How Can NetApp Fly So High?

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This summer, NetApp (Nasdaq: NTAP) lost its bid for Data Domain, sending the storage efficiency expert straight to main rival EMC (NYSE: EMC). It was a serious blow to NetApp's growth plans, but by no means the end of the world.

That much is clear when you read NetApp's second-quarter earnings release. Sales held strong at $910 million, down a scant $2 million from the year-ago period. GAAP earnings landed at $0.27 per share, which is more than double the $0.13 per share of net income seen last year. Compare that to EMC, where sales fell 5% and the bottom line weakened by 24%. EMC's results were actually pretty good in their own right when you consider how the year-over-year comparisons span before and after the Panic 2008 special.

NetApp's figures are just better. Now who gets the last laugh?

And even without growing by acquisition, NetApp has plenty of fuel for its fires. Management credits a distribution partnership with IBM (NYSE: IBM) for helping prop up sales for the quarter, and the company expects orders from the giant to increase next quarter. Technology spending is picking up across all of NetApp's customer segments, according to CEO Thomas Georgens. The company is stoking the flames with a program that lets EMC and Hewlett-Packard (NYSE: HPQ) storage networks try out a NetApp replacement -- and keep the equipment for free if it isn't saving them money.

Furthermore, NetApp is tying knots with lots of distribution partners, even if they’re signing separate deals with one another. That includes virtualization expert VMware (NYSE: VMW) (majority-owned by EMC, natch), which has a longstanding relationship with NetApp -- "in writing." Cisco Systems (Nasdaq: CSCO) is another potential growth driver for NetApp. Although EMC and Cisco are teaming up on its "unified computing system" servers, NetApp emphasized that Cisco servers are still just a sliver of its business. Outside of these servers, NetApp still hopes to do more business with the networking giant than EMC does.

So NetApp is doing just fine without Data Domain, and the stock's 160% one-year return underscores that point. But is NetApp running out of rocket fuel? All-star CAPS player ajfabb calls NetApp "overbought," but others see the company as a buyout candidate. Join the discussion with a 100% free CAPS account today.