NetApp's All-Flash Array To Take On EMC In Fast Growing Market

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NetApp ( NTAP ) recently launched its all-flash storage array, the EF550. The announcement was made a week after competitor EMC ( EMC ) launched its own Flash Array, XtremIO (for more on that see EMC's XtremIO Launch Targets Flash Array Market ). While EMC introduced the XtremIO as its first flash array, NetApp already had a presence in the segment with its earlier EF540.

With the surge in growth of Big Data and cloud storage, storage companies are struggling to achieve the required high performance with the use of traditional hard disk drives in their own data centers. Flash arrays, which are essentially storage systems that contain multiple flash (or solid-state) storage units rather than hard disks, are much more suited to industry requirements. The newly developing flash array market is expected to grow at a 58.5% CAGR, to become a $1.2 billion market by 2015, according to International Data Corporation (IDC).

The flash array market is currently estimated at around $320 million with a few players such as EMC, IBM and Hitachi having an all-flash storage array in their offering. In this article we take a look at NetApp's EF550 and how it could be a key driver for NetApp's storage hardware segment.

See Full Analysis For NetApp Here

Why An All-Flash Array

All-flash arrays are storage systems that contain multiple solid state drives instead of spinning hard disks. Customers of storage companies like EMC, NetApp and IBM are looking to switch to solid state flash-based systems in an attempt to use high performance input output per second (IOPS) storage systems with a better throughput.

There are two basic architectures of all-flash storage arrays that the leading companies deploy. The first architecture, which is used by EMC, NetApp, HP etc, utilizes off-the-shelf SSDs directly into the array, whereas the companies using the other approach specifically design custom flash modules according to client specification and get the array manufactured by a third party. The latter is used by IBM, Hitachi and Violin Memory. Since the market is still relatively nascent, it is difficult to predict the dominant architecture for the future, but the overall effectiveness of the all-flash array compared to the earlier storage arrays is what is driving the market shift.

NetApp's Direct Competition

The EF550 provides the high performance storage solution that the markets are shifting to. The EF550 can perform up to 400,000 IOPS and can store 96 terabytes (TB) of data. This is a 33% increase in IOPS and a more than 100% increase in scalable data from its predecessor, the EF540.

NetApp's EF540 has been a popular product in the flash array market, with the company attributing its 22% revenue growth in the last fiscal to the E-series product. Additionally, NetApp intends to launch its FlashRay solution next year, an operating system that minimizes wear for flash arrays and optimizes their performance.

Seeing the popularity of EF540 and other E-series products, we expect NetApp to grab a significant share in the flash array market going forward. NetApp's market share in the overall external storage segment has gone up from 14% last year to 15% this year.. A 2% gain in market share in the storage hardware market due to flash array sales by the end of our forecast period could lead to a 4% upside to our $45 valuation of the company. The flash storage array may not immediately impact near-term earnings, but the fast-growing enterprise storage segment could play a vital role in the long run. You can modify the interactive chart below to gauge the effect a change in market share would have on our price estimate for the company.

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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: EMC , IBM , NTAP

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