Which of These 4 Storage Leaders Makes for a Good Investment?

The total storage market is a highly important segment of computing that generated $7.3 billion in the first quarter, with EMC Corporation (NYSE: EMC  ) , NetApp (NASDAQ: NTAP  ) , Hewlett-Packard (NYSE: HPQ  ) , and International Business Machines (NYSE: IBM  ) leading the way. Let’s dive into these four leaders’ quarterly performance to see which companies are performing well and which will make the best investments.

What does the first quarter show?
The research firm IDC states that the total disk storage systems market saw a 6.9% drop in revenue to $7.3 billion and was caused by a variety of factors. The most important being a 25% decline in high-end storage spending. Other causes include the growth of more efficient storage technologies, economic uncertainty, and customers now having the ability to address capacity and storage needs via the cloud.

Company

First Quarter (Q1) Storage Revenue

Percent of Total Q1 Revenue

Q1 Storage Market Share

Q1 2013 Market Share

EMC

$1.64 billion

29.9%

22.4%

22.9%

Hewlett-Packard

$1.1 billion

4%

15.1%

15.3%

NetApp

$854 million

52%

11.7%

11.2%

IBM

$743 million

3.3%

10.1%

11.9%

While each of these companies create billions in annual revenue from the storage market, storage is relatively small to HP and IBM, but very important to EMC and NetApp. Nonetheless, each company has had to find ways to combat the problems that are causing fundamental weakness within this space, with some being more successful than others. 

How do these four leaders fair?
EMC is the market leader but has lost some steam in recent quarters. The company has new initiatives in place to capitalize on the growing cloud storage space; these include both products and recent acquisitions. Like so many other large tech companies EMC is trying its luck in the public cloud solutions space, although it's still too early to know if it'll steal share of any industry growing at 50% plus annually.

The fact that NetApp actually grew market share is impressive. This is a company that saw a 34% sales reduction in its original equipment manufacturer business after IBM decided it would no longer sell NetApp products. NetApp has been able to grow by offering services in the storage space, including an 8% increase during its last quarter to $378.7 million.

One common theme we're seeing is that large storage players are transitioning to a service-based model as a way to replace falling hardware storage devices. IBM has been at the epicenter of this change, but has also been among the most rapid fundamental decliners in the storage space, including a 23% year-over-year revenue drop in the first quarter.

With that said, storage might not be a large piece of IBM's total business, but hardware as a whole is. One of IBM's problems is servers that interact with external disk storage systems, and it has consistently underperformed the market for storage.

Lastly, Hewlett-Packard is very much like IBM in this conversation; perhaps the only difference is that HP has managed to grow its share, or remain near even, in most of its segments, including hardware. HP's enterprise hardware fell just 2% in its last quarter and grew 1% in the fourth quarter, compared to IBM's double-digit declines.

What does all this mean?
If you're looking for a well-diversified technology company as an investment, it's hard to find a strong point for IBM. Meanwhile, HP looks solid, gaining share in most important segments.

Also, despite the weak first quarter in storage, investors should note that the fourth quarter returned growth due to increased software integration. This brings up NetApp, who managed to grow its market share despite IBM, a large customer, deciding to quit selling its products.

NetApp has consistent growth with its software, which by size is now about 40% of its storage business as a whole. This success makes it an interesting investment opportunity as EMC tries its luck at entering the space and becoming relevant.

Foolish thoughts
Hence, there are many investment options in this space, but not all companies are created equally. Therefore, look at what makes each company intriguing, and how pieces of their operational puzzle fit together. When doing so, NetApp and HP look like the clear winners, both of whom have conveniently performed best in storage.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2991755, ~/Articles/ArticleHandler.aspx, 12/19/2014 6:50:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement