NetApp ( NTAP ) recently announced enhancements to its OnCommand Management software to improve its service capabilities in cloud environments and to better work with third-party cloud management solutions. The announcement has come right after NetApp witnessed a 1% decline in its share of the global storage software market, which expanded nearly 13% overall in 1Q11 according to research firm IDC. NetApp held on to its position as the 4 th largest vendor in the market behind EMC ( EMC ), Symantec (NASDAQ:SYMC) and IBM (NYSE:IBM).
We maintain a near $55 Trefis price estimate for NetApp , about 10% above the stock's market price.
Strong Performance in Storage Hardware
NetApp performance in the external disk storage systems market was top notch as the firm expanded its share to 13.5%, up from 11.1% last year, and held on to its second place in the market behind EMC.
In spite of this, the firm lost share in storage software market and the recent announcements on software enhancements might well have come in the wake of the fact. NetApp derives nearly one-fifth of its value from the storage software as opposed to EMC - where storage software is nearly two-third the value of the firm's information storage business.
Extending Storage Management to the Cloud
Given that storage software is a higher margin business as compared to storage hardware, NetApp will not want to risk any further loss of market share. In order to make its software a more viable option for customers, NetApp made several changes to its OnCommand Management software which include features to help customers move their storage from virtualized computing environments to cloud environments, and extending management of the storage infrastructure to third-party cloud-based applications.
NetApp has also integrated its storage management software with a wide range of cloud providers' offerings indicating the software readiness for the cloud.
We currently forecast NetApp's storage software market share to increase from 8.6% in 2010 to 9.1% in 2011. However if continues to bleed share throughout the year followed by slower than expected growth there could a downside of 8-9% to our $54.93 Trefis price estimate for NetApp , thereby justifying the stock's current market price.