NetApp gains market momentum

Rethink IT, Jan, 2005

The Rethink 50 market capitalization, the value attributed to all the 50 shares, went up this month by $12.5bn, a rise of under 1%, to rest at 21.47 trillion.

Some significant rises were pulled back by a drop in Microsoft's attributed value of almost exactly the amount of money it gave away in its special dividend of $32bn. The company's value fell by exactly that amount on the day the dividend date was passed, but it has risen slightly since then.

Top of the share risers (see share values in table overleaf) was a company that reported its quarterly results this month, Network Appliance, up 33% after reporting a quarter where revenue was up 36%, with a record net margin of 14.7%.

Network Appliance, which prefers to be called NetApp, has been vying for market leadership with EMC on Networked Attached Storage (NAS) devices, and did $375m in revenues for its second quarter ended October 31.

But NetApp is now far more than a simple NAS filer supplier and is the global market leader in iSCSI SANs and also offers everything from Fibre Channel SANs, iSCSI SAN, big, medium and small NAS fliers, local cache appliances, its SNAPShot business continuity software and its Nearstore system using cheap ATA drives to compete with tape back-up.

It also has a grid strategy courtesy of its $300m Spinnaker acquisition, which can keep track of enormous amounts of distributed data using its global names space system.

This quarter is really no surprise to NetApp followers, and its July quarter was $358m, itself a growth of 37.6%, over the same period in 2003.

"NetApp achieved strong growth across all product lines, segments, and geographies," said Dan Warmenhoven, CEO of Network Appliance. "NetApp is gaining momentum in the highest growth segments of the storage market," he said and pointed to the company's new version of Data ONTAP 7G, its next generation operating system just announced, offering dynamic storage virtualization.

Network Appliance said that revenue next quarter would continue to grow between 35% to 38% over last year's figures.

New NetApp customers in the quarter included China Netcom, the Federal Trade Commission, Jet Propulsion Labs, Nokia, Siemens Business Services, and the United States Air Force, and NetApp added new partnership offerings with Computer Associates, Decru, FalconStor, Novell, Smartronix, Symantec, Vignette, and Websense.

Last quarter it got partnership deals with McData, Ontrack Data Recovery, Oracle, Secure Computing, Symantec and Trend Micro, so its focus on selling through partnerships seems to be working.

And this quarter NetApp introduced its LockVault software offering back-up, disaster recovery, and data permanence capabilities for unstructured data, so it's still launching products.

Seagate is the next highest riser of the month, with its share value up almost 24% on the back of renewed guidance from the company, saying that it would beat analyst expectations for the current quarter, with revenues and earnings both higher.

This in turn led to upgrades and buy notes being issued, notably by CIBC and Deutsche Bank, based on the filet that Seagate had managed its transition far faster than had been expected. If we go back a couple of quarters Seagate hit a wall as 3.5-inch drives went into a price spiral and Seagate decided to shift to bigger enterprise disk offerings as well as offering tiny 1-inch disk drives for digital media devices such as MP3 players and eventually for mobile phones.

Seagate said it expected normal increased seasonal demand for December, with this quarter's revenue up around $1.76bn with a gross margin of 20%.

It said that total available market for enterprise, mobile computing and consumer electronics storage products will be in line with the company's expectations, but that it would be slightly higher for desktop PC storage products. Seagate also said that price erosion had slowed down in its core markets and that average selling prices in the current quarter would be actually higher than in the quarter to September 30.

Seagate also promised a stronger March quarter, and investor SAC immediately placed 30m of its Seagate shares for sale, figuring its share price won't go much higher and deciding to cash in on the price surge.

Apple is another fast gainer up around 19%, and for a stock that was valued at around $8bn a little over a year ago, it has now trebled in value, primarily on the back of the popularity of the iPod. 50 perhaps Seagate's shift into portable players means that it is the consumer electronics markets that are driving these stocks, not so much the enterprise technology market.

AMD is another stock that has risen rapidly, up 18.9% this month, but in contradiction to the stock market, where virtually nothing good has been said about AMD this month. The shares are at a three year high, but then again, after the two years that AMD had before this one, when it couldn't give its chips away and when it was running out of money, it would be a little hard not to have a record share value.