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