NetApp: Here’s Your Hat, EMC

By Anders Bylund | More Articles
August 19, 2010 | Comments (2)

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Last summer, the storage sector was on pins and needles over a bidding war between storage giant EMC (NYSE: EMC ) and cheeky upstart NetApp (Nasdaq: NTAP ) . Adding the data-management expertise of Data Domain would surely transform NetApp into a serious challenger for large contracts, so EMC was forced to bid up until it could secure the deal for itself.

Fast-forward 12 months from the end of that affair, and it looks like NetApp is doing just fine without Data Domain. The underdog is kicking EMC's behind with aplomb and finesse by reporting a 36% year-over-year revenue increase -- EMC's sales improved by only 24% including contributions from Data Domain.

Pouring salt in EMC's wounds, NetApp credits its own data deduplication solutions with driving margin expansion and top-line strength. You'll recall that deduplication was the single most interesting thing about Data Domain. That margin expansion drove GAAP earnings from $0.15 per share a year ago to $0.38 per share in the first quarter of fiscal year 2011.

NetApp is a rising star, but is not afraid to ask for some help. A longstanding partnership with Microsoft (Nasdaq: MSFT ) in the area of cloud computing drives plenty of storage sales to NetApp. The company is also part of a cross-industry virtual computing consortium together with networking specialist Cisco Systems (Nasdaq: CSCO ) and -- ironically -- EMC subsidiary VMware (NYSE: VMW ) . You'd think that VMware would automatically team up with semi-parent EMC for whatever storage needs its virtual servers would raise, but there's clearly unique value in the NetApp solution to the same problem.

So NetApp is growing up fast, right before our eyes. The growth story also plays out in shareholder returns, where this stock has absolutely annihilated the market with a 75% return on a year-old investment.

Does NetApp have more room to run or is the pony getting tired from the last year's rampant racing? Voice your opinion on NetApp -- or any other stock, for that matter -- in our CAPS community.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. Microsoft is a Motley Fool Inside Value pick. VMware is a Motley Fool Rule Breakers recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Report this Comment On August 20, 2010, at 9:54 AM, bammac09 wrote:

NetApp did grow at a higher percentage than EMC, (36% vs 24%) but EMC's yearly revenues are over 3x what NetApp's are, thus it's easier to show higher growth rates when you are doing less revenue. Also, de-duplication comes in many different flavors. DataDomain's de-dupe is much more efficient than NetApp's (variable segment vs fixed segment) and is a backup and recovery solution, not a primary storage solution. You also point out the cross industry virtual compute consortium with Cisco and VMware. EMC, Cisco and VMWare invested together to create a joint venture ("Acadia") between the three companies and deliver a single stack solution made up of Cisco compute/networking, VMWare virtual servers/desktops and EMC storage. This is known as a "VBlock". That is far and beyond what NetApp/Cisco/VMWare are doing together. Also, the reason Joe Tucci spun VMWare off to operate independently of EMC is bc he recognized that in order for VMWare to thrive, they had to play nice with the NetApp's, HP's, IBM's, etc of the world, which, I believe, is why VMWare has such a huge lead in the virtualization space. If he forced VMWare to just integrate and develope with EMC everyone else would have ran to Microsoft or Citrix. It's worked out well. NetApp has done a great job positioning itself in virtual environments and they do have a nice value prop but EMC is right there with them. My opinion is after those two, the value falls off a little to the next group of competitors.
Report this Comment On August 21, 2010, at 3:10 PM, stn2001 wrote:

There is no doubt that NetApp is stealing market share not just from EMC but from HP,Oracle/Sun & IBM etc
I will say VMWARE was the best acquisition in IT industry in decade and credit goes to EMC (Tucci). That is old story now, EMC got one time benefit of this but it is failing to get ongoing benefit of Vmware. EMC is just stuck with Vmware solution and can not do proper partnership with MSFT or Citrix. Also it is not like EMC-Vmware integration is like dream come true. In fact VMware stuff integrates better with NetApp. On contrary NetApp has partnered with all Vmware/MSFT/Citrix etc. It won't be wrong to say that Vmware being owned by EMC actually helping NetApp in long run!!
Data domain was also good acquisition but price paid erases the goodness of the deal. In fact NetApp got many millions from DataDomain due breakage of deal. EMC had to kill its own dedupe products due DataDomain...??
EMC is so much worried of NetApp now that it is playing bad marketing strategies as seen this article:
http://searchstorage.techtarget.com.au/articles/42384-NetApp...
What a desperate attempt from EMC? I did not expect this from Joe Tucci's EMC.
Being said all this I admire the business acumen of Joe Tucci....one of the best...

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