) creates innovative storage and data management solutions for
small and medium-sized companies around the world. It competes
mainly with EMC (
), IBM (
), HP (
) and Dell (
) in the external disk storage systems market.
NetApp's storage hardware helps customers manage data
efficiently and keep their information both available and secure.
NetApp's storage software enables customers to use all features and
functions related to data storage. Features enabled by NetApp's
software include back-up and recovery, replication and
The prolonged economic slowdown has caused a slowdown on the IT
refresh cycle. In a lot of cases IT infrastructure is getting old
and companies are looking at what to do next. In 2010 nearly 19% of
total IT dollars were spent on hardware and infrastructure
capabilities, with storage representing a large portion of
this. Gartner predicts a further 3% rise in IT spending
reaching $2.5 trillion in 2011.
Below we review the potential impact of upcoming IT trends on
price estimate for NetApp's stock.
NetApp a Visionary in Backup/Recovery Space
In a recent report by research firm Gartner, which categorizes
enterprise disk-based backup/recovery providers based on their
strategic vision and ability to execute, NetApp was placed in the
"visionaries" quadrant. NetApp's Vice President, Chris
Cummings, believes that the firm's positioning in this
quadrant is an indication of NetApp's longstanding history of
innovation in backup and recovery solutions, and reflects the
efficiency, performance, and cost savings that the firm provides to
Given NetApp's strong positioning in the data storage space and
the fact that it is among the pioneers of virtualization storage
solutions, the fastest growing segment in the data storage
industry, we believe NetApp stands to benefit significantly as IT
spending increases in 2011.
See our full analysis and $64.48 price estimate
Potential Upside to NetApp
We currently forecast NetApp's share in the storage market will
increase going forward from 11.5% in 2010 to about 13% by the end
of our forecast period. However, a 2% increase in NetApp's storage
market share by the end our forecast period would imply 13% upside
price estimate for NetApp's stock, which already stands ahead of
Below we list a few key factors that could help NetApp increase
its share in the storage market:
1. NetApp's unified storage strategy has been very successful
in the market and has enabled it to gain a leadership share in
A unified storage system supports NAS, Fiber Channel SAN and
iSCSI SAN in a single system. Advantages of NetApp's products
- Easier Deployment - several applications can be provisioned
on a single array.
- Simplified Management - customers can manage all of their
storage resources from a single console.
- Reduced Total Cost of Ownership - customers do not need two
separate storage networks for their block-level and file-level
data, lowering their initial capital expenditures. In addition,
operating expenses are lower as less support staff is
2. NetApp's key customers are small and medium enterprises
(SMEs) which comprise a fast growing segment within storage.
The unified storage market is primarily driven by SMEs as the
performance requirements of SMEs are less stringent than those of
large enterprises. Thus as IT spending increases, NetApp has
significant upside potential as it is well-positioned to capture
the bulk of the demand coming from the SMEs.