "offers one of the highest growth profiles in the entire technology industry," with an average growth rate of 28 percent over the last five calendar years. This compares favorably to its closest peer, EMC, which experienced an average growth rate of 19 percent over the same period," he said.

But he added: "The best days of NetApp's growth are behind it."

Marshall said NetApp shares could have limited downside because of persistent takeover speculation. "Due to the company’s position ... in an extremely attractive secular growth market (enterprise storage), it has been widely speculated over the last few years that NetApp is an attractive takeover candidate for larger, more mature IT companies," such as Cisco Systems (NASDAQ: CSCO), IBM (NYSE: IBM) and HP (NYSE: HPQ).

"While we have no insight as to the validity of these speculations, we do believe that it would make sense for a larger IT company to acquire NetApp, as it would be attractive from a product portfolio and accretion perspective," he wrote.

R.W. Baird analysts Jayson Noland, Joel Inman and Sonya Banerjee also expressed optimism about NetApp's business this week, noting that while "EMC is 'getting better' at competing with NetApp, and resellers note momentum from smaller firms such as Compellent ... field checks continue to list NetApp as the leader in important growth categories," such as NAS and iSCSI.

The channel feedback suggests "a relatively positive view of NetApp business," the Baird analysts wrote in a research note on Monday. They rate NetApp shares "outperform."

The Baird analysts called the pending release of NetApp's OnTap GX8 operating system "a positive, but probably not a catalyst. The forthcoming release of NetApp's next-gen OS will allow better scalability and 'resource pooling,' according to the field. Some mentioned OnTap GX users waiting for the release to refresh hardware, but most don't expect significant revenue acceleration."

The Baird analysts said that EMC's successful bid for data deduplication specialist Data Domain "has naturally led to acquisition speculation" that NetApp might acquire the likes of Riverbed (NASDAQ: RVBD), CommVault (NASDAQ: CVLT) or 3PAR (NYSE: PAR), but they added, "We do not believe NetApp needs (to) hurry into any transaction or pursue a broad 'end-to-end' data center solution."

Did Brocade Gain Share from Cisco?

And in other storage industry news, Cisco CEO John Chambers said last night that the company's storage switch sales were down 8 percent in its most recent quarter, which was significantly better than the networking giant's overall 17.6 percent sales decline.

Wedbush Morgan analyst Kaushik Roy said today that he expects Cisco rival Brocade (NASDAQ: BRCD) to fare even better when it posts results on Aug. 20. "In our opinion, Brocade gained market share both in the Ethernet market as well as in the Fibre Channel market during the July quarter," Roy wrote in a research note today.

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