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.


First Quarter (Q1) Storage Revenue

Percent of Total Q1 Revenue

Q1 Storage Market Share

Q1 2013 Market Share


$1.64 billion





$1.1 billion





$854 million





$743 million




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.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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