), the fourth largest player in the external disk storage market,
creates innovative storage and data management solutions for small
and medium-sized companies around the world. It competes mainly
with other storage majors like EMC (
), IBM (
), HP (
) and Dell (
We recently updated our NetApp model and now calculate a
$54.76 price estimate for the company's stock
, about 10% ahead of market price. While NetApp derives the bulk of
its value from its storage hardware business, the storage software
business is actually much more profitable. We estimate that storage
software represents 22% of NeApp's equity value.
NetApp is a Big Player in Storage Software
NetApp has steadily gained share in the external disk storage
market and was the fourth largest storage hardware vendor in the
world (with 10% market share) in Q4 2010. NetApp also held a 9%
share in the $3.4 billion storage software market in Q4'10 and was
the fourth largest player in this segment behind EMC, Symantec
(SYMC) and IBM.
We forecast NetApp's share in the storage software market will
continue to grow alongside storage hardware growth, as vendors
increasingly bundle storage software with hardware. This trend
should allow NetApp to take market share from 'storage software
only' vendors like Symantec.
Storage Software is a High Margin Business
Storage software sales have higher gross margin than hardware or
service offerings, and thus contributes significantly to the firm's
value. The cost of revenues is significantly low on software
products, and we forecast storage software gross margin to remain
constant going forward.
You can drag the trend lines in the interactive charts above to
see the impact of various storage software market share and gross
margin scenarios on NetApp's stock value.
See our complete analysis of NetApp stock here