Accenture Partnership Lifts NetApp

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NetApp ( NTAP ) creates innovative storage and data management solutions for small and medium-sized companies around the world. It competes mainly with EMC ( EMC ), IBM ( IBM ), HP ( HPQ ) and Dell ( DELL ) in the external disk storage systems market.

Over the years NetApp revenues coming from distribution partners (or the indirect channel) have grown significantly and now generate nearly 75% of its total sales. Some of NetApp's major distribution partners include Arrow Electronics, Avnet Hall-Mark and IBM.

In a recent development, NetApp expanded its partnership with consulting firm Accenture (ACN) with focus on joint development, marketing, and delivery of solutions concerning data center optimization and virtualization, cloud computing, and application optimization.

We believe this new development could add to the upside implied by our $63.09 price estimate for NetApp's stock , which is about 30% above market price.

Importance of Distribution Partners for NetApp

An important part of selling IT hardware for NetApp is having it sold as part of a solution that involves consulting and implementation. NetApp has witnessed an increasing share of its business being generated through distribution partners like Arrow, Avnet and IBM which made up 18%, 12% and 5% respectively of the firm's total revenues in its fiscal Q3 2011.

The partnership with Accenture will give NetApp the opportunity to expand into newer avenues by providing access to Accenture's client relationships.

We estimate that NetApp's share in the storage hardware market will increase from ~11% in 2010 to nearly 13% by the end of our forecast period. We've previously discussed the threat to NetApp's market share from increasing competition from EMC's new storage line targeted at small-to-medium business (see EMC's New VNX Storage Line a Threat to NetApp ). However, the partnership with Accenture could counteract this effect.

NetApp's Support and Consulting Services Should Get a Boost

The partnership with Accenture will not only help NetApp to grow its hardware business, but will also allow NetApp's Professional Services organization to expand its implementation capabilities by leveraging the consulting and integration services from a dedicated Accenture team.

You can drag the trend lines in the interactive charts above to see how various scenarios for storage hardware market share and services revenues as a percentage of hardware revenues affect NetApp's stock value .

See our full analysis and $63.09 price estimate for NetApp



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: DELL , EMC , HPQ , IBM , NTAP

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